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What is the Best Business Structure for a Virtual Paralegal Business?

01 Feb 2017 3:34 PM | Cordina Charvis (Administrator)


The type of structure available to you will depend on the law of your state, and as used, must of course conform to any applicable rules of professional responsibility. It is therefore important to research your state law and governing ethical rules before making your final decision. You may also want to consult with an attorney and an accountant to fully understand all of the implications for your firm.

Types of Legal Structures

Sole Proprietorship

The sole proprietorship is perhaps the most straight-forward option. It is a business structure where the business is owned and controlled by one person and that person is liable for any of the business' obligations.

Some aspects of a sole proprietorship include:

  • You don't have to file any forms with the state, though you still need to obtain any required licenses and permits.
  • Owners are personally liable for any debts incurred by the business.
  • Income from the business is reported on your personal income tax return.

According to the Small Business Administration (SBA), some of the advantages of using a sole proprietorship structure are that it is low cost, owners have control, and taxes are simplified, while the disadvantages include unlimited liability and that you have to pay self-employment taxes.

As the owner of a virtual paralegal business, this may be an easier route to take to get your business off the ground and running.


A partnership consists of two or more people who own and run the business. The partnership may be general or limited, and is generally governed by an agreement that sets forth the partners' responsibilities and obligations. Limited liability partnerships (LLP) may be an option depending on your state. LLPs may be limited to certain professions, as in California, and provide some protection to the partner from personal liability for certain acts of the other partners.

In a partnership:

  • Partners are personally liable for the partnership's obligations in a general partnership.
  • Partners owe fiduciary duties to each other.
  • Taxes are paid through the partner's individual tax returns.

The benefits of a partnership, says the SBA, include low formation costs, profits that flow through to the partners, and incentives for employees to become partners, while the downside includes joint and several liability, profit sharing, and disputes between partners over business decisions.

Limited Liability Company

A limited liability company (LLC) is a business whose members are protected from personal liability for the acts and debts of the company in the same way as a corporation, but can opt to be taxed as a partnership.

For limited liability companies:

  • Members do need to file organization papers with the state.
  • An operating agreement governs the rights and responsibilities of the members and how the business will be run.
  • The LLC can choose to be taxed as either a partnership or a corporation.

The SBA notes that LLCs provide the benefits of limited liability and less recordkeeping than corporations, but members may have to deal with dissolution if a member leaves or dies, although the operating agreement can be drafted to address this situation.


corporation is treated as a unique entity with limited liability and perpetual existence that is owned by shareholders.

Of note with regard to corporations:

  • You must file paperwork with the state.
  • You must prepare bylaws that govern the operation of the corporation.
  • The corporation must observe certain corporate formalities.

A corporation is taxed when the corporation earns profits, and the dividends distributed to shareholders are also taxed. If the corporation meets certain requirements, it can elect to be treated as an "S Corporation" such that income and losses pass through to the shareholders.

What is your virtual paralegal business structure?

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