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Choosing a business structure for your new enterprise

On Behalf of | Feb 12, 2021 | Business Law

You may have worked in your chosen profession for the same employer for ten years or so and have become very skilled at your craft. Now, you are looking to step out on your own and start your own business in Virginia. One of the first steps you will have to take is to choose a business structure. There are a variety of business structures to choose from.

Sole proprietorships: the default for a one-owner business

If you are going into business alone, unless another business structure is chosen your business will be considered a sole proprietorship by default. A sole proprietorship is not a separate entity from its owner. This means that the owner will be personally liable for the actions, obligations and debts of the business.

Partnerships: when there is more than one owner

Perhaps you are going into business with one or more other people. In this case you may choose to form a partnership, documented through a partnership agreement. There are two types of partnerships: limited partnerships and limited liability partnerships.

In a limited partnership, one partner has unlimited liability. The other partners have limited liability and limited control over the business. Business profits are passed through the partners’ tax returns and the partner with unlimited liability is also responsible for paying self-employment taxes.

In a limited liability partnership, all partners have limited liability. In a limited liability partnership, partners will not be responsible for the debts of the partnership or the actions of the other partners.

Limited liability companies: a combination of partnership and corporation

A limited liability company allows owners to reap the benefits of both a partnership and a corporation. Like corporations, in a limited liability company the business owners are not personally liable if the business enters into bankruptcy or is sued. Profits and losses are passed through the personal income of the owners, and thus are not subject to corporate taxes. However, owners of a limited liability company must pay self-employment taxes.

Learn more about forming a business in Virginia

As this shows, there are a variety of ways to structure your business. This post has not touched on all possible options, and it does not contain legal advice. Virginians who want to learn more about business formation can explore our firm’s website for further information.