How to form an LLC in Virginia: The Affordable Way

Looking to form an LLC in Virginia? Great! The are a lot of advantages to starting your business in the State. Virginia is strategically located with easy access to highways and offers a skilled workforce. The State was ranked consecutively for the second time as America’s top State for doing business in CNBC’s 2021 competitiveness rankings.

This article will serve as your go-to guide to understanding the steps involved in forming an LLC in Virginia and the essential matters to be kept in mind post the formation process. Let’s not delay further and dive into the steps to form your LLC!

Naming Your LLC in Virginia

Before you incorporate your business, you must decide on a name for your LLC. A unique and creative name suitable to the business you are planning to do will go a long way in reaching out to your customer base. It will also help you stand apart from the competition.

The name of your LLC should ideally be easy to remember but, at the same time, catchy. While naming your LLC, you must follow all the naming guidelines the State of Virginia has laid down.

Naming Guidelines

The name of your business should have the words “limited company” or “limited liability company” or their abbreviations “L.C.,” “LC,” “L.L.C.,” or “LLC.”

The name you choose should not be similar or identical to the name of another entity registered with the State. It should also be distinguishable from the names already reserved with the State.

Your LLC’s name should not give the impression that your entity is a government agency. Therefore, you cannot use terms like “F.B.I.” or “Treasury.” 

Similarly, usage of certain words, like “Bank” or “University,” is restricted and involves obtaining the written consent of concerned authorities and additional paperwork and compliance requirements. 

Also, make sure that the name you choose for your LLC does not include any word, abbreviation, or combination of characters that implies that it is a different type of business entity. For example, you cannot use the words “corporation,” “incorporated,” or the designation “Corp.” or “Inc.”

For more information, you can access the Virginia Corporation Commission guidelines and provisions of VA Code § 13.1-1012 (2021).

Does Your Business Require a DBA?

If an LLC chooses to conduct its business under a name different from its registered name, it is said to be using a DBA or “Doing Business As” name. A DBA is called an assumed or fictitious name in Virginia.

They are used by businesses in instances when they venture into a new market or include a new product in their portfolio and want to operate under a new, more suitable name.

In Virginia, the assumed name you select should not include words that imply your business to be anything other than an LLC. You should also avoid using restricted words such as “bank” or “trust” unless you have the relevant license.

The assumed name should also not use words such as “land surveying” or “architecture” unless your LLC is lawfully permitted to provide such services. You must apply with the State Corporation Commission to register your assumed name.

Doing a Name Search and Name Reservation

Unless you ensure that the name you have selected for your LLC is genuinely unique, chances are it might get rejected by the State. You can use the State’s Business Entity Name Search to see if the name you want for your LLC is available.

You can reserve your chosen name if you are not ready to incorporate your LLC immediately. In Virginia, you can apply with the office of the State Corporation Commission for this purpose. Once verified, the name shall be reserved for 120 days with an option to renew the reservation for a further period of 120 days. However, you must ensure that the application to renew the reservation must be filed within the 45 days preceding the date of expiration of the first reservation period.

To know more, read provisions of VA Code § 13.1-1013 (2021).

Registering your business domain

Having a website for your business has a significant number of advantages. Customers prefer a business that has an online presence. Also, it considerably enlarges your potential market. Therefore, it is prudent for you to plan a website for your LLC.

Your business’s website address needs to match your LLC’s name. The address of your website is how customers find you online. So before you select a name for your LLC, it is recommended that you ensure that the domain name you need is also available. You can check currently available domain names.

Choose a Resident Agent in Virginia

You must select a registered agent before your company can start functioning. A Registered agent receives on behalf of your LLC any communication sent by the State, such as any process, notice, or demand and forwards it to the LLC.

Laws in Virginia mandate that a resident agent be appointed for your business. Without one, you cannot complete the registration process of your LLC.

Who Can Be a Resident Agent?

The provisions of VA Code § 13.1-1015 (2021) lays down the specific requirements concerning a registered agent. The agent you select for your LLC can be any of the following:

• An individual resident of Virginia who :
  • Is a member/manager of the LLC or
  • Is a member/manager of the LLC that is a member/manager of the LLC or
  • Is an officer/director of a corporation that is a member/manager of the LLC or
  • Is a partner of a general/limited partnership that is a member/manager of the LLC or
  • Is a trustee of a trust that is a member/manager of the LLC or
  • Is a member of the Virginia State Bar
• A corporation, another LLC, or limited liability partnership that is authorized to transact business in the State.
• Any employee of the LLC who is a resident of Virginia.

The registered agent should be available during business hours on all working days. Suppose your LLC is a corporation or any other entity. In that case, it shall designate one or more persons at the office of the registered agent entity through a written instrument to be acknowledged before a notary public. These designated persons shall receive any process, notice, or demand sent to the LLC.

