What is a corporation?
A corporation is a legal structure where the state sees the entity as separate from its owners. Therefore, a vital element of a corporation is its limited liability. The shareholders are not personally liable for the company’s debts. They have similar rights and responsibilities as an individual. This means that a corporation can enter into contracts, hire employees, own assets, file taxes, sue and be sued, and loan or borrow money. Either an individual or a group of people may form a corporation if they have a shared goal. Corporations are not always meant to obtain a profit.
Most large businesses are corporations. Some examples include Coca-Cola Company, Apple, Google, and Microsoft Corporation. Some corporations operate under their name, but there is also some that act under separate business names. An example is Alphabet Inc. which does its business under google.
The exact legal definition for corporations differs depending on their location, but a key feature of corporations is their limited liability, as previously stated. This means that corporation shareholders can participate in the profits through dividends and stock appreciation. However, they are not personally responsible for the corporation’s debts or liabilities.
What are the different types of corporations?
There are two main types of corporations: S and C. The primary difference between these two is how you pay tax on any income. S corporations don’t pay tax; the individual owners report the company earnings on their income tax returns. On the other hand, C corporations pay tax on their income, and so do any owners or employees of the corporation. Other differences between these two types of corporations include formation and ownership. See below for additional information.
- Formation: C corporations are the default corporation type. Filing the articles of incorporation to Virginia’s State Corporation Commission without any additional forms automatically designates you as a C corporation. If you desire S corporation status, you need to file Form 2553. This should be down within two months and 15 days after your company’s first tax year begins.
- Ownership: C corporations don’t have many restrictions on who can be an owner or how many owners you can list. In comparison, S corporations are limited to 100 shareholders. These 100 shareholders must also be U.S. citizens.
- Taxation: As mentioned above, C corporations are taxed twice. The corporation itself pays an income tax as well as shareholders through dividends. S corporations receive pass-through taxation, and shareholders only report the business revenue on their personal income tax. The corporation does not file income taxes.
How do I form a corporation in Virginia?
There are several critical steps to forming a corporation in Virginia. Instead of submitting the articles of organization like you would when establishing an LLC, you will file the articles of incorporation.
Step 1: Select your Corporate Name
The first step to forming a corporation is choosing your corporation name. The name must contain the words “corporation,” “incorporated,” “limited,” or “Company” or any of their associated abbreviations (Corp., Inc., Ltd., Co.).
For Virginia’s State Commission Corporation to approve your name, it must be different from any name of other business entities already listed in the state. You may search the business name database to check if your name is available. This search can be found here.
You can reserve your desired business name with the State Corporation Commission on their Clerk’s Information System. When you submit this form with its $100 filing fee, your desired name will be reserved for 120 days. A step-by-step guide is available on the Virginia government website.
Step 2: Submit the Articles of Incorporation
The articles of incorporation is a foundational document when forming your corporation. Once you submit this document to the State Corporation Commission, your corporation is legally formed. You must include the following information when submitting this document:
- Corporate Name
- Corporate Address
- Agent Signature (will receive any service of process)
- The authorized number of shares the corporation can issue
- Each incorporator’s name and address
- Corporation duration
- Effective date
Virginia allows you to submit these articles online or via mail. The filing fee is $75. If you want to expedite the service request, the costs are $100 for the next day and $200 for same day service. This is on top of the $75 fee to file.
Step 3: Select a registered agent
Every Virginia corporation is required by law to have an agent for the service of process. Your registered agent may be either an individual or a professional group that accepts legal documents on behalf of the corporation. A requirement for the registered agent is that the individual who resides in Virginia or the business entity be authorized to conduct business in the state. When you submit your articles of incorporation, you will have to list a physical address in Virginia for your registered agents. Before you designate someone as a registered agent, make sure they agree to the responsibilities, including accepting service of process on your corporation’s behalf, before filing the articles of incorporation.
Step 4: Create corporate bylaws
The corporate bylaws are not filed with the state, and it is not legally required for you to have. Nevertheless, your corporation is strongly encouraged to create a set of bylaws. These bylaws set the basic rules for running your corporation. The advantage of having these corporate bylaws are twofold: 1) it provides your corporation with operating rules to decrease conflict, and 2) it gives credibility to your corporation for banks, creditors, the IRS, and others to view your company as legitimate.
Make sure you keep your bylaws, articles of incorporation, certificates, and minutes of shareholder and director meetings on file.
Step 5: Hold your first board meeting and appoint directors
The person who signed and submitted the articles of incorporation, also known as the incorporator, appoints the directors who will serve on the board until the first annual meeting for the shareholders. The next annual meeting is where shareholders will elect board members. The incorporator completes the Incorporator Statement that lists the initial directors’ names and addresses. This statement is not filed with the state but is kept on file in the corporate records.
During the first board meeting, you will adopt bylaws, directors will appoint officers, select a bank, set the fiscal year, send out shares of stocks, and adopt an official certificate form and corporate seal.
It is essential to record the board meeting in corporate minutes.
Step 6: File your annual report
Virginia requires any corporation to file an annual report by the last day of the 12th month you created your corporation. The online filing cost is $25.
Step 7: Request an EIN
You must also obtain a federal employer identification number (EIN). The IRS issues this number to the corporation, and you can obtain one by completing the online application. There are no fees for obtaining an EIN.