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Business Legal Structures
Sole Proprietorship
A sole proprietorship is the simplest business structure and does not require any special legal steps to get started. Bookkeeping and tax preparation for sole proprietorships are simple as well. As a sole proprietor, you and your business are the same for income tax reporting purposes. In addition, you do not pay yourself a salary as such, because your profits (if any) are considered to be your “salary.” As a sole proprietor, you are liable financially and legally for everything.

General Partnership
A general partnership is a relationship between two or more persons who team up to operate a business. Partnerships have the advantage of combining the resources or skills of two or more people into one enterprise. One partner, for example, might serve as the source of needed start-up capital, while another brings unique technical expertise to the business. A written partnership agreement is almost always a practical necessity, as each partner will contribute varying amounts of money, property, labor and skills. The agreement should describe each partner’s responsibilities, explain how profits and losses will be divided, and detail what will happen if one partner leaves by choice, death or discord. It may be beneficial to use an attorney to develop your partnership agreement. Partnerships must file a federal income tax return but do not pay tax. Each partner’s share of the profits or losses is included in his or her personal income tax return. Partners are personally responsible for all of the partnership’s legal and financial liabilities.

Limited Partnerships
Limited partnerships are formed to obtain additional funds for a general partnership. In this structure, the general partners retain control over the partnership management and continue to be liable for all debts. The limited partners, on the other hand, invest money or property in the business and are entitled to share in the profits, while their liability is limited to the extent of their investment.

The advantages and disadvantages of incorporating are numerous and complex. They take into account issues related to business duration; capital formation; income distribution and retention; liability protection; ownership transfer; taxation; and legal costs. Many businesses incorporate to take advantage of the liability protection it affords. Using an attorney to incorporate is not legally mandatory, but most experts recommend doing so. Corporations have perpetual existence; unlike partnerships or sole proprietorships, corporations cannot be dissolved easily.

There are two types of corporations:
  • C-corporations are legal entities distinct from their owner or owners
  • S-corporations pass profits or losses directly to the shareholders, much like partnerships

In addition, corporations are classified as "stock" or "non-stock" and "domestic" or "foreign," and may be classified as professional.
  • Domestic corporations are both stock and non-stock corporations created under Virginia law.
  • Foreign corporations are stock and non-stock corporations created under the laws of another state or country.
  • Non-stock corporations are organized for purposes other than to make a profit and cannot issue stock shares.
  • Professional corporations consist of groups of people authorized to perform certain professional services within a corporate structure. Virginia law limits these professional services to such occupations as physicians, accountants and attorneys. A complete list of professional services is available online from the Virginia Business Registration Guide.
  • Stock corporations are organized for profit and can issue stock shares to raise capital.

Limited Liability Corporation

A limited liability corporation is an unincorporated association of one or more members that limits the personal liability of all of the company’s owners. Internal Revenue Service regulations allow a limited liability corporation to choose whether to be taxed as a corporation, a partnership, or, if it has only one member, a sole proprietorship.

To file an assumed or fictitious name please proceed to Filing Process and Fees page.                        

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