Forming a business in our state requires choosing a business entity. Of course, some people will go at it alone as a sole proprietorship. However, when two or more people wish to form a business together, they have a choice as to the type of entity they want to form. Today, we will look at corporations, limited liability companies, partnerships and limited partnerships.
A corporation is an entity that for legal purposes is considered an "artificial person." It is operated by a board of directors. In our state, there are stock corporations and nonstock corporations. Stock corporations have shareholders how own shares in the business. Nonstock corporations have members, but the members do not have ownership shares. In general, the officers and shareholders of a corporation are shielded from personal liability for the acts of the corporation.
A limited liability company is unincorporated, but has at least one or more owners (members) who both share in the business's profits and the business's losses. There is an operating agreement, which lays out how the business is to be managed. It can either be member-managed or manager-managed. Like a corporation, owners of a limited liability company are shielded from personal liability for the acts of the corporation.
A general partnership exists when two or more people own a business for profit. Each partner makes a contribution of either funds, assets or services to the business in exchange for an interest in the business and profits made therefrom. But, unlike in a corporation, partners are personally liable for the acts and obligations of the business.
A limited partnership is formed by at least two people. In a limited partnership though, there will be one or more general partners who manage the business, and one or more limited partners who make a contribution of funds, assets or services to the business in exchange for an interest in the business and profits therefrom.
In general, the limited partners do not face personal liability for the acts and obligations of the business. However, with some exceptions, the general partners are personally liable for the acts and obligations of the business.
When two or more people in Virginia are looking to form a business, they will want to keep liability in mind. And, certain business entities are simpler to form than others. In the end, those looking to start a business in Virginia should make sure they understand all their options, so they can make the decisions that are right for them.