Types of Business

When forming a business, it is easy to overlook legal factors during the formation and planning stages that may impact the future of your business. Mistakes in your financial documents, operating agreements, bylaws, or other documents can adversely affect your company’s future and legal liability. The Attorneys at McClanahan Powers have a strong foundation in business, intellectual property, and commercial law and are fully prepared to counsel nonprofit and for-profit companies of any size.

Unlimited Liability: The Dangers of Operating as a Sole Proprietor
A Sole Proprietorship is a business entity with a single individual owner whereby there is no legal distinction between the owner of the Sole Proprietorship and the entity, meaning that the owner is personally liable for all debts and liabilities of the company. Suppose you operate your Sole Proprietorship under a name other than your legal name. In that case, you must register the entity’s Assumed Name with the appropriate Circuit Court’s Office of the Clerk where your business is located. For example, in Virginia, if your business is located in Fairfax County, you would file your Fictitious Trade Name with the Clerk located at the Fairfax County Circuit Court.

Before and during the initial phase of forming your Corporation and what type of Corporation to develop, there are several considerations to consider. It is also imperative to note that a well-organized business plan before forming any business entity is probably the most pivotal step in the initial development of your company. Once your business plan is developed, you are ready to begin legitimizing your Corporation.

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A Nonprofit Corporation (“Nonprofit”) is a Nonstock Corporation that uses the Corporation’s profits to help achieve a charitable purpose. In terms of the structure and liability, with some specific exceptions, protection is roughly identical to a For-profit Corporation. However, a Nonprofit has different rules regarding taxation. Generally, a Nonprofit does not have to pay many of the taxes that a For-profit Corporation furnishes.

In terms of state taxes, a Nonprofit should register with the appropriate state agency to receive a Sales and Use Tax Exemption. In Virginia, this exemption is applied for via the Virginia Department of Taxation’s Sales and Use Tax Exemption. Further, depending on its purpose and other factors, a Nonprofit may apply for Federal 501(c) Tax-Exempt Status with the IRS via IRS Form 1023. Lastly, most states require that a Charitable Solicitation License (“License”) be filed with a specified state agency to solicit contributions; failure to do so when soliciting contributions is unlawful and may be punished criminally. For example, in Virginia, Nonprofit soliciting contributions must register with the Virginia Department of Agriculture and Consumer Services via the department’s Form 102. These filings can be highly complex and lengthy, and it is strongly recommended that you consult an experienced attorney who is familiar with the process.