Choosing the right form for your business entity and guiding you in protecting your business and investment is what we strive for in our Corporate and Business Practice. Once the form of the business is decided upon, we can provide all the documentation necessary to complete the formation and safeguard your investment, including the contracts and filings necessary to become operational. In most cases we can provide you with a flat fee for these formation services.
Filing Articles of Incorporation is just the first of many steps in the incorporation process. The Articles of Incorporation begin the corporate existence, but you are still a long way from having the corporation formed. Some of the steps to follow include holding an organizational meeting, selecting officers, adopting bylaws, issuing stock, appointing a registered agent, obtaining an employer's identification number, filing securities exemption forms with the Secretary of State and SEC, electing directors. You can elect a sub-chapter "S" corporation, if appropriate.
Income Tax Treatment:
C Corporations: Dividends earned by the C corporations usually result in double taxation, since they are not deductible by the corporation and are both claimed on the corporation’s and the shareholder’s taxable income. The difference between the value of dividends and the basis for such shareholder’s stock is treated as capital gain or loss to the shareholder.
S Corporations: Although S corporations are generally not taxed on their earnings, they must still file an information return with the Virginia Department of Taxation. Items of income, gain, loss, deduction, and credit are allocated to shareholders in proportion to their stock ownership during the tax year. Shareholders basis in his or her stock is increased by the capital contributions. Distributions of assets are usually not included in the shareholders' income to the extent that the shareholder has a positive adjusted basis in his or her stock.
C Corporations: Limited liabilities for the individual owners, ability to participate in the management of the business through election of the board of directors, the right to vote on certain issues are the main advantages of corporate entities. In 2005 the General Assembly adopted revisions to the Virginia Stock Corporations Act to conform to the current version of the American Bar Association's Model Business Corporation Act.
S Corporations: In addition to the nontax advantages enjoyed by S corporations, S corporations’ items of income, gain, loss, deduction, and credit are passed through to shareholders in proportion to their stock ownership during the tax year and are not taxed at the corporate level. A corporation that anticipates initial losses but long-term profits can take advantage of this system and convert to C Corporation at a later time.
C Corporations: C Corporations have to use the accrual method of accounting and may be subject to the corporate alternative minimum tax, personal holding company tax and accumulated earnings tax. Inflexibility in structure and inability to adjust voting rights in any proportion other than stock ownership, indirect control of business management (of shareholders), and large number of formalities in its conduct of business are all disadvantages of C Corporations.
S Corporations: Statutory restrictions on organization and operation of S corporations are complex and burdensome. Disadvantages of S corporations are the following: significant limitations on who may own S corporation stock, restrictions against more than one class of stock, inability to file a consolidated federal income tax return, major tax disadvantages due to limitedness to the adjusted basis of deductibility of losses allocated to a shareholder by an S corporation. If terminated and transformed into C Corporation, the S corporation cannot convert back in to “S” status before its fifth taxable year after the year in which a subchapter S termination is effective without the consent of the Internal Revenue Service.
In either jurisdiction in Washington D.C. area you can now incorporate for less than $1,000 including all costs and legal fees. You can save further if you hire us as your Corporate Counsel on an on-going basis (see below).
Limited Liability Company ("LLC")
The LLC combines the flexibility of a partnership with the limited liability protection of a corporation with the pass through tax treatment of a partnership. A Virginia limited liability company is an unincorporated association that is organized and operates pursuant to the Virginia Limited Liability Company Act. It can exist with or without members. Under the IRS regulations, an LLC with two or more members may elect to be treated either as a partnership or as an association taxable as a corporation for federal tax purposes.
Irrespective of the type of partnership, the partnership agreement should be in writing. A well drafted partnership agreement anticipates most problems and provides a mechanism for resolving these issues. The time to discuss handling and resolving potential problem is before the dispute arises and before the identity of the affected partner is known. If classified as a partnership for federal income tax purposes, both limited and general partners are entitled to pass-through tax treatment and will receive allocations of income, gain, loss, deduction, and credit and will receive distributions of money and property that adjust their bases (but not below zero) in their partnership interests. Domestic limited partnerships in Virginia however, may choose to be treated as subchapter C corporations for purposes of taxation.
- General Partnerships
A general partnership is an association of two or more persons (individuals, partnerships, corporations, LLCs, and other entities) as co-owners, to carry on a business for profit, whether or not the persons intend to form a partnership. General partnership can be formed to conduct any type of business. A “joint venture” is usually treated as a general partnership established by two or more individuals or entities. A general partnership is a legal entity itself.
- Limited Partnerships
A limited partnership is an entity with one or more general partners and one or more limited partners. The partnership is run by the general partner(s), who control the day-to-day operation of the business. The limited partners have no control over the management and operations, but have the advantage of no personal liability for the debts or obligations of the partnership. The only money at risk is their investment. To properly form a limited partnership, the specified forms must be filed with the Secretary of State.
- Limited Liability Partnerships
An LLP gives limited liability to the partners for all debts other than those arising as a result of professional negligence of the partners themselves, it does shield however, each individual partner from negligent acts of other employees or partners in a partnership. In Virginia such partnership must be registered with the SCC.
A business trust is an unincorporated legal entity that is organized and operate pursuant to the Virginia Business Trust Act. Business trusts are treated like corporations for limited liability purposes in protecting their beneficial owners, trustees, and agents form liability for the obligations of the trust. Business trusts have commonly been used for mutual funds, real estate investment trusts (REITs), and other finance entities that securitize assets.
A nonprofit corporation is an entity formed under state law for a socially beneficial, not-for-profit, purpose that has elected and been qualified to be treated as exempt from federal taxation due its social purpose. Tax-exempt status must be applied for on IRS Forms 1023 or 1024 and at the state level. Specific rules must be followed in order to maintain nonprofit organizational status.