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 foodservice 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.
This being said, if you’re considering starting an LLC in Virginia, you can use this guide to do so. We’ll break down the eight steps you can follow to form your LLC, as well as discuss the possible benefits and drawbacks of starting an LLC in Virginia—as opposed to forming another legal entity.
Starting an LLC in Virginia
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.
With this in mind, you can follow these eight steps to learn how to start an LLC in Virginia:
Step 1: Choose a name for your LLC.
The first step to forming an LLC in Virginia is choosing a name. 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
Additionally, it’s important to note that businesses that provide professional services, such as doctors’ offices and law firms, must form a 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.
Moreover, 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
This being said, in order to choose a name for your LLC, you’ll want to put together a shortlist of names then perform 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 $10 filing fee. Compared to other states, Virginia has one of the longest name reservation periods for the lowest fees. To reserve a name, you can either complete Form SCC631 and submit it by mail—or complete and submit it online using the SCC Clerk’s Information System.
Ultimately, 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. Therefore, it’s up to you and your business attorney to understand the naming requirements for LLCs in Virginia and choose an appropriate business name.
Using a DBA
It’s also important to note that when starting an LLC in Virginia, you have the option to operate under a DBA, or “doing business as”—a fictitious name that’s different from your business’s legal name. If you decide you want to use a DBA, you’ll need to register it 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 themselves as “Joan’s Landscaping,” then they’ll need to register a fictitious business name with the state.
Step 2: Appoint a registered agent.
Once you’ve decided on a name, the next step to starting an LLC in Virginia is appointing a 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. IncFile includes one year of free registered agent service if you also form your LLC through them.
Step 3: Determine if you need a Virginia business license.
If you’re wondering, “Do I need a business license in VA?”, the answer is—it depends.
When you’re starting an LLC in Virginia, therefore, the next step in the process is determining whether or not you need a state license. Although the state does not have a general business license requirement, businesses in certain industries might need one.
For instance, real estate agents, engineers, and home inspectors must obtain a state license. Additionally, your city or county might also have licensing or zoning requirements. If you’re unsure of the local requirements for your LLC, you’ll want to contact your commissioner’s office or zoning office—as these organizations can help you sort through local licensing guidelines.
This being said, however, if your LLC is going to sell taxable goods or services, you must register with the Virginia Department of Taxation (DOT), in order to 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 your LLC articles of organization.
Once you’ve determined whether or not you need a specific business license—and gotten that license if you do—the next step of learning how to start an LLC in Virginia is filings 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 form for Virginia LLCs is pretty brief and includes 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 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.
With all of this in mind, if you opt to use an online legal service for your registered agent or for help with other formation processes, you might also decide to receive assistance filing your articles of organization as well.
Step 5: Draft an LLC operating agreement.
After you’ve filed your articles of organization and received approval from the state, for all intents and purposes, you’ve successfully learned how to start an LLC in Virginia. This being said, however, there are a few final steps you’ll need to take for the process to be complete.
First, you’ll want to draft an LLC operating agreement. Although Virginia LLCs aren’t legally required to have an operating agreement, this document is essential as it outlines how the LLC will be run on a day-to-day basis as well as each owner’s contributions to the company and profit share.
Additionally, an operating agreement further helps establish your LLC as a separate business entity. Moreover, without this agreement to specify how your LLC will function, by default, Virginia state LLC law will govern how your LLC operates.
This being said, at a minimum, you should 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
How to handle ownership transfers when an owner departs the business
Procedures for dissolving the company
Because this is such an important business document, you might utilize the services of a lawyer or an online legal service to help you create a custom LLC operating agreement.
When you’re finished drafting your agreement, you should give a copy to all members of the LLC for their review and signature. You can file away your operating agreement along with other important business documents—again, because an LLC operating agreement is not required by Virginia, you will not have to submit this document to the state.
Step 6: Comply with state employer obligations.
Next, if you’re starting an LLC in Virginia and you have employees, you’ll have a few additional obligations to meet as an employer:
Employee reporting: You’ll need to 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: As an employer, you’ll have to withhold payroll taxes from your employees and file payroll tax returns along with your other LLC taxes.
Purchase workers’ compensation insurance: When you’re forming an LLC in Virginia, you’ll need to purchase workers’ compensation insurance if you employ three or more full-time or part-time employees.
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.
Step 7: Pay taxes and fees for your LLC.
After you’ve handled any employer-related requirements, you’ll want to ensure that you understand your tax obligations, as well as any annual fees you’ll need to pay for starting an LLC in Virginia.
To this point. 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.
Additionally, 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.
