Which Business Structure Is Right For You?
When starting a business, it is crucially important to select the best business structure for your circumstances. An error in this step of the process could very well lead to unnecessary taxation or limited legal protections.
Be Cautious of “Quick & Easy” Internet Forms
There are several different business structures and each structure comes with its distinct advantages and preferred applications. The internet is full of all sorts of information on how to form your own company and file the required documents, but if done incorrectly, the owner may not be protected from personal liability. “Fill in the blank” documents are generic and are not drafted to suit your specific needs, and they generally fail to capture any recent changes to the law. Most new laws in Virginia go into effect on July 1 each year.
What Are The Different Business Structures?
A business can be structured as a:
- Sole Proprietorship
- Limited Liability Corporation (or LLC as it is commonly referred)
- General Partnership
- Limited Partnership
Among these, a sole proprietorship and LLC are generally more suited for individuals. The LLC is the most popular because it allows for limited liability (similar to what corporations have), but, in most cases, the tax benefits and burdens are reflected on the owners’ personal tax returns. Corporations, limited and general partnerships, on the other hand, are generally more complex and may have vastly more complex tax structures and implications.
Because of these distinctions, it is important to be well informed before making a choice. When starting a business, it is beneficial to consult with someone who has intimate knowledge of the structural distinctions between these types of entities and is familiar with how they operate. Such advice can be helpful when it comes to selecting a structure that fits you and/or your partners’ unique circumstance and the proper planning can prevent reasonably foreseeable future problems from becoming crippling.