One of the most important decisions a Virginia business owner must make is what type of business structure he or she wants to establish.
There are a number of factors to consider, including the nature of the business, the types of investment you are considering, potential liabilities, and tax issues.
The following provides a brief look into several different types of business structures. A Virginia business tax lawyer is in the best position to help you determine which business structure is most beneficial to your circumstances.
Common Types of Business Structures
- Sole proprietorship. Under this simple and informal business structure, there is no legal distinction between the sole owner and the business. The owner reports profits or losses on their personal income tax returns. While the owner has complete control, he or she is also personally liable for all business debts and legally liable for any activities of the business.
- General Partnership: A general partnership is similar to a sole proprietorship, but with more members. Profit, loss, and managerial duties are shared among the partners, and similar to a sole proprietorship but with more people (partners). A general partnership established for a short term is called a joint venture.
- Limited Liability Company (LLC): Under an LLC, owners can elect for profits and losses to either be passed through the company to its members or be taxed like a corporation. LLCs limit the owners’ personal liability but do not have stock and do not require members to observe corporate formalities.
- General Partnership: A general partnership is similar to a sole proprietorship, but with more members. Profit, loss, and managerial duties are shared among the partners, and similar to a sole proprietorship but with more people (partners). A general partnership established for a short term is called a joint venture.
- C Corporation (Inc. or Ltd.): A corporation is a separate legal entity. Owners are stockholders and profits made by the corporation are taxes at both the corporate level and then again when distributed to shareholders. C Corp shareholders are not personally liable for corporate obligations. C Corps require that corporate formalities be observed and can be subject to increased government regulation.
- Sub Chapter S Corporation (Inc. or Ltd.): Sub S Corps are similar to C Corps except they are taxed like a partnership so double taxation is avoided. Income flows to shareholders who report it on their personal tax returns.
There are several other types of business entities, such as Limited Liability Partnerships (LLP), Professional Service Corporations (PS), and Limited Partnerships (LP). Which one is best for your business is dependent upon a number of factors and it is advisable to discuss the pros and cons of each with a Virginia business tax lawyer.
Contact a Virginia Business Tax Lawyer at Thorn Law Group
Thorn Law Group can assist you with understanding which corporate structure best fits your business model while providing the most favorable tax consequences. Give Managing attorney Kevin Thorn a call at 703-752-3752 or contact us online.
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