What is an LLC?
An LLC is a business structure that protects business owners from being personally liable for any business debts or liabilities. Filing for an LLC means establishing your business as a separate entity recognized legally by the state you are filing in. If you own a business and several assets, you may want to consider forming an LLC Each state has different laws on creating an LLC, and it is essential to follow these rules when filing to avoid rejection of your application. The following will describe the steps necessary to establish an LLC in Virginia.
What are some advantages of an LLC?
If you open up a business without filing for an L.L.C., i.e., run your business under a sole proprietorship model, you can personally be liable for any business costs. Applying for an LLC. can protect you if someone were to sue your business. If the party or individual suing your company were to win, your assets are not up for grabs if you operate under an LLC structure. There are other benefits as well, shown below.
Is an LLC the proper business structure for me?
This is an excellent option for anyone with a growing business who wants to separate their personal assets from their company. LLCs can be used to run and own almost any type of company.
Businesses in specific industries are restricted from operating as LLCs, including banks and insurance agencies. Suppose you would like further information on whether an LLC is the best business structure for you. In that case, you should contact a business attorney to determine the best business structure for your company. To ensure you follow Virginia’s guidelines and restrictions, contact an attorney with experience working in the state.
Who is an LLC best for?
An L.L.C. is best for those who desire the following advantages: asset protection, don't need to raise capital for business, and flexibility for taxes and business management. Below is a longer list of potential benefits you can gain from creating an LLC.
1. Liability Protection
As mentioned above, an LLC limits your liability as a business owner. If, for instance, the L.L.C. business were to become bankrupt, only the assets belonging to that LLC can be taken. Your personal assets are not at risk.
2. Flexible Tax Management
There are many options when filing taxes for an LLC. You can go through pass-through taxation, similar to sole proprietorships, where the business net income passes through individual owners’ tax returns. However, if your business grows to above $10,000 in distributions each year, other options open up for tax filing, including obtaining S corporation tax status. This can reduce the overall tax burden under the right circumstances. We recommend using an accounting service to determine the best fit for your business for questions about tax solutions.
It is relatively easy to file for an LLC in Virginia. There is little paperwork and expense associated with maintenance as well.
4. Improved Credibility
Establishing a Virginia business as an LLC can improve your company's credibility. They are generally seen as more formal business structures than sole proprietorships.
5. Ownership Flexibility
There are limited restrictions on how to structure the ownership and management of a Virginian LLC. You can have a single or multi-member LLC. It can be managed either by the business members or a manager.
6. Unique name registration
Selecting a name for your LLC must be different from any other LLC already registered in Virginia. This offers more flexibility with naming and is in contrast to sole proprietorships where they must use the owners' names or file for doing business as (D.B.A.) if they would like to operate under something besides their name.
What are some of the disadvantages of forming an LLC in Virginia?
In some states, there is the option to form anonymous LLCs. An anonymous LLC is where members are not required to list their names and addresses. Unfortunately, Virginia does not allow you to withhold business owner information, including names and addresses. You will have to list this information in the Articles of Organization, a foundational document necessary when establishing an LLC.
How to form an LLC in Virginia?
Before you start the filing process, it is crucial to perform specific steps to avoid delays or forfeiting the fees that come with filing.
Step 1: Choose your business name
In Virginia, there are specific rules you have to follow surrounding your business name. As mentioned previously, your LLC name must be unique from any other LLC or corporation registered with State Corporation Commission. You can look through the name availability site to check if your name is available. To reserve your name you will need to do so on the Clerk’s Information System. The name of your Virginia LLC must include “Limited Liability Company” or the abbreviations (LLC or L.L.C.). You cannot include certain terms, including bank or insurance, unless you have special permission.
Step 2: Choose a registered agent
Virginia requires you to select a registered agent to receive legal documents for your business. The agent must be either a Virginia resident or a company allowed to conduct business in the state. You or your business employees may also act as registered agents. However, the agent must have a Virginia street address.
Step 3: Operating Agreement
You are not legally required to file an operating agreement in Virginia. Nevertheless, it is strongly recommended you do so anyway as it can provide many guidelines to follow in cases of disagreement between members. This can help smooth the process of starting a new business and reduce the chances of future conflict. Generally, this document will include the following:
- Percent of member interests in the L.L.C.
- Responsibilities and rights of all owners/ members
- Voting powers of all members
- Loss and profit share
- Meeting guidelines
- Next steps if a member wants to sell his/ her interest, dies, or becomes unable to continue their participation in the L.L.C.
Step 4: File the Articles of Organization
The Articles of Organization are part of the formal legal document needed when filing for an L.L.C. in Virginia. It creates the rights, duties, liabilities, and other obligations between each member and between the members and L.L.C. You need the following information to complete the form:
- Entity Name
- Virginian L.L.C. address
- Service of Process Address
- Registered Agent
- Signature of L.L.C. owner
The filing fee in Virginia is $100. You can perform this process online or submit the documents to the Division of Revenue.
Step 5: Request a Virginia LLC E.I.N
An E.I.N is an Employer Identification Number assigned by the IRS. This helps identify your business for tax purposes and is like a social security number for your newly minted LLC An E.I.N. must open a business bank account, file and manage federal and state taxes, and hire employees. If you previously operated under a sole proprietorship and already have an E.I.N., you will need to reapply for a new one. The IRS requires you to file for a new E.I.N. when converting to an LLC.
You can get an E.I.N. for free from the IRS. Click here for additional information. You can apply either online or through the mail.
Step 6: Choose how you want your LLC taxed
LLCs can be taxed as pass-through entities or as corporations. If you choose pass-through, then you will submit the company’s profits on your personal tax return. If you choose to be taxed as a corporation, you will be taxed at Virginia's corporate tax rates.
Step 7: File an annual report
One year after your LLC is formed, you will have sixty days from the anniversary date to complete an annual report.
If you do not file your annual report on time, the company is no longer in good standing with Virginia. After five months if the annual report is not submitted, this will lead to the termination of the business.
You don't need an L.L.C. to start a business. However, for many businesses, the L.L.C. benefits may outweigh the costs and hassle of filing for one. To determine whether you may benefit from one, consult your C.P.A., an L.L.C. filing agency, or your business attorney.
Establishing an L.L.C. shields business owners from being personally liable for business debts and expenses. This doesn't provide absolute protection as if an owner commits fraud, they will still be held accountable. However, it protects members' personal assets if the business were to be sued or undergo bankruptcy.
No, you do not require a lawyer when forming your L.L.C. However, anyone forming an L.L.C. should consider contacting a business lawyer to help navigate the process.
If you have additional questions, contact your business attorney for assistance.