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With over 780,000 small businesses already, the Commonwealth of Virginia is a welcoming place to start a business. As you’re getting your new enterprise off the ground, you may have considered becoming a limited liability company (LLC), which has become an increasingly popular type of business entity. This guide will tell you all you need to know about forming an LLC in the state of Virginia.
How to start an LLC in Virginia
- Decide which kind of LLC is right for you
- Name your Virginia LLC
- Create a business plan
- Obtain a federal employer identification number (EIN)
- File a Virginia Certificate of Formation
- Obtain a business license and permits
- Understand Virginia state tax requirements
- Prepare an operating agreement
- Examine business insurance options in Virginia
- Understand financial considerations
- Market your business
What is an LLC and how is it taxed?
A limited liability company, or LLC, is a type of business structure that combines aspects of partnerships and corporations. It is made up of owners of the business, who are referred to as “members,” and also offers a higher level of liability protection than a sole proprietorship. Owners of LLCs cannot be held financially responsible, nor can their personal assets be seized, in any lawsuit against the company.
Businesses are classified as single-member or multi-member LLCs, depending on how many members are involved. LLCs separate owners’ personal finances from their business finances, which also makes filing and paying taxes a lot easier.
LLCs can be taxed in a number of different ways, each with its advantages. In single-member LLCs, the sole member is considered self-employed and pays personal income tax as well as self-employment tax on the full amount of profits. In a partnership, each member pays personal income tax, and usually self-employment tax, on the full amount of profits.
Multi-member LLCs can elect to be taxed as S corp or a C corp businesses.
- S corp members can pay themselves a salary and take payroll taxes from that. They do not have to pay self-employment tax.
- C corp profits are taxed at the corporate rate, although profit distributions to members are taxed as personal income.
All LLCs except for C corps are pass-through entities. That means LLCs avoid the federal corporate tax rate and allow members to pay only personal income tax on profits, as well as payroll taxes.
1. Decide which kind of LLC is right for you
As far as corporations go, LLCs require only a small amount of paperwork and are fairly inexpensive to get off the ground. LLCs have higher startup costs than sole proprietorships, and are more complex tax-wise, meaning you may need to hire an accountant.
Although LLCs offer fairly high personal asset protection, there are exceptions to that rule, especially if you aren’t meticulous about keeping your personal and business expenses separate.
2. Name your Virginia LLC
Naming your new Virginia LLC is like introducing yourself to the state, so it’s one of the most important decisions you’ll make as an entrepreneur. Your name will also affect other decisions, like branding, marketing, and customer retention. Here are a few things to consider when choosing a business name:
- Is it unique in Virginia? All business names in Virginia must be unique—you can conduct a search using the Virginia State Corporation Commission’s Clerk’s Information System.
- Is the domain name available? Whatever name you choose should make sense as a URL. Make sure there’s a marketable domain name available that aligns with your chosen business name.
- Is it memorable? In general, a good business name announces your entity’s function clearly and is also catchy, so your customers will remember it.
- Does it include the required suffix? LLCs in Virginia must contain the phrase “limited company” or “limited liability company,” or its abbreviations (LC, L.C., LLC or L.L.C.).
3. Create a business plan
Before you start a business, you should have a business plan that includes the following:
- Executive summary
- Detailed company description
- Market analysis
- Outline of organizational and managerial structure
- List of products and/or services
- Customer segmentation report
- Marketing plan
- Logistics and operations plan
- Financial plan
4. Obtain an federal employer identification number (EIN)
The nine-digit federal employer identification number (EIN) is crucial to starting an LLC anywhere in the US. Similar to a Social Security number, it’s a taxation number assigned by the IRS and Virginia state to new companies. With an EIN, it’ll be easier to file federal and state taxes, as well as to secure lines of credit and business credit cards.
5. File a Virginia Certificate of Formation
The fee for forming an LLC in Virginia is $100, and you can file the forms online. Virginia’s State Corporation Commission offers instructions with links on this form. A lot of the information you’ll have to file has already been covered above, such as making sure your business name is unique.
