Start a Business

There are numerous forms of business organizations you can adopt to begin your business, and each of these have certain attributes that may be more or less advantageous to you.

Sole Proprietorship. This business organization is the easiest to form— you simply begin holding yourself out as being in business. There are major drawbacks with operating as a sole proprietorship, however, such as the fact that your personal assets will be exposed to unlimited liability as a result of any negligence or wrong doing that occurs in the operation of your business. It can also be difficult to raise capital because you can't sell stock as a sole proprietorship.

Partnership. A partnership is also easy to form, often much to one of the partner's chagrin—all two or more individuals need to do to begin a partnership is to begin operating a business together. A common law partnership such as this is often called a "general partnership," and such an arrangement leaves all of the partners' assets exposed to unlimited liability in the event of negligence or wrong doing conducted in the operation of the partnership. A partnership does allow the pooling of talent and capital from its partners, though it's still difficult for a partnership to raise capital from non-partners. Each partner can enter contracts that bind the entire partnership, which can cause issues when major agreements are entered unilaterally without the consent of the other partners.

Limited Partnership. A limited partnership is formed by filing a Certificate of Limited Partnership with the applicable state authority (e.g. in Virginia, the State Corporation Commission). A limited partnership must have at least one general partner, who is exposed to unlimited liability, and a limited partner, whose liability is limited to the amount of their investment in the limited partnership as long as they observe certain restrictions, such as not participating in the management of the limited partnership.

Corporation. A corporation if formed by filing the Articles of Incorporation with the applicable state authority (e.g., in Virginia, the State Corporation Commission). A corporation is owned by the shareholders, who elect the Board of Directors, who manage the Corporations' strategy and delegate day-to-day authority to the executive officers. A Corporation is a highly formalistic business form, that in addition to the three-levels of management, requires an annual shareholder's meeting, an annual meeting of the board of directors, and annual report filings with the applicable state authority. Public stock exchange listing requirements typically require their members to be formed as Corporations, so most public reporting companies are Corporations. Corporations are also subject to "double-taxation," where the profits of the Corporation are taxed at both the corporate level and again at the shareholder level, as opposed to sole proprietorships, partnerships, limited partnerships and limited liability companies, where the profits of those business organizations "pass-through" to the owners and are only taxed once at the owner's applicable tax rate.

Limited Liability Company. Limited liability companies are the most flexible form of business in popular use— they can mimic attributes of a sole proprietorship, partnership or corporation— while retaining a limited liability shield for the owner. Limited liability companies are owned by "members" who may also carry out the management functions of the business; however some more complex limited liability companies are owned by members, managed by managers, and the managers may delegate day-to-day responsibilities to officers and executives.

Uncertain which business form is right for you? At a loss for how to create these business? No worries, contact McGlothlin Legal, PLLC to assist you with your business formation.