When operating a small business, it’s important to take care of all the legal tasks that come with entrepreneurship. Here’s one legal question that you’ll need to deal with right away—which type of business entity is best for your company?
The state of Virginia recognizes several different business structures, including limited liability companies (LLC). Virginia has a growing and diverse small business economy, with a thriving science, health, and food service sector. Of the nearly 5,000 new businesses that launch in Virginia each quarter, many organize as LLCs. Owners in an LLC are shielded from personal liability for business debts, and LLCs have fewer compliance requirements than corporations. In this guide, we’ll cover all the steps you need to follow for successfully forming an LLC in Virginia.
Forming an LLC in Virginia: Step-by-Step Instructions
In order to form an LLC in Virginia, you’ll need to register your business with the Virginia State Corporation Commission (SCC). Despite the word “corporation” in the name, this state agency handles filings for various types of business entities, including LLCs. The SCC also enforces naming requirements for LLCs, collects filing fees, and establishes other rules that you have to follow.
Here are the steps for forming an LLC in Virginia:
Step 1: Choose a Name for Your Virginia LLC
The first step is to choose a name for your Virginia LLC. Like all other states, Virginia requires the name of your LLC to be different from the names of other business entities that are on file with the SCC. For instance, you can’t select the name “Mister Donut, LLC” if there’s already a “Mr. Donut, LLC” or “Mr. Donut, Inc.” that’s registered to operate in Virginia. This requirement prevents confusion among the general public and customers.
Virginia LLC Name Requirements
Under Virginia law, the name of your LLC must end with one of the following words:
- Limited Liability Company
- Limited Company
Businesses that provide professional services, such as doctors’ offices and law firms, must form a Virginia Professional Limited Liability Company. These businesses can choose to substitute one of the above endings with P.L.L.C., PLLC, P.L.C., or PLC, but they don’t have to.
There are restrictions on the use of certain words in your LLC’s name. Under Virginia law, you can’t use the word “bank,” “trust,” “engineer,” “architecture,” or “land surveying” in your LLC’s name unless your business is actually engaged in those activities. You also can’t include abbreviations referencing other types of business entities, such as “Inc.” for a corporation.
Name Availability and Reservation
Put together a shortlist of names for your LLC, and then do an availability check on the SCC name search website. This tool will tell you whether another business entity in Virginia has already claimed your name. If this preliminary name check shows that the name is available, you have the option to reserve the name for up to 120 days by paying a fee of $10. Compared to other states, Virginia has one of the longest name reservation periods for the lowest fees. To reserve a name, submit Form SCC631.
Reserving a name is optional, but doing so prevents other companies from claiming the name until you fully set up your business. That said, there’s no guarantee that a reserved name complies with state or federal trademark laws. It’s ultimately up to you and your business attorney to understand the naming requirements for LLCs in Virginia and choose an appropriate business name.
If your LLC will operate under a trade name that’s different from your business’s legal name, then you also need to register a fictitious business name certificate with the county clerk’s office where your business is located. Then, you’ll need to pay a $10 filing fee and file the certificate with the SCC’s Clerk’s Office. For instance, if Joan and Smith LLC wants to brand itself as “Joan’s Landscaping,” then you need to register a fictitious business name.
Source: Virginia State Corporation Commission
Step 2: Appoint a Virginia Registered Agent
All Virginia LLCs must designate a registered agent, which is an individual or company that receives legal documents and official mail on your business’s behalf. The agent is responsible for forwarding such documents to you. The registered agent’s address in Virginia is called the registered office.
Virginia has stricter rules than other states for who can be a registered agent. In Virginia, an individual can serve as the registered agent for a business entity only if they are licensed to practice law in Virginia or are part of business management (i.e. they are an owner or officer of the business). The individual must also be a Virginia resident.
Alternatively, you can designate a company that’s authorized to do business in Virginia to act as your registered agent. Many companies that provide registered agent services are licensed in all 50 states, so you can use one company as your registered agent even if you’re operating nationwide. One example of a company that provides registered agent services is IncFile. They include one year of free registered agent service if you also form your LLC through IncFile.
Step 3: Check If You Need a Virginia Business License
The state of Virginia does not have a general business license requirement, but businesses in certain industries might need one. For instance, real estate agents, engineers, and home inspectors must obtain a state license. Your city or county might also have licensing or zoning requirements. Local jurisdictions typically have a commissioner’s office or zoning office to help businesses sort through licensing requirements when you’re forming an LLC in Virginia.
Retailers that sell taxable goods or services must register with the Virginia Department of Taxation (DOT), and collect sales tax from customers. On a monthly or quarterly basis, depending on your sales volume, you’ll have to report the sales tax to the state.
Step 4: File LLC Articles of Organization
Up next for forming an LLC in Virginia: filing your articles of organization. You can either file your articles online for the quickest processing, or mail in Form LLC-1011 to the Virginia SCC. The filing fee is $100.
The articles of organization for Virginia LLCs are really short and include the following:
- Business name and address
- Name and address of the registered agent
- Name and signature of the organizer who is filling out the form
If your LLC is organized under the laws of another state, but you’d like to operate in Virginia, then you’re considered a “foreign” LLC. You’ll need to obtain a certificate of registration from the Virginia SCC by filing LLC-1052. The filing fee for this application is $100. Along with your filing fee, you’ll need to include a certified copy of the LLC’s home state articles of organization.
Once you submit your articles of organization, the state will process them in a week or two (see current processing times) and send you a certificate of organization. This should be stored with other important business records. For an additional fee, you can request next-day or same-day expedited processing.
