Business Legal Forms


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Business Legal Forms

  1. 1. Question and Answer Guide for Starting and Growing Your Small Business Legal Structure and Regulations What are the options for my Corporation The advantages and disadvantages of incorporating are business’ legal structure? numerous and complex . They take into account issues As a small business owner, one of the first major decisions of duration of the business, capital formation, income you will make is to choose a legal form under which to distribution and retention, liability protection, ownership operate your business . It is important to understand the transfer, taxation, and legal costs . One main reason four basic legal forms: sole proprietorship, partnership, businesses incorporate is for the liability protection that corporation, and limited liability company, and determine a corporation provides to shareholders . In the eyes of the the advantages and disadvantages of each . There are government, a corporation is a legal entity distinct from its variations to each type, and it is wise to remember that owner or owners . It reports and pays taxes separately and the best sources of advice for making this decision will be its organization and operation are regulated by Virginia from your accountant and attorney . law . A corporation has permanence; unlike a partnership or sole proprietorship, it cannot be so easily dissolved . Using an attorney to incorporate is not legally mandatory Sole Proprietorship but recommended . The choice of an S-corporation deals Most businesses begin as sole proprietorships, the largely with tax considerations . S-corporations pass simplest form of business . No special legal steps are through profits or losses to the shareholders much like a required to get started and it is the easiest one to end . partnership . Bookkeeping and tax operation are also the simplest . For income tax reporting purposes, you and your business are considered to be the same . You do not pay yourself a salary Limited Liability Company (LLC) as such, because your profits, if any, are your “salary .” You The Limited Liability Company (LLC) is rapidly becoming may or may not have a name, as you choose . a very popular business form . An LLC combines selected corporate and partnership characteristics while still maintaining status as a legal entity distinct from its owners . Partnership As a separate entity, it can acquire assets, incur liabilities There may be good reasons why you need to consider and conduct business . As the name implies, however, it incorporating or forming a partnership . Partnerships are provides limited liability for the owners . LLC owners risk necessary when two individuals want to do business only their investment . Personal assets are not at risk . together . Partnerships have the advantage of combining the resources or skills of two or more people into the enterprise . A partner, for example, provides a source of What are the factors to consider needed start-up capital for a business . when choosing the type of legal A written partnership agreement, although not mandatory, is almost always a practical necessity . It describes each structure for my business? person’s responsibility, how profits and losses will be There are five factors to consider when choosing the type divided, how a partner can leave the business, and what of business structure: happens in case of serious discord or a partner’s death or disability . You may wish to use an attorney for this • iability. Determine the type of liability your business L purpose . may incur and how this may affect you and your business in the future . Partnerships do not have permanence; if one partner leaves, the partnership is dissolved . Partners are • ax implications. Yes, we’re all proud of living in the T personally liable for all liabilities of the partnership . But great Commonwealth of Virginia and the United States note that a new form of partnership called a “limited of America, and we recognize that all the wonderful liability company,” approved by the Commonwealth of things brought about by this democracy cost money Virginia in 1991, provides liability protection for partners . which is generated by taxes . By choosing the most Partnerships must file a federal income tax return but do appropriate business structure, you will ensure that not pay tax; each partner’s share of profits or losses are you are paying the correct tax rate . included in the individual partner’s income tax return . 6
