Ohio Court Affirms the "Internal Affairs Doctrine"
The "Internal Affairs Doctrine" means that the law of the state of incorporation normally determines issues relating to the internal affairs of a corporation. For example, if there is a dispute between two shareholders of a Delaware corporation, it would typically be decided using Delaware law, even if the company operates in another state. This means that the state in which you form a corporation or a limited liability company can be important.
A recent decision by the Court of Common Pleas of Franklin County Ohio affirms this doctrine. The Court held that the law of Delaware (where the corporation was incorporated) rather than the law of Ohio (where the case arose) applied to a dispute involving corporate directors.
While many state corporation and LLC statutes are similar, they are not all the same. Frequently it is fine to form a new entity in the state where it will be operated. In some circumstances, however, it is advisable to form the new entity in another state.
So whenever an entity is formed for asset protection purposes, one factor to be considered is whether to form the entity in one state rather than another.
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Family limited liability companies can be a convenient vehicle to hold and administer family investments. They offer significant benefits from both an estate planning and asset protection standpoint. Until recently, the entity of choice for family investments was a family limited partnership (often just called an FLP). While there is nothing wrong with an FLP, we are now using LLC's more frequently. There are some technical legal differences between the two forms of entity, but the benefits are basically the same.