A lot of factors can determine whether forming a business in Virginia will thrive or fail. With thousands of new businesses being established every year, the pressure to survive in the marketplace is high. That is why not all startups last past five years. Your decisions as a business owner will help you in achieving success. Among the things you need to decide on when you choose to start a company are the location and business entity structure. Those will indicate your company’s taxation and regulatory requirements.
Why Forming A Business In Virginia Is Best For Your Company
There are various things to consider when choosing where to operate. Forming a business in Virginia comes with a lot of advantages, especially for startups. Generally, the state has a business-friendly tax structure, low operating costs, and many incentives.
Here are some of the other benefits you can get by doing business in Virginia:
- It is a strategic location that gives you access to highways and interstates.
- You will be able to tap into major U.S. markets.
- There are various workforce development programs.
- You will have easy access to many utilities.
- There are a lot of research and development facilities.
- The state has a right-to-work law.
- You can expect a workforce that is highly educated and skilled.
Choosing An LLC Business Entity Structure
Another crucial decision you have to make when forming a business in Virginia is the structure. Your choice will have a long-lasting impact on your personal liability and taxation. It will also determine the process, regulations, and paperwork you will have to complete.
For many emerging entrepreneurs, the most obvious option is the limited liability company (LLC). It is known by many as a hybrid structure because it allows pass-through taxation while limiting the liabilities of the owners, who are called members. If you are the sole owner, you can start a single-member LLC. If your company has multiple owners, then you can form a multi-member LLC.
Here are some of the advantages that make an LLC an attractive choice:
- The owners will have no responsibility for the debts and lawsuits that affect the company as long as they do not engage in any fraudulent or illegal activities.
- The LLC’s profits can go straight to the members, who will then report the income on their individual tax returns.
- You can avoid double taxation.
- The filing, compliance, and management of an LLC is simpler compared to corporations.
- Your business will have credibility.
- Forming an LLC helps build a company’s credit history, which will help you obtain loans and credits in the future.
Forming A Business In Virginia
When it comes to business formation, laws will vary depending on the state where you plan on doing business. You need to understand and complete all of the requirements properly to avoid encountering issues in the long run.
- Company Name – The first step is to choose a company name for your LLC. It has to be distinguishable, so you may need to do a name search to find out if no other business entity in Virginia is using it. You should also comply with the naming requirements set by the state.
- The name has to have the words “limited liability company” or any of its abbreviations.
- It cannot have any words that could confuse the company with a government agency.
- If you use any restricted words, such as “bank,” “attorney,” or “university,” you will have to submit additional paperwork and have a licensed individual.
You can protect the company name from other entities for 120 days by filing an Application for Reservation or Renewal of Reservation of a Business Entity Name with the Corporations Commission. You also need to pay the $10 filing fee.
If you want to use a different trade name from the legal LLC name stated in your formation documents, then you will have to file a Certificate of Assumed or Fictitious Name. This needs to be filed with the office of the circuit court clerk in the city or county where your company operates. The filing fee is $10 as well. You also need to submit a certified copy of the certificate to the Corporations Commission.
- Registration Process – To properly register your Virginia LLC, you will have to file the Articles of Organization with the Corporations Commission and pay the $100 filing fee.
The processing time for LLC paperwork in Virginia depends on your way of filing. If you do it online, you will typically receive the certificate on the same day. However, if you submit by mail, the commission may take approximately 28 days to process your documents.
- Initial Compliance – Once you decide to do business in Virginia, you have to be ready to deal with the state compliance requirements and submit the necessary legal documents.
- Articles Of Organization – As stated earlier, you will have to submit this initial paperwork to legalize your business operations in the state. Make sure you include the following information:
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- LLC name
- Initial principal office address
- Name and address of your registered agent
- Signatures of the organizers
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- Registered Agent – Like other states, Virginia requires companies to appoint a registered agent to receive all legal documents and services of process on behalf of the company.
If you choose an individual, they must be a Virginia resident who has any of the following characteristics:
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- An LLC member or manager
- A member or manager of an LLC that acts as a member or manager of your LLC
- An officer or director of a corporation that is a member or manager of your LLC
- A general partner of a limited or general partnership that is a member or manager of your LLC
- A trustee of an organization that is a member or manager of your LLC
- A member of the Virginia State Bar
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Meanwhile, if you choose a business entity, it has to be authorized to transact in Virginia.
Your registered agent should also have a physical street address in the state and be available during normal business hours.
- Operating Agreement – Virginia does not require LLCs to create operating agreements. However, having one is highly advisable. This internal document will protect your LLC from disagreements among members. It will set the rights and responsibilities of all members and managers as well as their operational and financial relationships. It will also include details of the procedures necessary for your business operations.
- Ongoing Compliance – Your LLC’s state obligations do not end once you finish the registration process. You will have to pay an annual registration fee that costs $50. You have to pay the fee annually on or before the last day of the month when you created your LLC. Failure to pay on time will result in penalties.
Understanding LLC Taxation In Virginia
Generally, LLCs enjoy pass-through taxation by default. That means that the profits of the company go directly to the owners, and they report their earnings on their personal tax returns. Personal net income tax rates in Virginia are as follows:
- $0 – $2,999: 2%
- $3,000 – $4,999: 3%
- >$5,000 – $16,999: 5%
- $17,000 and up: 5.75%
If you are planning on selling products, you may need to collect and pay sales taxes. At the state level, Virginia has a 4.3% sales tax. Depending on the city or county, you may also need to pay local sales taxes.
Depending on your activities and industry, you may have to obtain certain business licenses and permits. Check with state and local government agencies to be sure.
Your LLC may also need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This number is necessary for hiring employees, opening a business bank account, and managing federal and state taxes.
Forming a business in Virginia can be both exciting and daunting. If you think you need help with the registration of a Virginia LLC or a finding a Virginia registered agent, contact DoMyLLC. Our team can help streamline the whole process and ensure that your LLC remains compliant with state requirements. We also offer personalized solutions based on the specific needs and circumstances of our clients. Talk to us and find out how your company can benefit from our services.