  2. 2. Question and Answer Guide for Starting and Growing Your Small Business • ost of formation and recordkeeping. There are certain C additional partners or owners, rewarding employees laws and requirements about recordkeeping that are with ownership, or the unfortunate possibilities of associated with each type of business . Perhaps the your retirement, or worse, your death or disability . time and expense involved with this recordkeeping is not worth the perceived benefit . The decision on how to structure a business varies for each owner . There is, of course, no need to make the • lexibility. You need to run your business, not vice versa . F business structure more complicated than it needs to Some types of business are more rigid than others . be . If possible, consult with an attorney, an accountant, Choose the one that gives you the flexibility you need to or business counselor . The person who helps you should do your job and maintain a healthy life style . be familiar with your type of business, your business goals, and personal finances . For referrals to attorneys or • Future needs. You must anticipate future events, accountants, you may contact the chamber of commerce, some that may happen and others that will happen . an SBDC, or even ask some businesses in your community Future events include growth, expansion, bringing in who they use . Table 1. Comparison of the different types of legal structures of a business. Sole Regular Limited Liability Legal Issue Proprietorship Partnership Corporation S Corporation Company Legal Liability Unlimited Unlimited for Limited Limited Limited partners Limited for limited partners Continuity of Limited to life of Limited unless Unlimited Unlimited Varies; can affect tax Entity proprietor provided for status of the entity in partnership agreement Transfer of Difficult Difficult unless Readily Readily Varies; can affect tax Interest provided for accomplished accomplished status of the entity in partnership through stock through stock agreement transfer transfer Acquisition of Limited to what Easier than sole Acquired by issuing Acquired by issuing Shared by members Capital proprietor can proprietorship since stock or bonds stock secure shared by partners Tax Filing Schedule C with Form 1065; Form 1120 Form 1120S; Depends on Required Form 1040 distributes K-1s to distributes K-1s to classification of LLC partners shareholders Taxation of Directly to owner Directly to partners Taxed once at Taxed directly to Generally taxed as a Income in proportions corporate level again shareholders (no partnership (though agreed upon by at shareholder level double taxation) classification may partners when distributed result in corporate (usually as taxation) individuals) Administrative and Lowest Medium Highest Highest Similar to Legal Costs corporation Fringe Benefits Generally not Generally not Deductible, but Generally not Depends on tax deductible deductible for subject to many deductible for over status partners rules (mainly non 2% shareholders discrimination) Recommended IRA (within limits), IRA (within limits), Qualified Plans Qualified Plans Depends on tax Pension Plans Keogh, SEP Keogh, SEP status Major Independence, Chance of business Limited Liability Limited liability Limited liability Advantage(s) flexibility, success enhanced if without double with partnership minimum red right combination of taxation of regular tax treatment; tape partners corporation fewer ownership restrictions than S corporation Major Unlimited Unlimited liability; Greater cost, Not every Inconsistent state Drawback(s) liability-a problem frequent changes government corporation qualifies tax treatment if business in partners can be regulations, and for S status; more has financial difficult red tape; double limits on fringe difficulties taxation of income benefits 7
  3. 3. Question and Answer Guide for Starting and Growing Your Small Business if the name you want is available in Virginia . Avoid What are some of the legal and names easily confused with national brands . Large regulatory requirements for my companies aggressively protect their brand names . business? • Incorporating in Virginia. Companies incorporating in Virginia must file articles of incorporation with the SCC Again, it is prudent and advisable to consult with an and pay a $25 filing fee and charter fees based on attorney, accountant, or other professional to ensure the amount of stock issued . Companies incorporated compliance with all local, state, and federal regulations . outside the state have to get a certificate from the However, there are several things required of most businesses: SCC to transact business here and pay an entrance and filing fee . • ederal Employer ID Number . Contact the IRS at (800) F • nnual Registration for Corporations. The annual fee A 829-1040 for details or log on to for a corporation doing business in Virginia is based on to obtain form SS-4 . the number of outstanding shares of stock shown in the • icensing. Contact the county, city, and/or town in L charter . The fee is $100 for 5,000 or fewer shares, plus which your business is established to find out which $30 for each additional 5,000 shares to a maximum licenses are required . fee of $1,700 . The fee is assessed two months before the anniversary month of the corporation’s date of • oning. If you’re a new business, contact the local Z incorporation . planning/zoning department to make sure your location is zoned for business activities . • ranchise Registration. If you plan to operate a F franchise in Virginia, you must be registered with the • tate taxes . Register with the state Department of S SCC . For