By Jacob C. DeRue (December 9, 2025)

Introduction

Starting a business is a task that comes with many important decisions. One of the most important decisions that a business owner can make is what business entity they set their company up as. Choosing a business entity may be daunting due to the legal intricacies associated with establishing a business entity and differentiating between the various choices. LLCs are the most common type of business for businesses in Virginia and across the country. For many entrepreneurs, an LLC is a beneficial option for safeguarding personal assets from the liabilities of your business and the tax advantages.

This article will provide a practical overview of the two default business entities in Virginia, what an LLC is, and the pros and cons of using one for your small business. Whether you own a thriving business with multiple employees or are just starting your new side hustle to earn some disposable income, this guide will equip you with a baseline understanding of how LLCs can be used for your small business.

Sole Proprietorship: The Default Business Entity for Single Owner Businesses

A sole proprietorship, the simplest type of business entity, is automatically established when a single individual engages in business activities without registering as any other type of business entity. In this structure, one individual owns and operates the entire business. However, it’s crucial to understand that as a sole proprietor, you bear the full weight of the business. This includes personal responsibility for all aspects of the business, including any debts, legal issues, or other monetary issues arising from the business. This emphasis on personal responsibility underscores the need for caution and a thorough understanding of the business.

While a sole proprietorship is easy to establish, it’s important to understand that it provides little protection for your personal assets. This is a significant factor to consider, as the business owner is personally liable for any losses incurred by the business. In practical terms, this means that your personal assets could be at risk in the event of lawsuits or other legal actions against your business. This lack of protection underscores the potential risk and the need for careful consideration when choosing a business structure.

Sole proprietorships cannot sell stock, and banks often hesitate to lend to sole proprietorships. However, sole proprietorships may be a good choice for a business entity for low-risk businesses such as freelance writing, consulting, or small retail operations. These types of businesses typically have minimal liabilities and are often operated by a single individual, making a sole proprietorship a suitable and cost-effective business structure.[1]

General Partnership (GP): The Default Business Entity for Multi-Owner Businesses

Partnerships, as the simplest business entity structure, provide an accessible platform for two or more people to engage in business. GPs are the default business entity structure for companies with multiple owners. GPs, being the default form of partnership, typically do not necessitate any filings with state agencies.

In a GP, all partners share profits, managerial duties, and debt liabilities equally, fostering a democratic and shared responsibility. However, partners can choose to distribute profits and losses unevenly by formalizing this in a partnership agreement to avoid potential conflicts.

General partners in a GP have a fiduciary duty, a legal and ethical obligation, to act in the best interests of other members and the partnership.

While GPs may be beneficial for some business ventures, they do not offer as much protection as Limited Partnerships, Limited Liability Partnerships, or LLCs. Like sole proprietorships, the business owners are personally liable for any losses incurred by the partnership. Thus, your personal assets could be at risk in the event of lawsuits or other legal actions against your business. This lack of protection underscores the potential risk and the need for careful consideration when choosing a business structure for your small business.[2]

What is a Limited Liability Company (LLC)?

An LLC is a business structure that is organized under state statutes. Therefore, each state may regulate LLCs in slightly different ways, so it is essential to always check with your state if you plan to start an LLC. LLCs have grown in popularity in recent years, with individuals creating LLCs for multiple purposes, from dog-walking businesses to noteworthy businesses such as Blockbuster L.L.C. and Google LLC.

As an LLC owner, you hold the title of a “member.” This title is not limited to individuals; it can also be held by corporations, other LLCs, or foreign entities. The beauty of an LLC is its flexibility; there’s no maximum limit on the number of members, and most states even allow “single-member” LLCs (LLCs with one owner).

While many businesses can operate as LLCs, there are exceptions such as banks and insurance companies. Understanding your state’s requirements and federal tax regulations is crucial before creating an LLC. This knowledge will ensure you operate within the law and avoid potential issues. Additionally, there are special rules for foreign LLCs that you should be aware of which an attorney can help with.

Lastly, depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a: (1) corporation, (2) partnership, or (3) a disregarded entity (as part of the LLC’s owner’s tax return). A domestic LLC with two or more members is classified as a partnership for federal income tax purposes unless it files Form 8832 and elects to be treated as a corporation. An LLC with one member is treated as a disregarded entity for income tax purposes unless it files Form 8832 and elects to be treated as a corporation. Further, an LLC with one member will be considered a separate entity for employment tax and certain excise taxes.[3]

Costs of Using an LLC for your Small Business in Virginia

While there are certainly advantages to using LLCs as a structure for your small business, it’s important to be aware of the potential disadvantages. One such hurdle is the process of establishing your LLC. If you’re not familiar with LLC creation, it can be a time-consuming process that involves filing the correct documentation, obtaining licenses, opening new bank accounts, and following other corporate formalities. However, it’s worth noting that an attorney can help streamline this process, and the benefits of an LLC often outweigh these initial challenges.

