Forming an LLC is a great way to limit your liability and protect your personal assets.
In this blog post, we will walk you through the steps of forming an LLC in Virginia.
We will also explain the benefits and drawbacks so that you can make a more informed decision about whether this business structure is right for you.
What Is an LLC in Virginia?
An LLC in Virginia is a limited liability company. It's similar to an S Corporation or C Corporation in that it limits the personal assets of shareholders and members from being tied up with business liabilities.
The main benefit is the protection of your personal assets, which can be very valuable when you're starting out a new business venture.
Personal liability protection is critical if you plan on borrowing money for your business; banks may ask the company owners to use their personal property as collateral. This can put them at risk in case something goes wrong with the company's operations.
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:
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 or taken 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.
Contractual freedom - A business owner who decides to set up an LLC in Virginia can also benefit from more freedom regarding contractual agreements. This means the owner can make decisions without having any input or approval needed by other LLC members unless otherwise stated in their operating agreement.
Flexibility with Ownership - 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. While you are legally required to keep up with all changes regarding ownership percentages and member additions, there isn't much beyond what is already explained in your articles of organization (which most people choose not to do).
Therefore, this state offers businesses maximum flexibility when it comes down to who they want as of their team. In other words, you can set up a Virginia LLC without having to be its member and list yourself as a member with the State Corporation Commission.
How to Register a Virginia LLC?
To register an LLC in Virginia, you must complete a few steps. It's essential that you do your research and understand how limited liability companies work. The following steps are pivotal because they will lay the grounds for your limited liability company.
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 it isn't, don't worry - there are ways for you to get one that's not reserved by other companies in the state of Virginia.
The naming requirements for business entities in Virginia are simple. Your name must be distinguishable from others, and it cannot contain certain words, such as "Federal," "State Department," or any derivative forms of the words associated with government agencies. You can't use just a number either - your business name has to include at least one word.
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 the unique whole without separating them (for example, John Smith DDS would not be an acceptable company name).
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 service will provide you with an address in your home state which will be used as the official LLC registered office for service of process.
They are also responsible for receiving legal documents on behalf of your entity, physically accepting them at that specific address, and giving legal advice.
You should note that Virginia does not require that a physical person act as your registered agent, so it can be any company/individual who meets all requirements set by Virginia law.
The requirements for a reliable registered agent service include the following:
- Providing an address in Virginia where legal documents can be served to;
- Having a registered agent available there during normal business hours; and, i.e., accepting the same at that particular physical location on behalf of your LLC entity by hand or mail, etc.;
However, if you decide to appoint yourself as your company's registered contact person/agent in Virginia instead of hiring anyone else, make sure someone is physically present at the office during regular business hours (Mon – Fri).
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).
Step 3: File Virginia LLC Articles of Organization
Articles of Organization are the documents LLC have to file with Virginia State Corporation Commission to establish your LLC.
The Articles should include contact information, the purpose of business, member contributions - if not paid in full already (if you are paying it in installments), duration, and registered office address/agent's name & physical street address for service of process.
This document also serves as a public disclosure that can be accessed anytime by anyone having Internet access through the search engines.
The best way to circumvent potential issues arising later is to submit one complete set including all required forms properly filled out together with payment for filing fees at once. This way your company can conduct its regular activities without delays caused by missing some additional information paperwork.
The Articles of Organization should also include provisions about your LLC's management structure. LLCs can be either manager-managed or member-managed, and the choice of management structure should be clearly indicated in your Articles.
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.
The LLC operating agreement ensures that the rights and responsibilities of all owners are clearly stated in regards to any issues or decisions concerning the management, finances, day-to-day operations, how you hire employees, etc.
A Virginia LLC operating agreement is especially important when dealing with relatively inexperienced entrepreneurs.
Any operating agreement should include the following clauses:
- Name of LLC, its purpose and structure;
- Time of formation;
- Rights and duties of members (membership interest);
- Management issues (including voting procedures);
Operating agreements can be tailor-made to suit individual needs. They are flexible documents that serve as a foundation for more detailed internal operating guidelines or may even form an independent document if there is no need for additional rules.
