Not sure what type of business organization you should choose?
This video is a part of the How to Start a Business in West Virginia video series to help entrepreneurs learn about the different forms of business ownership.
Topics include how to form an LLC, corporation, partnership or sole proprietorship in West Virginia. Also included is information on how to form an LLC & corporation yourself by filing the Articles of Incorporation and Articles of Organization with the West Virginia Secretary of State. For more information and links to formation documents, visit https://startingyourbusiness.com/select-business-entity-west-virginia/
Choosing the way your business is legally organized and structured is a fundamental step of starting a business and one to start thinking about early because it impacts the process of naming the business, applying for licenses and permits, and how the business is taxed.
The business organization is a type of business ownership or legal framework of an entity that is engaged in commercial activity. There are four primary types of business organization that a small business owner will choose from which include the sole proprietorship, partnership, corporation or LLC. Each entity has its own set of pros and cons and each has some considerations that may make one better than another for you and your business. The considerations include the cost of forming the entity, liability protection, ability to get investment, tax burden, administrative requirements and the complexity of formation.
The sole proprietorship is basically an individual who decides to go into business for themselves. There is no separate legal entity as the business is tied to an individual, making the business and the individual the same legally.
Forming a sole proprietorship is pretty simple. Since there is no official state filing, you can decide to go into business right away as a sole proprietorship and be in business. We will cover other details for starting a sole proprietorship in later videos and at StartingYourBusiness.com that may have to be done like registering a business name and applying for licenses and tax numbers.
The next entity is the partnership, which is a business owned by two or more individuals. The partnership is very similar to the sole proprietorship in that there is no legal entity and the owners have unlimited liability.
The corporation is the third of the four business entities and is completely different from the sole proprietorship or partnership because now we have a legal entity that is separate from the owners. The corporation has several pros and the most important pro is that a corporation is a distinct legal entity and the owner’s personal assets are separate from the business assets. This is useful because if the business is sued, the owner’s personal assets are typically safe. There may be some tax benefits but the main reason for forming a corporation or LLC for that matter is the liability protection. Another pro is that the corporation has unlimited life which could be useful in situations where there are key contracts or licenses that would benefit from continuity between owners. The corporation can also sell shares of the business and raise money from investors instead of relying only on debt like a sole proprietorship or partnership. Corporations can be owned by a single owner or multiple owners.
The last entity that we will talk about is the Limited Liability Company or LLC. Just like the corporation, the LLC is a legal entity that is separate from its owners.
The LLC shares all of the pros of the corporation like being a separate legal entity, unlimited life, and raising investment capital, but with the LLC, you don’t have to hold meetings, take minutes, and so on, making the LLC much easier to run than the corporation.
It can be a little overwhelming and confusing to pick the perfect entity for your business, but keep in mind, that the entity you choose today does not have to be a forever decision as you can change to a different entity later on.
We have a free printable comparison guide with some of the pros and cons of each entity to help you compare them all. The link for the guide is at https://startingyourbusiness.com/comparison-chart-business-entities/
If you liked this video on the Types of Business Ownership in West Virginia, be sure to visit the other videos in our Starting a Business in West Virginia video series. Other videos include:
Registering a Business Name in West Virginia – https://youtu.be/2EV-gxqoq4g
What Business Licenses are Needed in West Virginia - https://youtu.be/vBn7TRCRAIQ
In addition to these videos, https://StartingYourBusiness.com/west-virginia has a lot of free resources to help you start your business. If you have questions, visit our site or ask questions in the comments and our team of business advisors will answer your questions at no cost!