Forming an LLC is a great way to limit your liability and protect your personal assets.
Since I’ve been in the industry for over a decade, I helped countless clients establish their limited liability companies and provided guidance on how their businesses stay compliant with the law.
I will walk you through the steps of forming a business entity in Virginia and explain the benefits and drawbacks to help you decide if this business structure suits your company needs.
Quick Summary:
- To start an LLC in Virginia, choose a business name, appoint a registered agent, file articles of organization, draft an LLC operating agreement, acquire an EIN and obtain the necessary licenses and permits.
- The LLC is legally regarded as a separate entity, and as such is not subject to corporate taxes. The profits of the company are taxed through the members’ individual tax returns.
- The benefits of forming an LLC include personal asset protection, pass-through taxation and flexible corporate structure.
How to Start a Virginia LLC?
To start a Virginia LLC, it's essential that you do your research and comply with statutory requirements.
Step 1: Choosing a Name for the Virginia LLC
All Virginia LLCs need to have a unique business name. At the State Corporation Commission, you'll have to check if your business name is available.
If your preferred LLC name is already registered with the state, you need to choose a different name.
The best way you can proceed is by using the Virginia Corporation Commission Business Name Search Tool.
It will let you know if the proposed entity names are available for registration with the state corporation commission in Virginia or not.
Keep in mind that this search tool only works within the limits of standard law rules.
All elements used when searching need to be combined together into a unique whole without separating them
In order for the business name to be approved, you have to follow the state naming guidelines, which includes the following:
- Your business name must be distinguishable from other entities registered in the state.
- It should include the terms “Limited Liability Company, ” “LLC” or “L.L.C”.
- It cannot contain certain words, such as "Federal," "State Department," or any derivative forms of the words associated with government agencies.
- Additional licenses and paperwork are required when you intend to use restricted words such as “attorney,” “insurance” or “bank” in your LLC name [1].
For a detailed step-by-step guide about naming requirements, make sure to visit the State Corporation Commission website.
Step 2: Appoint a Virginia Registered Agent
A registered agent is an individual or company responsible for receiving legal documents on behalf of your entity.
You should note that Virginia does not require that a physical person acts as your registered agent, so it can be any company/individual who meets all requirements set by Virginia law.
The cost of a Virginia registered agent service varies mainly depending on the location of your business in Virginia. In all probability, you will pay as little as $40/year up to over $500 for this service. Still, in most cases, it is much lower than that (less than $200).
LLC members could also appoint an owner to act as a registered agent instead of employing the services of a professional. However, the individual should be available during business hours.
The requirements for a reliable registered agent service include the following:
- Provide a physical address in Virginia to receive service of process
- Having a registered agent available during normal business hours
Step 3: File Virginia LLC Articles of Organization
Articles of Organization is a legal document an LLC has to file with the Virginia State Corporation Commission for the company to be recognized as a legitimate business in the state.
The Articles should include the following:
- Contact information
- The purpose of the business
- Members’ name and address
- LLC’s management structure
- The duration of the business
- Registered office address/agent's name & physical street address for service of process
The state will not accept incomplete filings, so make sure to include all necessary forms with accurate information regarding your LLC's name, location, EIN (if applicable), as well as current contact details for at least two founders or members.
Virginia Articles of Organization are filed through Form LLC1011 at a $100 filing fee. You can file Virginia articles online or by mail. Consider asking your registered agent for more information if you're unsure.
Step 4: Formulate Your Operating Agreement
Every Virginia limited liability company should draft an operating agreement. This document regulates the operating procedures of a business and establishes its internal structure.
All LLC members should sign it, and each member must keep their own copy for reference purposes.
A Virginia LLC operating agreement ensures that the rights and responsibilities of all owners are clearly stated in regard to any issues or decisions concerning the management.
The operating agreement should include the following clauses:
- Name of LLC, its purpose, and structure
- Time of formation
- Rights and duties of members
- Distribution of profits and losses
- Voting requirements and procedures
Step 5: Acquire an EIN
EINs (employer identification number, federal employer identification number, or federal tax identification number) is a 9-digit number assigned by the IRS to newly-formed businesses.
EINs are required to open a business bank account, file a tax return, receive federal benefits, acquire loans or conduct certain business transactions.
You can request an EIN for your Virginia LLC by downloading an application form from the IRS website and then faxing or mailing it.
You can simply file online through their electronic application form. Both services require no filing fee.
Step 6: Obtain LLC Business Licenses
If you want to set up a professional limited liability company in Virginia, you will need to acquire certain business licenses.
