One of the most important decisions to make when you start a new business is which structure your company will take. The structure of your business will have tangible effects on the way it operates. It will also have liability, tax, and administrative implications.
The four most common types of business structures are:
- Sole proprietorship
- Limited liability company
You must choose your business structure before registering your business in the Commonwealth of Virginia. It is possible to change your structure at a later date, but you will then have to contend with complications involving taxes and other restrictions. Therefore, it is best to familiarize yourself with the pros and cons of each type of structure so that you can make an informed decision at the start.
One of the key benefits of sole proprietorships is that they are easy to form. If you begin to engage in business activities but take no further steps to register as another kind of structure, you will automatically be considered a sole proprietorship. Furthermore, a sole proprietorship allows you to keep total control of your business.
On the other hand, one of the challenges of a sole proprietorship is the fact that you can be held personally liable for any debts and obligations your business might incur. This is because a sole proprietorship is not a separate business entity. Thus, while you may be trading under a different name, your business assets and your own liabilities are not separate. For this reason, banks are often reluctant to lend to sole proprietorships.
Limited Liability Company
Commonly known simply as an LLC, a limited liability company gets its name from the fact that it limits your personal liability from your business ventures. Thus, your own assets are generally protected if your business faces bankruptcy or a lawsuit.
In an LLC, you do not have to pay corporate taxes because your finances are passed through to your personal income. However, you will be considered self-employed if you structure your business as an LLC, so you will have to pay self-employment taxes.
In a partnership, two or more people own a business jointly. Partnerships come in two varieties:
- Limited partnerships, in which one partner has most of the control of the company and nearly unlimited liability and the other partner or partners have limited liability as well as limited control over the company
- Limited liability partnerships, in which all partners have limited liability
If you create a corporation, you are creating a business entity that is separate from the company’s owners. As such, these business entities can be held legally liable in and of themselves, can make a profit, and can also be taxed. One of the greatest benefits of this type of structure is that it provides business owners with the strongest personal liability protection. Furthermore, having a corporation often makes it easier to raise capital.
However, corporations have their challenges as well. They are more complicated and more expensive to form than the other types of businesses. Additionally, they require a lot more administrative work, record-keeping, and reporting to the government. Depending on the type of corporation, the profits may also be double-taxed.
Contact an Experienced Virginia Business Formation Attorney
Deciding which type of business structure will work best for your company is complicated. Once you have decided, it is important that you file documentation in compliance with all state and local laws so that you can avoid trouble in the future. The attorneys at Taylor, Taylor & Taylor, Inc. have the knowledge, skill, and experience necessary to help you navigate the process with efficiency and ease. Contact us online today or call us at 804-266-9619 for a thorough and confidential consultation with a member of our team.