Forming A Business Entity
Having a good idea or marketable skill is just the first step in creating a successful business. You also need to make sure that you choose a form for your business entity that is most appropriate and legally advantageous. And, once you do choose a form for your business, it is critical that you comply with any and all associated legal requirements and formalities. Failing to do so may result in serious financial and legal consequences, no matter how great your idea or skill.
The attorneys at Weisberg & Weisberg are prepared to guide you through every step of the business entity formation process, including choosing the most appropriate legal structure for your business, preparing the required documents, registering with state and local governmental entities, and complying with applicable laws and regulations. While there are various websites and companies that purport to offer budget “do-it-yourself” business formation services, nothing can compare to the personalized attention of a seasoned business law attorney. At Weisberg & Weisberg, we strive to establish long-term relationships with our clients and take a personal interest in their continued success.
Below is some general information about the various types of business entities available in Virginia. Contact Weisberg & Weisberg in Newport News to discuss the best option for you and your business.
A sole proprietorship is perhaps the simplest form for a business. With a sole proprietorship, the owner and the business are largely treated as one and the same.
While a sole proprietorship has some benefits – such as ease of formation and management and simplified tax treatment – it also carries many risks. The largest of these risks is unlimited personal liability for the debts and obligations of the business. In other words, your personal assets – such as your home, automobile, and bank accounts – can be reached by creditors of the business. This risk can be magnified if your sole proprietorship has employees, since you, as the owner, can be held personally responsible for the actions of those employees.
Other disadvantages of a sole proprietorship include potential difficulties with raising money from investors and lenders. Since a sole proprietorship has no stock or similar interests to sell, investors are often hesitant to invest money in the business. For similar reasons, it may be more difficult for a sole proprietorship to obtain bank financing. Banks may view a sole proprietorship as lacking credibility when it comes to repaying loans in the event of a failure of the business.
In sum, while a sole proprietorship may be appropriate for some businesses, other available business structures (discussed below) typically offer greater protections and benefits to business owners.
Limited Liability Companies (LLCs)
A Limited Liability Company, or LLC, is often described as a “hybrid” business entity because it limits the personal liability of its owners (called “members”), like a corporation, while at the same time offering simplified tax treatment and managerial flexibility, like a partnership.
Perhaps the greatest advantage of structuring your business as an LLC is that, in general, the members of an LLC are protected from being held personally liable for the debts, obligations, and business actions of the LLC. In other words, if the LLC is sued or incurs debts, creditors of the LLC will typically be unable to reach the personal assets of the LLC’s members to satisfy the debt or court judgment. However, there are some exceptions to this rule, which is why it is critical to obtain the advice of the seasoned business attorneys at Weisberg & Weisberg to aid you in taking full advantage of the legal benefits and protections offered to LLCs and their members.
Another benefit of structuring your business as an LLC is the opportunity to create a clear framework for decision-making, sharing of profits and losses, resolution of disputes, and other issues that may arise when a business has multiple owners. This framework is typically reflected in a document called an “Operating Agreement,” which can set forth rules and regulations for management of the LLC, govern the allocation of profits and losses, and address the rights and responsibilities of the LLC’s members. The Operating Agreement is a critical document for any LLC and it is of the utmost importance that your LLC be governed by an Operating Agreement that is tailored to the unique needs and circumstances of your business.
In order to take full advantage of the benefits of an LLC and to ensure its smooth operation, it is important to consult with an experienced business attorney early on to help you navigate the applicable legal rules and requirements, and to advise you with regard to the best practices in managing and operating your LLC. The attorneys at Weisberg & Weisberg have years of collective experience successfully advising LLCs on a wide variety of legal and business issues and will work with you to enable your LLC to reach its full potential.
In general, a corporation is an independent legal entity owned by its shareholders. While a corporation is typically more complex than other business structures – requiring strict compliance with legal formalities, thorough recordkeeping, and higher start-up and operating costs – it does offer a few unique benefits unavailable to other business entities.
One such benefit is the opportunity to generate capital through the sale of shares of stock to investors. Through the issuance and sale of stock, corporations are able to secure funds for the operation and expansion of the business. And, because the corporation is a separate legal entity from its shareholders, investors may be more willing to invest since their personal assets are generally protected from being reached by creditors of the corporation or persons who sue the corporation.