An LLC operating agreement must not conflict with state law in any way since this will render it invalid when dealing with public officials.
Operating agreements don't have to be filed with the state, and they don't have to be registered with any government agency.
Step 5: Acquire an EIN
EINs (employer identification number, federal employer identification number, or federal tax identification number) represent a tax identification number given to a business or organization by the Internal Revenue Service (IRS) and are needed to file various reports. Some of these filings include:
Annual Report of Employee Withholding Compliance - this report is used for an employer that has more than one withholding account with 100 or more employees at any point during the year
Application for Approval of Master Withholding Agreement - this form must be filled out when two enterprises have agreed upon a procedure for how they will coordinate their withholding payments on behalf of each other's employees
EINs are also required to open a business bank account, file a tax return, and receive federal benefits.
You can request an EIN for your Virginia LLC by downloading an application form from the IRS website and then faxing or mailing it, or 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 after completing the operating agreement as stated above.
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.
To get your business started, you should submit an online request to receive your Certificate/Permit Number from either the Virginia Department of Professional and Occupational Regulation or another agency, depending on which one is responsible for issuing licenses in your area.
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 LLC that covers 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 or 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.
Paying LLC Taxes in Virginia
Limited liability companies are known for their pass-through taxation, meaning profits and losses are not taxed at the federal level, but they are taxed on a per applicant basis. LLCs benefit from pass-through taxation because it helps them fall under the same tax bracket as an individual or sole proprietorship.
However, if you choose to file your taxes separately from your business entity and be considered a C Corporation, then double taxation will result for federal purposes, meaning that corporate profits would be subject to corporate income tax rates.
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. If not, the LLC itself doesn't pay state income taxes, but its members do.
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 federal self-employment taxes, federal unemployment tax (FUTA), federal income taxes, and federal excise taxes on specific products in case you sell them.
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.
Does a Virginia LLC Need to File an Annual Report?
Virginia LLCs don't have to file annual reports. 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.
LLCs that fail to pay the annual registration fees in time will be charged an additional $25 or even risk dissolution if the renewal isn't made in the following three months.
How Much Does a Virginia LLC Cost?
The required cost every LLC in Virginia has to pay is the initial $100 filing fee you pay when filing your Articles of Organization. Other costs may include:
- A name reservation fee (10$).
- An LLC formation service (starting around $40).
- Possibly business licenses in case your LLC provides professional services.
How Long Does an LLC Take To Get Approved?
The LLC formation time in Virginia can take anywhere between three days to two weeks, depending on the method you choose when filing (online or by mail) and whether you opt for expedited processing. The next-day processing is charged an additional $100 filing fee, and the same-day processing is charged an additional $200.
Do I Need to Register as a Foreign LLC in Virginia?
If you are forming a foreign LLC in Virginia, you need to register the business entity with the Virginia State Corporation Commission and file Form 1052.
Does Virginia Allow Domestication of an LLC?
Yes, Virginia allows LLC domestication. 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?
Yes, anyone can be a registered agent for your limited liability company in Virginia, provided that they have a physical street address in Virginia and have a role in your LLC.
Does Virginia Require Workers’ Compensation Insurance?
Yes, Virginia requires that you have workers' compensation insurance if you have two or more employees. Apart from that, you might need other types of business insurance to manage risks and face challenges. These primarily include General Liability Insurance and Professional Liability Insurance (if you run a PLLC).
How Do I Set Up a Single-Member LLC in Virginia?
A single-member LLC in Virginia is treated the same as a multi-member LLC. When submitting a tax return, single-member LLCs have more options than LLCs with more than one member. SMLLCs are disregarded entities, which means that the LLC is a separate business entity from its single owner. The owner pays their own taxes instead.
Setting up a Virginia LLC is not always easy, and you could make mistakes. It applies even when you have a registered agent.
To avoid making costly errors in the process, be sure to follow these steps carefully.
If you are unsure what your next move should be or want help getting started on this journey, consider hiring a professional who is experienced at creating all types of business entities, like a registered agent.