Business Formation
in West Virginia
Starting a business in West Virginia is an exciting prospect for many, and enthusiasm can make it easy to overlook one of the most important steps: Choosing the correct business structure. There are countless options, each with unique pros and cons. Some business structures provide certain tax advantages. Others offer protection against lawsuits. Some are more expensive to maintain, while some involve more complex steps. Faced with all these concerns, many West Virginian entrepreneurs consult with a business law attorney in their area. Reach out to Zeni Law to discuss this general subject in more detail. 

What Are the Options for Business Formation in West Virginia?

There are many options for those who wish to start a new business in West Virginia. According to the One Stop Business Portal of West Virginia, these options include:

  • Sole proprietorships
  • General partnerships
  • Joint ventures
  • Associations
  • Non-profit corporations
  • Benefit corporations
  • Cooperative associations
  • Limited Liability Companies (LLCs)
  • Professional Limited Liability Companies (PLLCs)
  • Limited partnerships
  • Limited Liability Partnerships (LLPs)
  • Voluntary associations
  • Business trusts
  • Unincorporated nonprofit associations

Corporations, LLCs, and partnerships are among the most popular of these choices.

A corporation is owned by shareholders who hold a certain amount of capital stock, and this business structure is considered a separate legal entity by West Virginia and United States authorities. The purpose of a corporation is to distribute its profits to the shareholders after considering net income, losses, and taxes. The fact that authorities tax corporate income before shareholders receive their share of the profits creates a situation known as “double taxation.” In other words, the corporation pays tax once on its income before the shareholders pay additional tax on any profits they receive in the form of dividends. 

Despite this double-taxation, corporations offer numerous tax advantages – and they may benefit from special deductions and privileges not available to individuals or other business structures. Aside from these tax advantages, corporations offer their shareholders excellent protection from personal liability. As a general rule, in most circumstances, shareholders cannot be personally sued by plaintiffs for any alleged wrongdoing by the corporation. This allows shareholders to shield their assets in a way that would be impossible with many other types of businesses. That being said, corporations are relatively complex compared to other structures – requiring extensive record-keeping and reporting on an annual basis. 

The “default” corporate structure is a “C” corporation, or “C Corp.” This type of corporation is consistent with the description above. An “S” corporation, or “S Corp,” is slightly different, and its primary purpose is to avoid the double-taxation issue associated with a C Corp. Technically speaking, an S Corp is a tax designation rather than a business structure in its own right. Business owners can identify profits and certain losses as personal income or expenses by designating a company as an S Corp. This helps them avoid corporate tax rates. 

Since the West Virginia Tax Division identifies a corporate income tax rate of 6.5% and the federal government enforces a corporate tax rate of 11%, an S corporation designation could be advantageous in many situations. This is especially true when considering West Virginia’s personal tax rate may be as low as 3%. An S Corp provides many of the same general liability protections as a C Corp.

As the name suggests, a partnership involves two or more people coming together to create a business. By working together, partners divide financial obligations and sometimes workloads while splitting profits. Often, they also divide liability – preventing a single partner from taking the entire burden of a lawsuit or a debt. While in a general partnership, each partner is personally and professionally liable for the actions of the other(s) when it comes to the management of the business, according to the West Virginia Secretary of State, other partnership structures are often designed to limit the liability risks of one or more of the partners.

In this arrangement, only one general partner has unlimited liability, while the others enjoy limited liability. However, those with limited liability generally have less control over the company under the terms of their specific partnership agreement.

In this arrangement, every partner has limited liability. Not only can the partners protect their personal assets from the debts or lawsuits incurred by the company, but they can also avoid liability for any alleged wrongdoing of other partners. A West Virginia business attorney can advise you on the most appropriate business structure for your situation.

Forming LLCs in West Virginia

Limited Liability Companies are popular because they provide business owners with a combination of the advantages of several structures mentioned above. LLC owners enjoy protection from personal liability in almost all cases, and an LLC structure may help entrepreneurs avoid double taxation in much the same way as an S Corp. Additionally, an LLC can be designated as an S Corp. Hence, the two are not mutually exclusive. 

West Virginia Nonprofit Organizations

West Virginia acknowledges a variety of options for cooperating with others in a not-for-profit cause. Individuals wishing to work together temporarily, on a volunteer basis, to conduct business in service to a specific goal may achieve some protection from personal liability, as well as legally documented distribution of responsibilities, by filing a Statement of Agent of Process for Unincorporated Non-Profit Association with the West Virginia Secretary of State’s office. This document appoints an individual to receive legal service of process, if necessary, on behalf of the association. The association will still need to register with the West Virginia Tax Department. A voluntary association requires a similar State Tax Department filing, but the Secretary of State will need an Application of Registration for a Voluntary Association. 

Non-profit organizations intending to operate regularly over an extended period may prefer to file their Articles of Incorporation according to the West Virginia Nonprofit Corporation Act, mainly if the need for paid staff is foreseeable. Non-profit corporations offer similar personal liability protections to their for-profit counterparts. Still, the terms of such protections must be spelled out in the articles of incorporation filed with the West Virginia Secretary of State. 

Required Governance Documents in West Virginia

A West Virginia entrepreneur will likely need to file several documents for most business structures to form their new enterprise. The specific documents may vary depending on various factors, including the type and governance of the business. Here is an overview of various potential formation documents that entrepreneurs may need to file:

  • Articles of Incorporation
  • Articles of Organization
  • Certificate of Limited Partnership
  • Statement of Limited Liability Partnership

Risk Assessment for Business Formation

The United States Small Business Association warns entrepreneurs to carefully consider risks before starting a new business. While no new venture is risk-free, choosing the most appropriate structure based on known risks in the industry can help West Virginian startups mitigate these concerns. The first step is simple: Consider what risks the business might face. 

Could the Business Face Lawsuits?

Some businesses, such as those in the healthcare or manufacturing sectors, are more likely to face litigation in the future than others. In contrast, a freelance graphic designer with their own LLC is unlikely to face an injury lawsuit caused by a malfunctioning product or a botched surgery. However, they might regularly need to protect their intellectual property and defend themselves against allegations of intellectual property infringement. By assessing the risk of lawsuits and identifying some of the most frequently cited grounds for legal action in their industry, entrepreneurs can choose a business structure with appropriate personal liability protection. 

What Happens When the Business Takes On Too Much Debt?

One of the key benefits of corporate business structures is that they allow participants to limit their financial risks and protect essential personal assets, such as their family home or vehicle, while still participating actively in the venture. A business structure that shields these personal assets from debt collectors may be especially attractive to entrepreneurs taking on high levels of financial risk. 

Work With a Business Formation Lawyer Today

There are many options for those starting new ventures in West Virginia, and choosing the proper business structure can take time. To discuss the most appropriate choice, having a conversation with a qualified business law attorney in West Virginia makes sense. A conversation with Zeni Law may help you evaluate the pros and cons of different business structures while discussing governance documents, risk assessment, and other essential topics. Reach out today to get started.