Choice of Entity in Virginia: Strategic Formation with Foresight
Virginia offers entrepreneurs a rich palette of business entity types, each with unique legal structures, benefits, and planning implications. Choosing the right entity is more than a start-up formality—it sets the tone for control, liability, succession, and even intergenerational legacy.
What’s the Right Entity for You?
|
Entity Type |
Best For Entrepreneurs Who Want To: |
|
Corporation |
Go public, establish clear authority, or expand across states |
|
LLC |
Retain flexibility, optimize tax elections, and create contract-driven governance |
|
Series LLC |
Compartmentalize risk across ventures or properties |
|
Business Trust |
Manage multiple activities/assets with distinct ownership or liability |
|
Partnership/LP |
Preserve traditional frameworks or pursue family-oriented estate planning |
Entity Options Available in Virginia
Corporation
A Corporation is owned by shareholders and governed by a board of directors and officers. In Virginia:
- A board can be waived, but officers are required. The same person may serve as President and Secretary.
- Optional officer titles include Treasurer, VP, CEO, and CFO.
- Annual meetings or written consents must confirm directors and officers.
- Shareholders:
- Do not manage the entity (unless appointed as director or officer)
- Are not guaranteed employment
- Are entitled only to equity decisions and profit participation
- Shareholder shares are subject to creditor claims.
- Bylaws serve as governing documents, and additional agreements such as Shareholder Buy-Sell or Management Agreements strengthen governance clarity.
- Ideal for venture-backed businesses or going public.
- Recognized across state lines where LLCs or Trusts are not.
- Easily accommodates layered management and equity structures.
- Strong foundation for formal succession protocols and executive compensation planning.
Limited Liability Company (LLC)
A hybrid structure that blends partnership agility with corporate formality:
- Default management is by Members but can be delegated to Managers.
- Officers may be appointed, mirroring a corporate structure.
- Management terms are fully contract-driven through the Operating Agreement.
- Members/Managers are protected from personal liability.
- Unlike corporate shares, member interests are protected from creditor seizure—only distributions can be intercepted via charging orders.
- Tax classification flexibility: disregarded, partnership, or corporation.
- Ability to centralize or decentralize control.
- Preferred structure for closely-held businesses with succession planning needs.
- Facilitates robust estate planning tools like transfer restrictions and valuation formulas.
Series LLCs in Virginia
While not widely used because they are relatively new, Virginia permits Series LLCs under specific conditions:
- A single LLC can establish protected “series” within itself, each with segregated assets and liabilities.
- Not every state recognizes Series LLCs, so cross-border use demands care.
- Ideal for business models involving multiple ventures or properties, allowing liability compartmentalization without separate entities.
- Streamlined registration and reporting.
- Each series can have its own members and governance.
- Useful for real estate portfolios or multi-line service businesses.
Business Trust
Often overlooked, the Business Trust provides unique flexibility and liability containment:
- Master entity is formed via Articles and Declaration of Trust.
- Subtrusts are created by contract—no SCC filing needed.
- Each subtrust may have separate beneficial owners, liabilities, and managers.
- Particularly suited for ventures with distinct assets or owners per activity.
- Multi-owner investment structures.
- Alternative to Series LLC with more privacy and simplicity.
- Often exempt from certain statutory formalities.
- Robust for estate planning and asset protection.
Partnerships & Limited Partnerships
Virginia still recognizes both general and limited partnerships:
- Liability protection is available through proper registration.
- General partners bear full liability unless structured through LLC wrappers or LLP elections.
- More complex and less favored than LLCs or Business Trusts.
- Useful for family limited partnerships in estate planning.
- Traditional structure for professional firms or joint ventures.
- May offer specific tax advantages in legacy planning.
A Note on Tax Elections
Virginia does not recognize “C Corporation” or “S Corporation” as entity types—these are federal tax classifications applicable to Corporations and LLCs. A separate blog will address the nuances and implications of these elections.
Need More Information?
We can guide you through the incorporation process to find what is best for your business. Contact us for a free consultation.
