One of the many decisions you must make when starting your business is choosing a legal entity to operate under. The right choice will depend on how many people will own the company, if you wish to protect your personal assets if someone sues the company, and what kind of tax status you prefer.
An operating vehicle can accommodate one person who performs work or services and does not want a lot of paperwork. Other structures can accommodate a complex system of owners that buy and sell on a stock exchange. Before you decide which structure is suitable for your new company, talk to a Virginia business formation lawyer. The experienced attorneys at Sparks Law can help you understand the various benefits and drawbacks of each entity.
Picking a business structure is critical, but so is selecting a business name. Owners must make sure no other business has registered their desired name with the State Corporation Commission (SCC) and should check domain names if they plan to build a website. A dedicated attorney nearby could also help owners take the following steps in forming a business:
A local attorney at Sparks Law can guide clients through the appropriate steps needed before a company is ready to open for business. Additionally, our legal team can help choose from various types of structures and explain the benefits of each one.
The simplest business vehicle is a sole proprietorship, in which the owner mingles business earnings and losses on their personal tax return. A DBA is filed only if the company name is different from the owner’s name. For instance, if John Doe is a handyman, the DBA “Expert Handyman Services” would be filed with the SCC. Owners are personally responsible if the sole proprietorship is sued or owes money.
Two or more people own partnerships. Partners are also responsible for each other’s actions, so if the partnership is sued, all partners are liable. A seasoned business formation lawyer should draft a partnership agreement for these entities so that all partners know their rights and responsibilities and can avoid future disagreements.
Many new business owners in the US choose to operate under a limited liability company. This allows owners, called members, to be protected from liability for the company’s debts and lawsuits. Members can also choose the best tax structure for their business. The default tax for LLCs is a pass-through arrangement where profits and losses are allocated by percentage ownership to members who report on their personal taxes, thus avoiding double taxation. However, members can also choose to be taxed like an S corporation.
LLC members buy into the company by contributing money or other valuable property or services, called capital contribution. The value of the contribution determines the percentage ownership in the company, which does not have to be equal among all members. An experienced LLC formation attorney should draft an operating agreement that memorializes the important points controlling the LLC. These may include ownership, profit distribution, how new members come on board, tax structure, and how the company will wind up when the time comes.
Although they are the most complicated business entity because of filing and management requirements, corporations are the best option for securing money in both debt and equity. Banks are more likely to loan to corporations, and shareholders can buy into the company by paying for stock. Corporations are traded on stock exchanges if they choose to go public, which can be a significant factor in company growth.
If you are making your dreams of owning your own business a reality, let the skilled attorneys at Sparks Law help ensure your success. A Virginia business formation lawyer could assist with vetting your business name to picking the right structure to securing the proper documents that will guide your decisions for years. Call for your initial consultation and learn how we can help you achieve the business success you envision.