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How to select the right formation for your business

On Behalf of | Oct 29, 2020 | Firm News

Starting a new business is an exciting period for an entrepreneur, especially as you see your venture grow from the ground up. However, before the company can grow, you have to consider how to start the foundation.

One of the first aspects you consider is the business’s structure because the right formation means better tax benefits, easier management and a reduced level of liability. There are several options you may consider before setting up your business.

Sole Proprietorship

The first option is the most simplistic and least expensive formation. A sole proprietorship means there is only one owner. The business is held under the owner’s name and remains synonymous with the specific entrepreneur. However, being a sole owner means holding sole liability for any lawsuits, false claims or business debts. It may be risky if you want to expand your small business in the future.


Partnerships are an excellent option if you have a person that you trust on a professional level. There are plenty of opportunities to divide work, responsibilities and any liability. However, there is additional documentation and certifications you need to file to legally classify as a partnership in Virginia. And you have high risks for potential disputes down the line.

Limited Liability Company

In Virginia, you can also use a limited liability company (LLC) as a formation with limited liability protection. Essentially, it protects the individual members associated with the company and focuses all liability on the company itself. The individual members still feel the effects of profits and losses, but there is less likelihood of complete losses.


The most formal and expansive formation is the corporation. You have to work with the state department to receive corporation status, and there are strong protections for liability purposes. However, it’s extremely expensive and complex, so it’s only necessary for large-scale companies.

Every option has advantages and drawbacks, so it’s up to your specific goals. If you want to maintain a smaller, local business on your terms, it may be best to maintain sole proprietorship. Otherwise, consider a partnership or LLC if you want to grow your company over time.