If you need additional help, you can file your articles of organization through an online legal service like IncFile.
Source: Virginia State Corporation Commission
Step 5: Draft an LLC Operating Agreement
LLCs in Virginia aren’t legally required to have an operating agreement, but you should still consider this as an essential step. The operating agreement summarizes how the LLC will be run on a day-to-day basis and contains information on each owner’s contributions to the company and profit share.
At a minimum, include the following in your LLC operating agreement:
- The LLC’s products or services
- Each owner’s name and address
- The manager’s name and address if the LLC is manager-managed
- Each owner’s financial contributions to the LLC
- Each owner’s stake in the company, profit share, and voting rights
- Procedures for admitting new business partners
- Procedures for electing a manager if the LLC is manager-managed
- How to handle ownership transfers when an owner departs the business
- Meeting schedule
- Procedures for dissolving the company
A lawyer or online legal service can help you create a custom LLC operating agreement. When you’re finished drafting your agreement, give a copy to all members of the LLC for their review and signature. File away your operating agreement along with other important business documents.
Step 6: Comply With Employer Obligations
In addition to the requirements listed above, Virginia LLCs with employees have a few more obligations to meet.
Virginia employers have to take care of the following requirements:
- Employee reporting: Report all new employees to the Virginia New Hire Reporting Center within 20 days of hiring or rehiring, whether the employee is full-time, part-time, or seasonal. This is mandatory under federal and state law.
- Pay employer taxes: Employers have to withhold payroll taxes from their employees and file payroll tax returns. Begin by registering your business with DOT.
- Purchase workers compensation insurance: Virginia businesses that employ three or more full-time or part-time employees must purchase workers compensation insurance.
- Pay unemployment taxes: You must pay state unemployment states if your payroll is more than $1,500 in a quarter or if you employ workers for more than 20 weeks in a given year. You also have to file quarterly tax reports. The Virginia Employment Commission is in charge of collecting unemployment taxes.
A labor and employment attorney can help ensure that you’re in compliance with other laws for employers.
Step 7: Pay Taxes and Fees for Virginia LLCs
LLCs are considered pass-through entities for income tax purposes. This means that the LLC itself is not responsible for paying taxes. The business profits and losses pass through to each owner’s personal tax return. Each owner then pays federal and state taxes on their share of the profits.
An LLC can elect to be taxed as a C-corporation or S-corporation by filing the appropriate paperwork with the Internal Revenue Service (IRS). An LLC that elects to be taxed as a C-corporation will pay Virginia corporate tax and federal corporate tax.
As we mentioned above, Virginia LLCs with employees must withhold payroll taxes from their employees’ wages and pay unemployment taxes. A portion of unemployment taxes goes to the federal government, and a portion goes to the state.
Counties and cities in Virginia charge a small tax every year called a “license tax,” which varies based on the gross sales of your business. In addition, the state charges a yearly $50 registration fee that’s due on the last day of the month in which your LLC was formed. Virginia LLCs do not have to file an annual report.
Step 8: Comply With Federal Requirements
One last step for forming an LLC in Virginia: Comply with federal requirements. An LLC with employees or multiple owners, or an LLC that elects to be taxed as a corporation will need a federal employer identification number (EIN).
Virginia LLC owners must pay federal self-employment taxes to cover social security and Medicare obligations. If you have employees, you must also withhold social security and Medicare taxes from your employees’ paychecks and report them to the federal government. There’s also an employer share of these taxes that goes to the federal government.
Lastly, Virginia LLCs with employees have to pay federal unemployment taxes under the Federal Unemployment Tax Act (FUTA tax). Fortunately, paying state unemployment taxes on time reduces your federal responsibility.
Benefits and Drawbacks of Forming a Virginia LLC
An LLC is one of many business entity structures you can choose from. LLCs are small business friendly because of their tax and operational flexibility. Plus, they have fewer compliance requirements than corporations. However, there are also disadvantages to watch out for.
Here are the pros and cons of starting an LLC in Virginia:
Virginia LLC Benefits
- Owners in an LLC aren’t personally liable for business debts and business lawsuits
- LLCs have fewer compliance requirements than corporations
- LLC earnings aren’t subject to double taxation in the way that C-corporation earnings are
- LLCs can choose whether to be taxed as a pass-through entity or corporation
- No annual report is required for Virginia LLCs
- Virginia charges a low annual registration fee ($50) for LLCs
- Virginia charges low filing fees and name reservation fees for LLCs
Virginia LLC Drawbacks
- Virginia has strict rules about who can serve as a registered agent for a business
- All LLC earnings are subject to self-employment taxes, whereas corporate shareholders only pay social security and Medicare taxes on salary
- An LLC can’t issue stock, making it difficult to raise money from investors
Consider other business structures as you evaluate the pros and cons of starting an LLC in Virginia. It’s easiest and least expensive to start a sole proprietorship or general partnership, though these business structures won’t give you liability protection. If raising money from investors is part of your financial strategy, then consider a C-corporation or S-corporation so that you can provide equity to investors. A business lawyer can help you further compare business entities and choose the best option for your company.
Forming an LLC in Virginia: The Bottom Line
Follow the eight steps shown above to register an LLC in Virginia. Of course, starting your LLC is easy, but keeping it in good standing is more challenging. You’ll need to ensure that you’re keeping up with taxes, employer obligations, and other state and federal requirements. When you’re ready to form an LLC in Virginia, we suggest heading over to IncFile. They will help you file your articles of organization and include a year of free registered agent service.