You must also provide an address that is not a PO Box, designate a registered agent (who will accept official paperwork, including documents and notices, on behalf of the LLC) and have all organizers sign the form. The LLC must have only one registered agent and cannot act as its own agent.
6. Obtain a business license and permits
A sales tax certificate is the only permit or license every Virginia business needs at the state level. You can register for one. If you are a crafts- or tradesperson, such as a plumber or electrician, you may need more specific types of licensing and permits.
7. Understand Virginia state tax requirements
LLCs are pass-through entities (PTEs), and Virginia state law requires every PTE that does business in the state or receives income from the state to file an annual tax return on Form 502.
Virginia recently passed new legislation that allows a qualifying PTE to pay as an “entity,” meaning it shifts the tax burden from the PTE owners (who would have to pay personal income tax) to the PTE itself. Virginia Tax provides more information about how PTEs are taxed in the state, including the new legislation.
8. Prepare an operating agreement
Once you establish your business as an LLC, and especially if you plan on having partners, you should prepare an agreement among the partners on how you will operate the company.
An operating agreement typically covers:
- How many members there are and what their roles will be.
- How much money each member will put in at the start.
- How profits and losses are shared among members.
- How and when the company would be dissolved.
9. Examine business insurance options in Virginia
There are several kinds of business insurance to consider when starting your Virginia LLC. The State Corporate Commission offers a PDF guide to types of commercial insurance you may need. These can include:
- General liability insurance. Protects your LLC against lawsuits resulting from accidents, injuries, or negligence.
- Commercial property insurance. Protects your business in the event of fire or weather damage, or theft.
- Business income coverage. Protects your business’s income if any of the above events should happen and cause damage to your equipment, office, or store.
- Commercial auto policy. Extra coverage protecting any vehicle you plan to use for your LLC.
- Workers’ compensation coverage. Mandated for all businesses with employees in Virginia, this covers internal employee disputes, employee injury, and victims of workplace crimes.
- Cyber liability insurance. Covers you if your Virginia LLC has a data breach.
- Umbrella insurance. Extends coverage to exceed limits of other insurance policies.
10. Understand financial considerations
Starting an LLC can be quite expensive. You may want to rent a storefront or office space, and you will need to pay to register a domain name and to design your company’s website. In addition, you may want to pay to have ads designed and placed in local publications and billboards, and to buy software, office furniture, and other equipment. Your taxes will also be more complicated than with a sole proprietorship, for example, so you may look into investing in hiring a tax lawyer or accountant. For assistance with startup costs, there are several quick, accessible funding options available.
11. Market your business
If you’re ready to get the word out about your new Virginia LLC, here are some key elements of a solid marketing strategy:
- Market research. Understanding the market will help you gain more insight into your target customers so you can better serve them.
- Advertising and promotion. Paid advertising can help your LLC really stand out. You can design and place them yourself, or hire an agency to do it for you.
- Social media. These days, platforms such as Facebook, Instagram, TikTok, and YouTube are probably more important than a billboard by the side of the road. Social media management is a full-time job, and promoting your products or services online will help you reach even more diverse audiences.
- Public relations. Media outlets may be receptive to news of your LLC, so keep them in mind and give them a heads up when you’re opening, or if you’re offering a new product or service. The positive coverage they can give you will be invaluable.
- New business and customer retention. In-person relationships with customers are still king, so take the time to nurture them with everyone who walks through your door. With any luck, they’ll have great things to say about your Virginia LLC to friends, family, and people they work with.
Starting an LLC in Virginia FAQ
How much does it cost to start and maintain an LLC in Virginia?
There is a $100 filing fee to start an LLC in Virginia. After that, Virginia requires a $50 annual registration fee.
What are the pros and cons of incorporating in Virginia?
Virginia’s filing fees and annual registration fees are quite low compared to other states. Virginia does not require an annual report from LLCs, but is stricter than some other states about who can be a registered agent. Due to new legislation, LLCs can elect whether to be taxed as a pass-through entity.
Do you need a registered agent for your LLC in Virginia?
Yes. Registered agents must be a Virginia resident, have a physical Virginia business address, and be available during normal business hours.