Are you looking to form a limited liability company (LLC) in Virginia, but you’re not sure how the process works? There are several important steps to create a compliant Virginia LLC that can do business in the state.
To get started, please reference our 6-step guide below or hire an affordable online LLC formation service.
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What is a Virginia LLC?
The Virginia LLC is one of the most popular business structures in the state. It’s a more casual and flexible type of business than a corporation, but includes the personal asset protection that’s lacking from sole proprietorships and general partnerships.
LLCs in Virginia have simple formation and maintenance requirements, several options for how they can be taxed, and flexible management. From one-person businesses to multi-member LLCs with several owners, the LLC is a popular choice for a reason.
Setting up a brand-new Virginia LLC in 6 Steps
For the first part of this guide, we’ll cover the 6 essential steps to setting up a Virginia business that doesn’t have employees yet. These steps also apply to businesses with employees, but we’re keeping things streamlined to start. If you do have employees, make sure you complete these steps and the steps for employers (which we’ll cover later in the guide).
Step One: Choose a business name
Your LLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to consider when naming your business.
In the state of Virginia, you’re required by law to meet several requirements for your business name. Here’s a quick glimpse at the rules for LLCs:
- Your name must include the phrase “limited liability company” or “limited company” or the abbreviation “LLC” or “LC” (with a few permitted variations)
- Your name may not include any wording or abbreviations that imply you are a corporation or limited partnership
- Words prohibited by law may not be included in your name
- Your name must be “distinguishable upon the records,” or distinct from the names of other state business
For more information on naming rules in Virginia, please consult the Name Section of the Virginia Limited Liability Company Act.
Another aspect to consider is including language that explains what your business does ― for example, if you’re starting a coffee shop, put the word “coffee” or “brew” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.” This helps potential customers know exactly what to expect from your business.
Once you’ve picked the perfect name for your business, you don’t want to lose it to another aspiring entrepreneur. Thankfully, Virginia allows you to reserve your business name if you’re not quite ready to register your business. To do that, you’ll need to file the Application for Reservation or Renewal of Reservation of a Business Entity Name form and pay the $10 filing fee.
Filing this reservation protects your chosen name for your exclusive use for 120 days. You can renew the reservation if you need more time. You can learn more about name reservations here.
Step Two: Appoint a Registered Agent
Every LLC in Virginia is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
When you appoint a Virginia registered agent, here are the state requirements to be mindful of:
- Every entity that files with the State Corporation Commission (both domestic and foreign) must appoint a registered agent
- The agent must be an individual resident of the state; an “officer” of the entity itself, as long as the appointed person is not also a member or manager of the entity; a Virginia state attorney; OR a member of another business entity that has authority to operate in the state
- An agent must be continuously maintained
You can find a full rundown of the state laws here.
Without a registered agent, you could lose your good standing with the state of Virginia, and the state also has the right to dissolve your LLC if they decide to. In a worst-case scenario, you could miss the alert regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
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Step Three: File Formation Documents
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Once you are ready to form your Virginia limited liability company, you will fill out the Articles of Organization. You can either do this on your own or hire a Virginia LLC service. Some services, like ZenBusiness, even offer discounts on their service.
This is THE document that will register your LLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Name and email address for a person to contact about the LLC (optional)
- Principal office address
- Name, qualifications, and address of your initial registered agent
- Signature of each organizer
Virginia keeps this form about as simple as it gets; other states require complex pages of information, but all you really have to do is fill out a few sections, and you’re good to go. The state does recommend that you check that your proposed name is available. If it isn’t, your form will be returned and you’ll have to file again. Worse, your non-refundable filing fee would be lost.
As long as you do that, your form will officially register your business.
- Total cost: $100
- Processing speed: 3-5 business days
- Expedited processing: $100 for next-day processing, $200 for same-day processing
Step Four: Draft an Operating Agreement
After you register an LLC in Virginia, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for this document in order to open an account. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your Operating Agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your Operating Agreement or create one from a free template online. You can read more about Operating Agreements, but some of the basic information you’ll want to have includes:
- Individual members’ ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the LLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
Step Five: Get Licenses & Permits
Virginia law requires an LLC to obtain all necessary licenses and permits before starting operations. State law also decrees that an LLC can only provide one specific type of service. All owners of the LLC must be licensed or registered to provide the specific service under which the LLC was assembled.
The type and cost of the permits that your business may require varies depending on the nature of the services your LLC offers. Some businesses won’t even need licenses. That’s because Virginia doesn’t require a general business license on the state level. Instead, the state allows individual cities and counties to administer these. So you’ll need to consult with your local government to learn if a license is required in your area.
Next, we recommend that every LLC owner check out the Department of Professional and Occupational Licensing; here, you’ll find resources for industry-specific licenses. For example, Virginia requires licenses for real estate appraisers, polygraph examiners, plumbers, and many more occupations. You’ll have to do some research to learn if any of them apply to you. The Department is the ideal place to start your search.
Obtain a Business Bank Account
One of the most important aspects of running an LLC is ensuring that your business funds remain separate from your personal finances. And to do that, you’ll need a separate bank account for your business.
