You may have a great idea for a new small business and are eager to break away from the nine-to-five rat race and set up shop on your own. Establishing a business start-up in the Richmond area is not as easy as putting a sign on the door and opening-up to the public. You will need to choose a business structure, and depending on the structure chosen there are different legal obligations you must fulfill.
A sole proprietorship
A sole proprietorship is perhaps the simplest business structure you can choose. In fact, it is the default business structure should no other structure be chosen. A sole proprietorship is owned by one person. A sole proprietorship is not a separate business entity from its owner. This means that you will be personally liable for all the business’ actions, debts and obligations. You can get a trade name if you have a sole proprietorship, but you cannot sell stock. Low-risk businesses and those who are simply testing the waters may find a sole proprietorship to be an attractive business structure.
Maybe you want to go into business with your spouse, with a buddy or with work colleague. In this situation you may want to consider a partnership. Two basic types of partnerships include limited partnerships and limited liability partnerships. In a limited partnership, one partner has unlimited liability, and the other partners have both limited liability and limited control over the business. These arrangements are cemented in a formal partnership agreement. Limited liability partnerships, on the other hand, protect all partners from the partnership’s debts and the actions of other partners. Businesses with more than one owner and professional groups may find partnerships to be an attractive business structure.
A limited liability company
A limited liability company (LLC) combines the benefits of a partnership with the benefits of a corporation. LLCs, like corporations, protect you from being liable for the debts, actions and obligations of the LLC. However, members of an LLC must pay self-employment taxes. That being said, LLCs do not pay corporate taxes. Moreover, LLCs — absent an agreement that states otherwise — often have a limited lifetime and some states require the LLC to be dissolved and re-formed if a member leaves the LLC. If you have a higher-risk business or significant personal assets, an LLC may be right for you.
Seek help when deciding on a business structure
Determining what business structure is right for you can be tough. It can be hard to discern the plusses and minuses within your various options for your business start-up. Fortunately, help is available to new business owners in Virginia who want to start off on solid legal footing.