Finally, you’ll need to pay an annual state registration fee for your LLC. This yearly payment of $50 is due on the last day of the month in which your LLC was formed. The Virginia SCC will mail a notice regarding this fee to your registered agent at their registered office address.
You can pay your annual fee online or by mail. If you are late to pay your annual fee, however, you’ll face a $25 penalty. This being said, although you’ll have to pay an annual registration fee, Virginia LLCs do not have to file an annual report.
Step 8: Comply with federal requirements.
The last step to learning how to start an LLC in Virginia? You’ll need to comply with federal requirements for LLCs.
First, if your LLC has employees or multiple owners, or you’re an LLC that elects to be taxed as a corporation, you’ll need a federal employer identification number (EIN).
Additionally, Virginia LLC owners must pay federal self-employment taxes to cover social security and Medicare obligations. Moreover, as we mentioned above, 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.
FAQs about starting an LLC in Virginia
By following these steps, you should be able to fairly quickly and easily form an LLC in Virginia. If you still have some outstanding questions about the process, however, we have answers:
How much does it cost to start an LLC in Virginia?
It’s actually quite affordable to form an LLC in Virginia. At a minimum, it will cost $100 to file your articles of organization and start your LLC.
Starting an LLC in Virginia will be slightly more expensive, of course, if you utilize the services of a business attorney or online legal service to help you through the process. Additionally, other fees that you may incur throughout the process include:
$10 filing fee to reserve your LLC name for 120 days
$10 filing fee to operate under a fictitious business name
$100 filing fee to apply to operate in Virginia even though your LLC has been created in another state
$25 penalty fee for failing to pay your annual registration on-time
$50 to $200 fee for expedited services
How much does a Virginia LLC cost per year?
In order to keep your LLC registration active in the state of Virginia each year, you’ll need to pay an annual $50 registration fee. As we mentioned above, this fee is due on the final day of the month in which your LLC was created—and a $25 late fee applies.
Other than this, of course, you may face additional annual fees for taxes, as well as business licenses (if they’re required in your city or industry).
How long does it take to set up an LLC in Virginia?
As you can see with our step-by-step guide, the process for starting an LLC in Virginia is pretty simple and straightforward. On your end, you can complete the necessary paperwork and filings in a matter of hours—especially if you use the online-based application system.
The time it takes for the state to officially approve everything on their end, however, will vary. Generally, you’ll find that the setup process with the state can take anywhere from one to two weeks—this, of course, will depend on the volume of pending documents.
On the whole, you’ll find that you’ll be able to set up your LLC in Virginia much more quickly if you use the online system (shown below) than if you submit everything by mail.
Additionally, it’s worth noting that the Virginia SCC does offer expedited services.
For next-day expedited services, you can pay a $50 or $100 fee, and documents received by 2 p.m. of a business day will be reviewed and processed by 4 p.m. on the next business day. For same-day expedited services, you can pay a $200 fee, and documents received by 10 a.m. of a business day will be reviewed and processed by 4 p.m. the same day.
Do I need a lawyer to set up an LLC in Virginia?
A lawyer is not required to start an LLC in Virginia. As we’ve discussed, however, a lawyer can always be consulted for assistance in completing your articles of organization, drafting your operating agreement, or understanding your state, local, and federal obligations as a business.
To this point, if you don’t want to hire an actual attorney to help you with your formation processes, you might instead go through an online legal service, like LegalZoom or IncFile. Each of these companies can perform a range of legal services customized to your business’s specific needs.
Benefits and drawbacks of forming an LLC in Virginia
Ultimately, as we’ve shown, the process required to start an LLC in Virginia is fairly straightforward, as well as affordable. This being said, however, an LLC is only one of many business entity structures you can choose from.
So, if you’re trying to decide whether you should start an LLC—or another entity type—in Virginia, you can refer to the following pros and cons:
Benefits of starting an LLC in Virginia
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
Drawbacks of starting an LLC in Virginia
Virginia has strict rules about who can serve as a registered agent for a business compared to other states
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
If you’re not convinced that forming an LLC in Virginia is the right move for your business, you might consider a sole proprietorship or general partnership if you’re looking for the easiest and least expensive business structures. These options, however, will not provide liability protection.
On the other hand, if raising money from investors is part of your financial strategy, you might consider an S-corporation or C-corporation so that you can provide equity to investors. A business lawyer can always help you further compare business entities and choose the best option for your company.
The bottom line
At the end of the day, you can follow the eight steps shown above to learn how to start 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.
This being said, if you’re unsure of what requirements apply to your business, you can consult a business attorney, as well as contact your local commissioner’s office for assistance.
This article originally appeared on Fundera, a subsidiary of allstocksnews.com.