If you’re in Virginia and want to set up a limited liability company (LLC), then it’s important that you understand the requirements for this type of business. There are various legal complexities to acknowledge before embarking on this business venture, so make sure that you’re fully aware and prepared for setting up an LLC.
To help with this, we’re going to go over the Virginia LLC taxes and requirements and provide an overview of what an LLC is, who it’s best suited for and more.
What is an LLC?
A limited liability company (LLC) is a type of business structure that is designed to mitigate personal responsibility for business owners. That means that any debts or liabilities incurred through the LLC aren’t the sole responsibility of the business owners. It’s a hybrid business entity that brings together aspects of a corporation and a partnership or sole proprietorship to provide a unique type of business.
Although LLCs contain a limited liability setup, like a corporation, there are a few differences. For example, LLCs also allow for flow-through taxation, a feature that’s more commonly associated with partnerships.
How is an LLC more flexible than a corporation?
LLCs are often viewed as more flexible than corporations for a few different reasons. For starters, there aren’t any hard limits on the total number of members that exist in an LLC. They can also exist with a single business owner, as a partnership or as part of a multi-member structure.
LLCs, just like any other business, adhere to various laws and regulations to remain compliant with the latest legislation. Many of the laws that affect LLCs can be flexibly managed through changes made in an operating agreement. This means that things like managing the company can fall on members, or the member might elect different managers to run the business. Moreover, the roles and responsibilities of these individuals are segmented into the operating agreement for additional flexibility.
There are other aspects of an LLC that can be adjusted with this operating agreement, such as voting rights set to match ownership interests or providing equal rights regardless of percentage ownership figures.
What is Required of an LLC in Virginia?
There are certain requirements that you’ll need to meet in order to establish an LLC in Virginia. Take a look at the steps below to learn about what’s required of an LLC in Virginia:
Naming your LLC
You’ll need to come up with a name for your LLC that hasn’t already been taken by another company. To check if your desired LLC name is available, check the register here.
As per Virginia law, your LLC name must end with a phrase that denotes its business structure. Any of the following terms are acceptable:
- Limited Liability Company
- Limited Company
If your LLC is going to provide professional services (such as legal or medical services), then you’ll need to become a professional LLC. The naming format is the same as above, but it must start with ‘P’ for professional, so LLC changes to PLLC. It’s also worth noting that you can’t use certain phrases unless your LLC is actively involved in the activity described. These phrases include things like bank, trust, architect or land surveying.
Appointing a registered agent
With your LLC given a name, it’s time to appoint a registered agent to handle the documents and mail for your business. The registered agent forwards important documents, such as legal papers, to you.
Virginia is quite strict about registered agents, so make sure that you adhere to the rules. Registered agents can work for a business if they have a license to practice law in the state or are involved in business management. They must also reside in the state of Virginia. In many cases, LLCs opt to designate a company for this role, which removes some of the complications.
Find out if you need a Virginia business license
Depending on your industry, the LLC you set up might require a Virginia business license. There aren’t any requirements for general business licenses, but several industries require state licenses to operate. Some of these include:
- Home inspectors
- Real estate agents
Regardless of the type of business you have, you’ll need to register with the Virginia Department of Taxation if you sell any taxable offerings, including corporation taxes Virginia based. This ensures that you can obtain sales tax through customer purchases.
File LLC articles of organization
After sorting out your business licensing requirements, your LLC will need to file articles of organization. This can be done through an online portal or using traditional mail services to Virginia SSC.
The articles of organization outline a brief overview of your LLC, and include:
- Business name and address
- Registered agent details
- Name and signature of the person filing the articles
Draft your LLC operating agreement
Once your LLC has filed its articles of organization, you’re almost ready to start your LLC for trading. One of the last parts of this process is drafting an operating agreement for your LLC, which acts as an overview of how the company will operate. It also breaks down all of the owner’s contributions to the business alongside things like profit share. It’s important to think about the operating agreement, as without it your LLC will function the way that Virginia Law decides.
There are a lot of details that you might want to consider including in your operating agreement, but a few of the more important aspects of this can be seen below:
- Your products and services
- Owner details
- Manager details
- Financial contributions of owners
- Owners' stake in the LLC, including profit share and voting rights
- Process for bringing in new partners
- Procedures for electing managers
- Meeting schedules
- Process for company dissolution
Adhere to state employer obligations
All LLCs in Virginia are required to adhere to various employer obligations, so make sure that you understand all of these. Some of the most important obligations include:
- Employee reporting: All new employees of the LLC must be reported to the Virginia New Hire Reporting Center. You’ll need to do this within 20 days of bringing them into the company.