Due to the often substantial financial, legal, and professional resources needed to properly operate a corporation, a corporate form is generally most advantageous for larger, established companies with significant revenues and multiple employees. Nevertheless, regardless of the size of your business, it is important to consult with an experienced attorney to determine whether incorporating is right for you. The attorneys at Weisberg & Weisberg have years of collective experience successfully advising corporations on a wide variety of legal and business issues, will work with you to determine whether a corporation is the proper structure for your business and, if so, will guide you through the steps necessary to ensure that your corporation reaches its full potential.
In general, a partnership is a business where two or more persons share ownership and control. The benefits and burdens of forming and operating a partnership can vary depending on the specific type of partnership at issue.
The most basic type of partnership is a general partnership. In a general partnership, profits, liability and management duties are typically divided equally among the partners. While a general partnership is a separate legal entity from its partners, the partners remain personally liable for the debts and obligations of the partnership. Thus, if a third party sues the general partnership, or a creditor seeks to collect on the debts of the partnership, the personal assets of the partners – such as homes, automobiles, and private bank accounts – can be at risk. It is often advisable to opt for one of the other partnership types discussed below in order to protect the personal assets of partners.
Another type of partnership is a limited partnership, which consists of at least one general partner and one or more limited partners. While general partners remain personally liable for the debts and obligations of the partnership, the personal assets of limited partners are typically protected from being reached to satisfy the debts and obligations of the partnership. The status of a partner as a general or limited partner – and the associated exposure to personal liability – depends largely on whether the partner exercises management or control over the business of the partnership. In order to preserve a limited partner’s protections from personal liability, it is critical that the limited partner refrain from active involvement in the management of the partnership’s business. Thus, a limited partnership may be an ideal structure for a business with one or more general partners (who are typically experienced business owners charged with management of the partnership) and one or more limited partners (whose role is typically limited to that of investors).
A third type of partnership is a registered limited liability partnership (RLLP). The primary benefit of this business structure is that, unlike the partners in a general partnership, the partners of the RLLP are generally protected from personal liability for the debts and obligation of the partnership. Thus, while there are some additional formalities and registration requirements associated with RLLPs, the benefits of limited liability for partners are often enticing for business owners seeking to protect their personal assets from being reached in the event of a lawsuit or failure of the business.
Regardless of which type of partnership you choose for your business, it is critical that you consult with an experienced business attorney to assist you with preparing a document known as a Partnership Agreement. A Partnership Agreement typically sets forth rules and regulations for management of the partnership, governs the allocation of profits and losses, and addresses the rights and responsibilities of the partners. A Partnership Agreement tailored to the specific needs and circumstances of your business can go a long way towards minimizing the risk of, among other things, disputes between partners over the management of the partnership, which can lead to deadlock, expensive litigation, and a potential collapse of your business.
The attorneys at Weisberg & Weisberg have years of collective experience successfully advising partnerships on a wide variety of legal and business issues and will work with you to enable your partnership to reach its full potential.
Other Business Structures
There are a variety of other options available for structuring your business. These include, among other things: (1) professional corporations and professional limited liability companies, which are organized for the specific purpose of rendering professional services by pharmacists, doctors, veterinarians, engineers, architects, accountants, attorneys, and other professionals; (2) benefit corporations, which are intended to cover corporations having the purpose of creating a general public benefit for society and/or the environment; and (3) cooperatives, which are organized to conduct, for the mutual benefit of their members, housing, agricultural, fishing, brokerage, manufacturing businesses, or to provide financing for cooperative associations, societies, companies, or exchanges.
In sum, entrepreneurs and others desiring to start their own business may feel overwhelmed by the variety of available business structures and associated rules, regulations, benefits, and burdens. However, with the skillful guidance of a seasoned business attorney, those with a great business idea or marketable skill can feel free to focus on what they do best – getting their product or service to market and making a profit – without getting bogged down in the complex legal issues and other considerations involved in forming and operating a business entity. Contact Weisberg & Weisberg in Newport News to discuss how we can help you and your business perform at its best. Call 757-528-2643.
PLEASE NOTE THAT THE FOREGOING IS OFFERED FOR GENERAL INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED TO CONSTITUTE, NOR SHOULD IT BE INTERPRETED AS CONSTITUTING, LEGAL ADVICE. YOU SHOULD CONSULT WITH AN ATTORNEY TO DISCUSS YOUR OPTIONS WITH REGARDS TO FORMING A BUSINESS ENTITY..