Obtaining a business bank account is pretty simple, and you can choose the financial institution you like best. Some banks will ask to review your LLC’s operating agreement, and some also ask to see your EIN (see the Employers section below). Once you have your account, you’ll be able to get checks, make payments using your business card, and so on.
If you failed to get a business bank account, you would technically be blurring the line between your personal accounts and your business accounts. That compromises your personal asset protection.
Next Steps for Newly-Formed LLCs
1. Prepare for tax time
Regardless of how far away April 15th is, it’s never too soon to prepare for tax time and setting up accounting software. As an LLC owner, the exact tax rates you’ll pay depend on the taxation structure you choose for your business. If you choose to be taxed as a corporation, the LLC itself will pay taxes from its own funds. Meanwhile, LLCs taxed as pass-through entities don’t technically pay taxes; its members do. The profits are distributed to the LLC’s members, and each member reports that income on Schedule C of their personal taxes.
If you choose to be taxed as a corporation, you’ll pay the following rates:
- Federal: 21%
- State: 6%
Meanwhile, LLCs taxed as pass-through entities pay these rates:
- Federal: 10-37%, rising on a fixed-bracket scale
- State: 2-5.75%
In order to compliantly file and pay your taxes, you’ll fill out a complete copy of federal Form 1065 including all federal K-1s, statements, and attachments. If you file taxes as a corporation, you’ll use Form 500, while LLCs taxed as pass-through entities file Form 760. If you’re anticipating these requirements, they’ll be much easier to manage when their due date comes.
If you’re involved in retail sales, you’ll also need to collect and pay the state sales tax. Virginia’s is a bit unique; they charge a 5.3% rate for basic goods, but essentials like food and personal hygiene items are only taxed at 2.5%. However, local municipalities are allowed to add a surcharge to the sales tax, so in some areas, sales taxes are as high as 7%. As a business, you’ll be expected to account for these taxes correctly.
Last but not least, some businesses will have to deal with industry-specific taxes and fees, such as Virginia’s taxes for soft drinks, sheep assessments, and others. For more information on Virginia business taxes, check out the Virginia Department of Taxes.
Because taxes can be incredibly complicated, we highly recommend consulting with a business attorney or accountant to ensure that you cover all requirements on the state and federal levels.
2. Be ready to file your annual report
In most states, there is an annual report that every business needs to file, updating the state on information that may have changed over the course of the year. Virginia, however, does not have this requirement.
That said, Virginia does have an annual registration fee that you’ll need to pay. There’s no paperwork—just a $50 fee. The payment is due two months before your LLC’s anniversary month (on the first day of that month).
3. Consider business insurance
The big advantage to the LLC is that it offers you personal asset protection. But that doesn’t mean that mishaps won’t happen along the way. We highly recommend obtaining a general liability policy with the right coverage for your business.
In the event of a mishap or natural disaster, an insurance policy can help you navigate unexpected expenses. Be sure to compare your different options to get the best coverage for your particular type of business.
Extra Steps for Businesses with Employees
When you’re operating as a one- or two-person show, operating a business is relatively streamlined. Things get more complicated when you bring employees into the picture, but employees also help raise your business to new heights. But to reach those heights, you need to comply with employee-related legal requirements.
Step One: Address employee-related taxes
Any business with employees must obtain an EIN, or an Employer Identification Number. This is a free registration with the IRS, and the number acts a lot like a social security number for a business. Obtaining the number also lays the groundwork for other taxes, such as social security and withholding taxes. For example, you’re required to withhold income taxes from employee paychecks, make social security and medicare tax payments, and pay unemployment fund taxes. For more information on employer taxes at the federal level, look here.
There are similar taxes on the state level. For example, Virginia requires withholding taxes, contributions to the unemployment insurance fund, and more. We recommend consulting with the Virginia Tax Commission and the Virginia Employment Commission to learn what taxes apply to you and your business.
Step Two: Obtain additional insurance
Every Virginia business is strictly required to get workers’ compensation insurance if they have two or more employees (but there are a few limited exceptions for those who self-insure). For more information on this policy, check out the Employers information page by the Virginia Workers’ Compensation Commission.
If you haven’t already obtained a general liability policy, we highly recommend that you do so when you bring employees into the business. The more people you have involved in a business, the higher your risk of needing general liability insurance.
Of course, proper care and discretion will eliminate most problems, but incidents happen—from faulty products to an employee slipping and falling and theft and many places in between. And in some cases, insurance can be the difference between a minor hiccup and a budget-breaker.
Step Three: Enlist Help
For some entrepreneurs, part of the fun of running a business is the opportunity to wear lots of different hats: accountant, manager, marketer, quality control expert—it’s a near-endless list. And if your business is still pretty small, you might be able to handle many of these tasks yourself, especially if you’re prepared with a business administration degree.
But if you aren’t (and it certainly isn’t a prerequisite), some of these tasks may leave you feeling overburdened or out of your depth. For instance, navigating employer-related taxes might steal valuable time that you’d rather spend promoting your business or developing a new product. An accountant or tax attorney, however, knows those tasks like the back of their hand. You may decide it’s worth the added expense to enlist their help.
Ultimately, it’s your decision whether to bring in professionals or DIY. But in our opinion, it’s often worth it to get help from specialized pros.