- Employer taxes: You’ll also have to withhold any payroll taxes from staff and file tax returns alongside other tax obligations.
- Workers' compensation insurance: In Virginia, all LLCs must have workers' compensation insurance if they have more than three employees.
- Unemployment taxes: You’ll need to pay state unemployment taxes if you have a payroll that exceeds $1,500 per quarter or if you employ staff for over 20 weeks in a year.
Pay taxes and LLC fees
Your tax obligations as an LLC in Virginia, alongside annual fees, are two areas that you’ll need to address once you finish any employer requirements. An LLC is deemed a pass-through entity, which means the LLC doesn’t pay taxes. Instead, any profits or losses go through the LLC owners, and tax is paid via their tax returns.
Your LLC can choose to be taxed as either a C-corporation or an S-corporation. If you decide to go down the C-corporation route, you’ll pay Virginia corporate tax and a federal corporate tax, too.
You’ll also have to pay an annual state registration fee to keep your LLC active. It’s a flat $50 fee and is due on the last day of the month when you formed the LLC initially.
Handle federal requirements for your LLC
Finally, you’re going to want to ensure that all of your federal requirements are being met for your LLC in Virginia. So if your LLC has multiple employees or owners (or if you choose to be taxed as a corporation), then you’ll need to obtain a federal employer identification number, known as an EIN.
You’ll also have to pay self-employment taxes to pay for things like Social Security or Medicare. This also includes withholding these taxes from any employee wages before reporting to the government.
Your last requirement is to pay any federal unemployment taxes, which fall under the Federal Unemployment Tax Act.
Who is an LLC best for?
Due to the unique nature of an LLC, this type of business structure is suitable for many different types of business. It doesn’t matter about the size of the organization, but to get the most benefit from an LLC it’s important to consider two main factors:
- Does the business have co-owners or multiple employees?
- Does the business have any significant risks associated with it?
If the business in question answers yes to either of these questions, then it would work great as an LLC. Businesses with multiple co-owners or employees could run the risk of lawsuits based on the actions of these individuals. With an LLC, the business owner’s own assets are protected from any risks associated with lawsuits.
Another area where an LLC is useful is if the business has risks associated with it. For example, property rental agencies might adopt the LLC model as each rental space acts as its own entity. So if something happens with one property, it won’t impact the others.
When is it better to choose a corporation instead of an LLC?
Although LLCs have many benefits that we’ve discussed, there are some instances where it might be better to choose a corporation business structure. If you want to scale your business up by hiring a workforce or bringing in new investors, then a corporation might be more suitable for your company. This is because corporate shares are better suited to transfers, which makes it easier to entice more prominent investors that way.
Why would someone want to create an LLC?
There are a few main reasons why someone would want to create an LLC over another type of business structure. Although we’ve discussed these points in-depth above, the biggest reasons for creating an LLC include:
- Lowered personal liability for business debts
- Raising funds from multiple investors
- Tax benefits
Work with a Lawyer to Create Your LLC
LLCs are a great option for many different types of businesses, but it’s not the most straightforward process. There are many documents to get in order and you’ll need to ensure that the business is fit for purpose before becoming an LLC. That’s why it’s always a good idea to seek professional advice from a lawyer to help you create your LLC. Getting things wrong puts you on the wrong side of the IRS and federal regulations, so it’s reassuring to have a professional by your side to help.
Lawyers can help with creating LLC in a number of ways, including:
- Inspecting the eligibility requirements for your business to ensure it meets federal and state standards before registering the LLC.
- Finding the best state for you to register your LLC in.
- Offering you information about why an LLC might be most suited for your business type.
- Helping you draft and file key documentation like articles of organization for your LLC.
- Working with you to break down state and federal laws surrounding LLCs and ensuring you remain compliant with them.
- Registering your business name on your behalf.
Frequently asked questions
Yes, all LLCs require at least one member to operate. LLCs can function with a sole member, which is known as a single-member LLC.
Creating and registering an LLC is a lengthy process that requires a lot of information. In terms of paperwork, there are several documents that you’ll need to complete for an LLC, which include:
- Internal Revenue Service (IRS) Form SS-4
- Name reservation application
- Articles of organization
- Operating agreement
- Initial and annual reports
- Tax registrations
An LLC isn’t necessary if you want to start a business, but it’s a beneficial setup in many cases. Although there are multiple steps involved in creating an LLC, for many businesses this extra effort is well worth it.