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5 Steps to Launching a Business in Virginia

Business One Stop, Virginia.Gov
May 27, 2015
2 min read

1) Choose Structure

A business becomes a 'legal entity' meaning that it can own property, can hold bank accounts, and pays taxes almost exactly as if it were a living citizen of the Commonwealth of Virginia. There are several types, however, each with its own benefits and limitations. While it can be changed later, it is far easier to make this decision correctly before going further.

Business structures are like classes of cars. There are reasons to buy a pickup truck, a coup, sedan, SUV, minivan; just like there are reasons to choose LP, LLC, S-Corp, C-Corp, etc.. The 'right choice' for you is truly dependant on your needs. Get to know the types and make a good decision for yourself. This decision impacts taxes, the relationships between owners, and, legal liability. If the company is sued for personal injury, can the plaintiff sue you personally and take your house, car, and bank accounts? These are important considerations.

Sole Proprietorships are usually owned by a single person or a couple. You're personally liable for all business debts, can freely transfer all or part of the business, and for taxes, you can report profit or loss as personal income.

Limited Liability Companies (LLC's) are very popular. You have limited legal liability like a full corporation however, for taxes they're more like Sole Proprietorships or Partnerships.

General Partnerships let you share profit, loss, and managerial duties among the partners, and each is personally liable for any debt entirely. Members file an informational tax return and income/loss is filed personally. ("Joint Ventures" are short-term partnerships.)

Pro Tip*

"Corporations" are complex structures with more startup cost. They are owned through stock and have more complex licensing, taxation, and regulation requirements. They have to follow formalities like issuing stock certificates, holding annual meetings and keeping minutes, electing directors, etc.. Forming a Corporation should always be done with the assistance of a qualified attorney.*

*C-Corporations are distinct legal entities, taxed separately from their owners and are generally not favored to own assets that substantially appreciate in value. While they protect against personal liability, they do not have many of the tax and operating advantages of an LLC or limited partnership, except that lower tax rates may apply to annual net income below $75,000.

*S-Corporations are not taxed as a separate legal entity and protect their owners against personal liability, but there are limitations on the number and type of eligible stockholders. They also have certain less favorable tax and operating advantages than LLC's.

*Benefit Corporations are a new form of stock corporation that incorporate aspects of nonprofit organizations.

Here's more information about business structures.
Federal tax implications of different business structure choices.
Free legal information regarding each structure.
See what structure others in your industry choose with an online wizard.
We recommended consulting with both a lawyer and an accountant before choosing.
If you are starting an agribusiness, there are state resources tailored to help.

A little bit of planning goes a long way. "Failing to plan is planning to fail." Find a business-plan writing guide that seems to fit your business, that you're comfortable with, and that seems reasonable. Follow it.