Which Business Type?

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Which Business type is best for you?

Introduction

While there are numerous variations of company types (business entities) in Virginia, there are four that are most commonly used. It is vital that you choose the correct one so that you protect your personal assets, plan for the future, and minimize potential taxes. In addition to filing with the Virginia State Corporation Commission there are steps that must be taken to legally operate a business, such as getting a business license, filing with the IRS, creating operating agreements, and etc.

The first step we take at the Law Firm of Bolling & Associates, PLLC is to listen to you and gather relevant information such as your business goals, management preferences, tax concerns, and etc to assist in determining which entity type is best for you and your business. Click Here to set up an appointment. Please read the information below to find out more about four of the primary choices you have in choosing a business entity.

Partnerships

Quick synopsis: Partnerships are easy to form, but provide the least amount of protection to your personal assets should your partnership encounter a lawsuit.

Advantages: There is an advantage to Partnerships in that profits go directly to owners--avoiding "double taxation" and they are very simple to create and operate.

Disadvantage: Partnerships provide little to no protection of assets though and each partner retains liability for the other partner's actions no matter what the case.

Limited Liability Partnerships- If you file as a limited liability partnership in VA then you may have equal footing with LLCs for both income tax and liability purposes.

Corporations

Quick Synopsis: Corporations shield the owners (shareholders) from the liabilities of the company so they protect your personal assets should your corporation encounter a lawsuit.

Advantage: An advantage is that they can issue stock, which can make raising capital easier (because you can issue stock to them as a partial owner).

Advantage: Unlike an S-Corp they can also issue different classes of stock (which gives owners different rights in the company).

Disadvantage: The disadvantage of a corporation is that they are taxed at the both the corporate level and on dividends (when you pay yourself). Generally this option is avoided for new companies.

Professional Corporations: This is a special type of C-Corporations that provides specific types of professional services that typically require a license( e.g. law firms, counselors, and medical practices). Shareholders of a professional corporation are personally liable for their own negligence in rendering or overseeing professional services, but is not liable for another shareholders liability if they are not under his or her supervision.

S-Corporations

Quick Synopsis: S-corporations are small corporations in the eyes of the IRS and thus can be taxed more favorably. They require special forms be filled out to receive the designation. They are just like a corporation but they avoid the main problem of C-Corporations because they can avoid double taxation if the company pays out all profits to shareholders as salary instead of dividends.

Advantage: Solid liability protection, better taxation than a C-corp. Simpler taxes for pass-through entities.

Disadvantage: Not as simple as an LLC and only one class of stock can be issued.

Pro Tip: It may make sense to elect with the IRS to be an S-corp for new business so that they may deduct expenses/losses as a pass through entity and then convert to a C-Corp as the business becomes more successful.

LLCs

Limited liability corporations offer asset protection to owners and members, and profits go directly to the members. LLCs are usually chosen by small business because of the tax benefits and protection. The IRS usually taxes LLCs as a partnership by default, but you can elect to be taxed as a corporation as well. There are a few types of business that are not permitted to form an LLC. but overall they enjoy great flexibility in management structure, simpler taxes, and solid asset protections.

Professional LLCs: This is a special type of LLC that provides specific types of professional services that typically require a license( e.g. law firms, counselors, and medical practices). Members of a professional LLC are personally liable for their own negligence in rendering or overseeing professional services, but are not liable for another members liability if they are not under his or her supervision.