additional information contact the State Taxation . Log on to or call (804) Corporation Commission’s Division of Securities and 367-8037 for information and forms . Retail Franchising, P .O . Box 1197, Richmond, Virginia • Virginia Employment Insurance . If you hire employees, 23218, (804) 371-9051, you will be subject to unemployment insurance tax . srf/index.htm . Contact the Virginia Employment Commission for • rademark Registration. If you own and plan to use a T more information at or telephone trademark in Virginia, file an application for registration your nearest VEC office . of the trademark with the SCC . Application forms can be • orkmen’s Comp Insurance . Employers in Virginia are W obtained from the SCC’s Division of Securities and Retail required to carry workers’ compensation insurance Franchising . The application fee is $30 . with a private insurance carrier, hold a certificate of self-insurance issued by the Virginia Workers’ • usiness Registration Guide. For complete information B Compensation Commission, or be a member of a you should refer to the Commonwealth of Virginia self-insurance association approved by the Virginia Business Registration Guide . The guide is published State Corporation Commission . This holds true for by the SCC, the Virginia Employment Commission, and employers with three or more employees . Operations the Virginia Department of Taxation . The guide gives with fewer than three employees may voluntarily come you advice on the registration process and many of under the requirement . Log on to www.vwc.state. the forms you will need . A copy of the guide can be or call (877) 664-2566 . obtained through any of the three state agencies or online at • Labor Regulations . All Virginia companies are required brg.pdf . If your business is in a city, you will need a city to comply with the state and federal labor laws . For business license . Contact your city’s Commissioner of guidance in all areas of labor regulations contact the Revenue . Virginia Department of Labor and Industry at (804) 371-2327 or log on to . • ounty or City Health Department. Any food business C must comply with state and local food ordinances . • egistration with the State Corporation Commission. R Contact your local health department . The SCC is the clearinghouse for all companies in Virginia . Most entities must register . Contact the SCC • epartment of Environmental Quality. The DEQ D if you plan to conduct business under your business administers state and federal programs to safeguard name or a trade name to sell securities, to use a air, water, and land resources . Contact the local trademark, or to operate a franchise . Call (800) 552- office to obtain an environmental permit . For further 7945 or go to . information, contact (800) 592-5482 . • aming Your Business. You will need to find out if N • epartment of Professional and Occupational D the name is available for use . Check with the SCC at Regulation. This department enforces regulations or call (800) 552-7945 to see regarding health, safety, and welfare in 26 professions, 8
  4. 4. Question and Answer Guide for Starting and Growing Your Small Business from architects to wastewater works operators . Contact the DPOR at (804) 367-8500 or www.dpor. . What are the state licensing agencies for different business types? Administrators, Nursing Home Alcohol Appraisers, Real Estate Architects Architects, Landscape Asbestos Workers Auctioneers Audiologists Barbers Body Piercing Boxers Branch Pilots Brokers, Real Estate Campgrounds, Membership Cemeteries Charitable Organizations Clubs, Travel Contractors Cosmetology Counsel, Fund Raising – Professional Counselors, Professional Credit Service Businesses Dentistry Designers, Interior Embalmers Engineers, Profesional Extended Service Contracts oca61escapplication.pdf Food Processing, Retail and Warehousing Establishments Funeral Directors Fund Raising Counsel, Professional Geologists Ginseng Dealers Health Spas Herbicide, Commercial Applicators Home Inspectors Insecticide, Commercial Applicators Inspectors, Home Interior Designers Land Surveyors Landscape Architects Lead Workers Meat Slaughter and Processing Facilities Medicine Medicine, Veterinary Milk Nail Technicians Nurse (RN, LPN, Aide) Nursery Dealers Nursing Home Administrators Operators, Waste Management Facilities Operators, Waste Water Works Operators, Waterworks Opticians 9
  5. 5. Question and Answer Guide for Starting and Growing Your Small Business Optometry Pesticide Applicators Pesticide Businesses Pesticide Products Pharmacy Physical Therapy Piercers, Body Pilots, Branch Polygraph Examiners Poultry Slaughter and Processing Facilities Psychology Real Estate Appraisers Real Estate Brokers and Salesmen Scientists, Soil Service Contracts, Extended oca61escapplication.pdf Social Work Solicitors, Professional Spas, Health Speech Pathologists Surveyors Tattooist Therapy, Physical Therapy, Family and Marriage Tradesmen Travel Clubs Trucking Veterinary Medicine Waste Management Facility Operators Waste Water Works Operators Water Works Operators Wetland Delineators Wrestlers 10