Second, protecting your personal assets is only assured if you follow corporate formalities. An LLC can shield an owner’s personal assets if the company is sued or goes bankrupt. A plaintiff may still pierce the corporate veil if the LLC or a member of the LLC has engaged in acts such as comingling business and personal funds, missing annual filings, not filing separate tax returns in some instances, or not complying with other state requirements to maintain the LLC. If the plaintiff pierces the corporate veil, the LLC members may be liable for losses, which could affect the member’s personal assets. However, if corporate formalities are followed and the members diligently manage the LLC, an LLC offers adequate protection of the member’s personal assets.

Third, LLCs have an annual filing fee of $50. While this is a low fee, if you have multiple LLCs and each has a fee of $50, it can quickly add up. However, this filing fee is a small price to pay to protect your personal assets.

Benefits of Using an LLC for your Small Business in Virginia

There are many benefits to using an LLC for your small business. First and foremost, using an LLC for your small business means that while the LLC is legally responsible for any legal liability associated with the business, if all corporate standards and rules are followed, you still maintain control of the business. Therefore, without an LLC, you could be personally subject to legal liability concerning your business, meaning your personal bank account, house, etc., may not be protected if your business was sued.

Second, LLCs offer pass-through taxation, which means there are no taxes at the business level. For pass-through taxation, the money goes to the LLC owner, and the tax is paid at the owner’s individual rate instead of having to pay taxes at both the corporate and personal levels.

Third, structuring your company as an LLC could offer your property more protection in a Chapter 7 bankruptcy.

Fourth, structuring your company as an LLC could build client trust. Although it is superficial, clients may be more willing to conduct business if you structure your business as an LLC. Lastly, financing a loan could be more accessible because LLCs maintain their business and accounting documents that would be more readily available to lenders.

Conclusion

In conclusion, LLCs are suitable for business owners seeking a flexible but protective business structure. Whether you are starting a side hustle or running an established business, LLCs can provide a solid legal foundation for your business to grow.

This blog post is intended to overview the nature of business attorneys. Individuals who have questions about what type of lawyer may be best for their business, questions about business law, or seek experienced outside counsel for their business should contact Jacob DeRue at Briglia Hundley, P.C., through the Contact Page.

The information in this blog post may not reflect the current law in your jurisdiction. No information in this blog post should be interpreted as legal advice, and the blog post is not intended to substitute for legal counsel.

About the Author

Jacob DeRue is an associate attorney supporting BrigliaHundley, P.C.’s business litigation and corporate law practice groups, where he assists business owners and entrepreneurs with contract issues, corporate governance, entity creation, corporate compliance, and day-to-day legal needs. He joined the firm the summer after his first year of law school as a summer associate, then transitioned to a law clerk until passing the Virginia Bar after graduation and becoming an attorney. Mr. DeRue primarily practices in the firm’s corporate law practice group, commercial and business litigation practice group, and civil litigation practice group.

Briglia Hundley represent individuals and corporations throughout the Mid-Atlantic region, including Alexandria, Annandale, Arlington County, Ashburn, Burke, Centreville, Chantilly, Clifton, District of Columbia, Dulles, Fairfax County, Falls Church, Great Falls, Herndon, Leesburg, Loudoun County, Manassas, Manassas Park, McLean, Middleburg, Montgomery County, Oakton, Prince George’s County, Prince William County, Reston, South Riding, Springfield, Sterling, Tysons Corner, Vienna, Winchester and Woodbridge.

Contact the Author

Jacob DeRue

Briglia Hundley, P.C.

1921 Gallows Road, Suite 900

Tysons Corner, Virginia 22182

Telephone: 703.883.0880

Fax: 703.833.0899

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[1] Choose A Business Structure, SBA, https://www.sba.gov/business-guide/launch-your-business/choose-business-structure

[2] See Evan Tarver, Limited Partnership: What It Is, Pros and Cons, How to Form One, Investopedia, (Sep. 5, 2022), https://www.investopedia.com/terms/l/limitedpartnership.asp.

[3] Limited Liability Company (LLC), IRS (Jan. 25, 2023), https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc.