Once you decide your business or service offerings, name, startup capital and costs, you will need to determine your business organization structure. The most important question to answer is, “what type of business organization is best for you? Each business organization has its own set of advantages and disadvantages.
The business organization form is instrumental in determining and calculating your new businesses tax treatment and required filings. They all have state and federal requirements for filing. Failure to file quarterly or annual returns, even if you did not know you were required to do so, will result in high penalties and interest charges. Some states, like Florida, make the nonpayment of sales tax for example, a crime, because they feel you are stealing from the state.
There are five business organization forms available to companies in the Commonwealth of Virginia. They are (1) sole proprietorship; (2) general partnership; (3) limited liability company; (4) business corporation (S or C corp.); and (5) benefit corporation.
A sole proprietor (SP) owns his or her company by himself or herself, or as a couple. The SP is personally liable for the business profits and losses and any debts. To operate under a trade name in Virginia, the SP must register the trade name with clerk of the circuit court in the county or city where the business is located or use his or her individual name as the name of the business.
A general partnership (GP) is a business owned by 2 or more partners. Like a SP the GPs are personally liable for all debts, profits and losses of the business. The partners contribute money, property, labor, or skill and share in all profits and losses depending on ownership percentages. Each GP is liable for the entire debt of the GP but only pays income tax based on his or her share of profit or losses.
LIMITED LIABILITY COMPANIES
A limited liability company or LLC is a business entity recognized by the Commonwealth of Virginia. The LLC can be owned by one person of a group of owners. Owners are called members. The number of members determines the federal and state tax treatment of the business. The LLC can be taxed as a separate entity or its tax can pass through the existing members.
The main objective of a business corporation is to conduct business, realize net income and losses, and distribute profits to shareholders. In business corporations a prospective shareholder exchanges money, property or both for capital stock. Business corporations may be broken down into two types an S-Corp and a C-Corp. In C-Corps, the business corporation is a separate tax paying entity. Profit is taxed twice – when earned by the business corporation and then when distributed as dividends to the shareholders. An S-Corp applies when the business is closely held by individuals, certain trusts and estates. Only one class of stock may be issued with a maximum total of 100 shareholders.
A benefits corporation applies to nonprofit organizations in the Commonwealth of Virginia. In order to be classified as a benefit corporation the non-profit must comply with numerous filing requirements.
If you're just getting started in entrepreneurship your Suffolk Business Attorneys; Ferguson, Rawls and Raines, have some tips for you! Get a free download "Starting a Business? 10 Simple Steps to Get you Going."
Choose a printable PDF ebook or and editable PowerPoint presentation!
You may also be interested in: