As a small business owner, you have several different ways to form your business in the U.S. Virgin Islands. The type of business entity that you select will hinge on numerous factors and conditions. It is always best to seek the counsel of a corporate attorney who is familiar with business formation,such as those in the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC.
Taxes and liability are typically the two biggest factors to look at when making the business formation decision. Of the four major types of entities—sole proprietorships, partnerships, limited liability companies, and corporations—each has varying degrees of these two issues. Additional considerations to think about are start-up costs, the number of business owners, record-keeping, and reporting requirements. Each has its own benefits, and we will look at the most popular forms of business organizations.
The easiest business to create is a sole proprietorship. Not only is it the easiest, but it is the least expensive. Generally there is no requirement to register this business with the Corporate and Trade Name Division of the Office of the Lieutenant Governor. From a tax standpoint, you must remember that the sole proprietorship and the owner are deemed to be one entity. As a result, there really are no tax advantages to this type of business. Also, the owner has complete personal liability for any claims that arise in the business. That means that a sole proprietor is the company, and so are their personal assets and property (i.e., the owner’s bank account, boat, and car!).
Instead of a sole proprietor, an individual can limit their liability by transforming the sole proprietorship into a limited liability company (LLC), the newest business entity in the Territory. Just as the name says, an LLC offers limited liability to the owners. Also, if the LLC owes money to a creditor, the owner of the LLC would generally have at risk only the money they invested in the business. Their personal assets would not be touched.
Partnerships have one or more people who agree to split the profits and losses of their business. General partnerships and limited partnerships are the two kinds of partnership provided by the Virgin Islands Code. A general partnership dictates that the partners manage the company as a group and agree to be liable for the partnership debts. In a general partnership, all of the owners have equal amounts of investment, liability, risk, and control, including personal liability and assets. It is also important to note that the partnership is liable for the conduct of each of the partners. So if a partner decides to embezzles, all of the partners are on the hook for the crime. Similar to a sole proprietorship, a general partnership’s owners have unlimited liability.
A limited partnership is somewhat different. In this situation, there are investors who provide the investment capital. These investors have little control or management of the company. The limited partners are liable for the partnership’s debts only for as much the money they contributed to the partnership. Talk to one of our corporate attorneys at BoltNagi, as specific U.S. Virgin Islands laws may vary from state laws on the U.S. mainland. Currently, the Territory allows limited liability partnerships, as well as limited liability limited partnerships.
A corporation has shareholders or investors and is usually a larger organization with at least a half dozen or more employees. With a corporation the business liability is broken off from personal liability. Legally speaking, a corporation is a "person," with required functions, reporting, and responsibilities. Business debts are the corporation’s, not the investors’ or the members’. There are two types of corporations—the S-Corporation and the C-Corporation.
A C Corporation is very common in the U.S. This corporation has a particular organizational structure with shareholders, directors, and officers. If a corporation has $10 million in assets and 500 shareholders, it is required to register with the Securities Exchange Commission.
The S corporation is one that is created to pass the corporate income, losses, deductions, and credit through to its shareholders for federal tax purposes.
These various corporate entities can get quite complicated rather quickly, so you should definitely speak with an experienced corporate attorney at BoltNagi PC to make sure that you have the best fit for your business.
BoltNagi PC is a full service business law firm based in St. Thomas, U.S. Virgin Islands with practice groups in Corporate, Tax & Estate Planning, Real Estate & Financial Services, Government Relations, Labor & Employment, Civil Litigation, Creditor Rights, Family Law & Children’s Issues, and International Law and Immigration.