Businesses must apply for their Virginia business license with both the State Corporation Commission and the local government where they will be operating.
Applicants can fill out separate applications for each or a combined application that covers both agencies at once.
You may also need additional state-specific licenses such as General Business License (city), Contractor License, or other business licenses imposed by the county or the city where your LLC is registered.
Keep in mind that all members of your PLLC need to be professionally licensed.
However, certain professional LLCs that cover the engineering, landscape, architecture, or design industry only need two-thirds of their members to own a professional license, while some may even need a certificate of authority too.
If you are not sure what type of business license your LLC needs, consult U.S. Small Business Administration for information about the licenses at the federal level
You may also contact the Virginia Department of Professional and Occupational Regulations to obtain information about the licenses at the state level.
For information about local licenses, you will need to contact your local city hall or the county offices.
How are LLCs Taxed in Virginia?
LLCs in Virginia are taxed based on the classification that the company opted for.
Limited liability companies are known for their pass-through taxation, meaning profits and losses are not taxed at the federal level, but are taxed on their individual returns.
This applies to LLCs taxed as sole proprietorship, partnership and S-Corporation.
However, if you choose to file your taxes as a C Corporation, you are subject to double taxation, meaning corporate profits, as well as individual income would be taxed.
The form of the taxes you will have to apply for will vary, depending on the type of your LLC.
State taxes include state business tax and state employer tax. State taxes (income taxes) are paid by LLCs that conduct business in a state.
LLCs are required to file Form 2553 with the Virginia State Tax Department - an annual report of income and expenses if the LLC chooses to be taxed as a corporation.
The corporate tax rate for business entities in Virginia is 6%.
When it comes to your tax obligations as an employer, you need to pay attention to both federal and state taxes.
Federal taxes include the following:
- Federal self-employment taxes
- Federal unemployment tax (FUTA)
- Federal income taxes
- Federal excise taxes on regulated products
LLC owners must also withhold Social Security and Medicare taxes from their employee's paychecks and report them to the federal government if they have any.
You must also register with the Virginia Department of Taxation if you are an LLC that sells taxable items or services.
You must report sales tax to the state on a monthly or quarterly basis, and the sales tax will vary according to the transactions your LLC makes.
Virginia LLC Benefits
Once you decide to form an LLC in Virginia, you'll want to think about the benefits of having a Virginia LLC. Here are some of the most notable:
1. Limited Liability Protection
One of the main reasons people choose an LLC in Virginia is for limited liability protection, which means if you form your company in this state, only your business assets can be used to pay off any debt or legal issues.
This basically protects everything in your individual name from being seized by creditors when you transact business in Virginia.
2. Pass-Through Taxation
The limited liability company is regarded as a separate entity apart from its members. The LLC itself is not subject to corporate taxes and the profits are taxed through the individual returns of the members.
3. Flexibility with Management
Virginia is one of only a few states that don't require you to have personal information about your business's owners on file for them to run your company here.
A Virginia LLC may be managed by a single member or run collectively by the company’s owners. The members have the option to employ an independent manager or managerial service which is not affiliated with the company.
FAQs
Does a Virginia LLC Need to File an Annual Report?
A Virginia LLC does not have to file an annual report. However, your LLC must pay an annual registration fee every year to continue operating legally within the state. The annual registration fee for an LLC in Virginia is $50.
Do I Need to Register as a Foreign LLC in Virginia?
You need to register as a Foreign LLC in Virginia by filing Form 1052 with the Virginia State Corporation Commission.
Does Virginia Allow Domestication of an LLC?
Virginia allows domestication of an LLC. You need to file Articles of Domestication and Articles of Organization and file both documents with Virginia State Corporation Commission.
At the same time, you have to take LLC dissolution steps in your home state.
Can I Be My Own Registered Agent in Virginia?
You can be your own registered agent in Virginia, provided that you meet all legal requirements set forth by the state.
Does Virginia Require Workers’ Compensation Insurance?
Virginia requires workers' compensation insurance if you have two or more employees.
How Do I Set Up a Single-Member LLC in Virginia?
You can set up a single-member LLC in Virginia by choosing a business name, appointing a registered agent, filing articles of organization and drafting an operating agreement.
Starting an LLC in Virginia
Starting an LLC in Virginia could be accomplished by preparing and filing all legal documents, as well as following statutory requirements.
If you are unsure what your next move should be or want help getting started on this journey, consider hiring a professional like ZenBusiness who is experienced at creating all types of business entities.
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References:
- https://scc.virginia.gov/pages/Business-Entity-Names
