FAQ Business Law
Should I form a corporation or an LLC?
If you are operating your business as a sole proprietorship, it is most likely in your best interest to form a separate entity for business purposes, in order to protect your personal assets, and keep your business liabilities and tax obligations separate.
This is true regardless of whether you form a corporation or an LLC.
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What is an S corporation?
A Subchapter S corporation is a small corporation with no more than 100 shareholders, all of whom must be US residents or citizens.
As a practical matter, Subchapter S corporations are generally much smaller than that, and can even consist of only one person.
For a small business, a Subchapter S is structured much the same as a regular corporation (known as a Subchapter C corporation), with the exception that income received by the shareholders “passes through” to the shareholder, thus avoiding double taxation.
In order to form a Virginia Subchapter S corporation, you must follow Virginia rules for forming a Subchapter C corporation, but using IRS Form 2553, make what they call a “Subchapter S declaration” within the time period required by statute.
For many businesses, forming an LLC (Limited Liability Company) may have greater flexibility and fewer restrictions than a corporation. However, it is much easier to set up a Subchapter S corporation than an LLC.
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What is an LLC (Limited Liability Company)?
An LLC is a sort of a hybrid between a partnership and a corporation.
Like a corporation, the shareholders in an LLC don’t have personal liability for business debts in most situations.
Like a partnership or a Subchapter S corporation, the profits of an LLC pass directly to the shareholders without double taxation.
Unlike a Subchapter S corporation, there is no limit to the number of shareholders, and no requirement that they be citizens or residents of the USA.
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What is a professional corporation (PC)?
A professional corporation is one type of corporation which may be organized and
authorized to do business in Virginia. The shareholders must be professionals licensed in Virginia, in one of the following occupations: pharmacists, optometrists, physical therapists, physical therapist assistants, practitioners of the healing arts, nurse practitioners, practitioners of the behavioral science professions, veterinarians, surgeons, dentists, architects, professional engineers, land surveyors, certified landscape architects, certified interior designers, public accountants, certified public
accountants, attorneys-at-law, insurance consultants, audiologists or speech pathologists, and clinical nurse specialists.
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Would a confidentiality (nondisclosure) agreement be a good idea?
If you need to protect business secrets, also known as trade secrets, the easiest thing to do is not allow employees to have access to them.
Of course, this is not always possible, or even desirable.
If you are hiring a new employee, get them to sign a confidentiality/nondisclosure agreement as a condition of employment, before they start.
If you already have existing employees, then having them sign such an agreement may not be enforceable unless you give them something in return, such as a bonus, a raise, or a promotion, because such contracts may not be enforceable without “consideration.”
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Is a non-compete agreement a good idea?
Non-compete agreements are enforceable in Virginia if the purpose is reasonably intended to protect the trade secrets of the employer.
If the only purpose is to prevent a former employee from finding employment in the same field for another company, or setting up business for himself/herself, then the agreement may not be enforceable.
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How can I protect business secrets or trade secrets?
In order to protect your business or trade secrets, the first rule is to maintain your secrets. If you do not follow all reasonable efforts to maintain your secrets, you may find that you have waived secrecy. You may find one or more of the following techniques useful:
? Revealing secrets only on a “need-to-know” basis.
? Non-disclosure agreements and confidentiality agreements for employees and prospective employees.
? Non-disclosure agreements and confidentiality agreements for independent contractors, potential investors, and potential buyers.
? Consultant agreements with outside consultants and independent contractors.
? Non-compete agreements for employees and potential employees.
? Patents, trademarks and copyrights.
? Disclaimers of confidentiality on confidential documents, incorporated into the document itself or stamped on it.
? Regular destruction of confidential documents by shredding.
? Redaction of confidential information from documents before allowing others to see them.
? Don’t allow secrets to be put on internets or intranets without encryption or some other form of protection.
? Establish, and enforce, clearly written guidelines for maintenance of confidentiality which are given to all employees.
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Should I sign an employment contract?
Probably.
Virginia is an “employment at will” state. This means that, in the absence of a contract, you can be fired for almost any reason, unless it violates the few laws which exist to prevent discrimination on the basis of race, sex, religion, nationality, age or disability.
A good employment contract should set forth the oral agreements between you and your prospective employer about compensation, hours, promotions, bonuses, and causes for termination.
Oral agreements may be binding but are very hard to prove.
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I want to become an independent contractor. How?
Working as an independent contractor may have certain advantages, such as higher compensation, more advantageous tax deductions, and the ability to work for more than one customer at a time.
But you must be careful that you really are an independent contractor, not an employee in “independent contractor” clothing. The tax consequences for you, and your employer, can be dire.
Here are some of the things that the IRS looks at:
? Who retains control over how the work is done? If the employer supervises you to ensure how and when the work is done, you’re an employee. If all the employer cares about is whether the work is done to specifications, you’re an independent contractor.
? Who takes the risk as to whether or not you make a profit? If the company pays your business expenses, then you’re probably an employee. If you are responsible for your own expenses and overhead, you’re an independent contractor.
? Who pays for your benefits, like profit-sharing, health insurance and vacations? Again, if the company pays for these, you’re probably an employee. If it’s you, you’re probably an independent contractor.
? Do you do work for only one company, or several?
? Do you have any of the other signs of being in business, like a bank account in the name of your business and your own advertising?
Protect yourself. In addition to keeping your independence as set forth above, use written contracts that clearly establish that you and the employer agree that you are an independent contractor by setting out the ground rules in advance.
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