To know more, read provisions of VA Code § 13.1-1015 (2021).

Individual v. Resident Agent Service?

In Virginia, you can appoint an individual (including a member, manager or an employee of your LLC) as your registered agent so long as they satisfy the abovementioned requirements. Alternatively, you can also hire a registered agent service. While this will cost you more, it has many advantages.

Firstly, they bring professionalism and expertise to the job and ensure that you don’t miss any critical communication, such as a subpoena or notice. Having a registered agent service also helps you maintain privacy as it is their address that will be made available in the public domain.

Additionally, it gives you the flexibility to travel and focus your energy on growing your business without worrying about missing any deadline or important notices sent to your LLC by the State.

Also, suppose you appoint any individual of your LLC as the registered agent. In that case, you risk receiving sensitive documents like a court subpoena or lawyer notice in front of your clients and employees. A registered agent service can handle such situations discreetly.

Filing the Articles of Organization with Virginia

To officially incorporate your LLC in the State of Virginia, you must file a legal document with the State Corporation Commission. This document is called an article of organization.

Once you have filed this document and the State accepts it, your LLC becomes an official entity in the State’s record. The provisions of VA Code § 13.1-1011 (2021) mandate that the articles of organization should contain the following details:

• Name of the LLC
• Postal address (including the street name and number) of the LLC’s initial registered office
• Postal address (including the street name and number) of the LLC’s initial principal office
• Details of the registered agent of the LLC

You need to file your Articles of Organization with the Virginia State Corporation Commission’s office. You can do the same online or submit a copy of the duly filled form by mail. Online applications are processed immediately, while submissions through mail take between 2 to 5 business days for processing.

Expedited Filing

The State offers an option to pay an additional fee of $100 for expedited processing of your application.

Publish Notice

As of now, the State does not have any provisions pertaining to a mandatory public notice of formation for your LLC. 

Create the Operating Agreement for your Virginia LLC

An operating agreement is a legal document between the LLC and its members. It governs the affairs of the business and the relationship between the various stakeholders within the company.

Even though the laws in the State do not mandate an operating agreement, you should have one. It offers credibility to your enterprise. You will need an operating agreement for opening an account with the bank. More importantly, it helps protect the LLC’s limited liability status by reinforcing it. Thus, it is recommended that even a single-member LLC have a well-drafted operating agreement.

The provisions of an operating agreement shall bind the LLC and the members and other stakeholders. Therefore, all the members of the LLC should approve the operating agreement. A court may enforce the provisions of this agreement and may also pass any stay order or injunctions based on it. Though there are no fixed formats for an operating agreement, ideally, it should cover the following aspects:

• Organization Details 
• Ownership 
• Duties of Members and Managers
• Management and Voting 
• Capital Contributions
• Division of Profit and Losses
• Bookkeeping Procedures
• Procedure for adding new members
• Requirements concerning Meetings and Procedures thereof
• Dissolution

To know more, you may read the provisions of VA Code § 13.1-1023 (2021).

Writing The Operating Agreement Yourself vs. Hiring a Service

You can create your operating agreement, or you can purchase templates that you can customize to draft the operating agreement of your LLC. You may also call for a meeting of all the members of your LLC and draw up an agreement in consultation with the other stakeholders.

It is, however, recommended that you seek the help of an attorney or a professional in preparing your operating agreement.

Experts in the laws of Virginia, these attorneys or professionals will help you draft an operating agreement that suits the needs specific to your business model.

Limits of Operating Agreement

There are certain limitations to creating an operating agreement as per the laws of Virginia. These limitations are mentioned in § 13.1-1093 of the Virginia Code. These have to be kept in mind before forming an operating agreement, as any clause in contradiction to the provisions of the law will make your operating agreement unenforceable. 

Obtaining an EIN for your Virginia LLC

EIN (Employer Identification Number or Federal Identification Numbers or FEINs) is an identification number allotted by the IRS. The IRS uses the EIN to identify an operating business entity for taxation purposes. It is also known as a federal tax identification number.

A multi-membered LLC is mandatorily required to obtain an LLC. A single-member LLC, on the hand, will need an EIN if it wants to hire employees or treat itself as a corporation for taxation purposes.

The IRS issues an EIN, and you can apply for it online or through the mail.

Pay Annual Registration Fees in Virginia

LLCs registered and allowed to do business in Virginia must pay an Annual Registration Fee of $50. You can make the payment using the online portal of Virginia’s State Corporate Commission. The due date for the payment is by the end of the month in which the LLC was registered in the State. For example, if your LLC was incorporated on the 15th of August, you must pay the registration fee annually by the end of August.

If you miss the deadline for payment, your LLC will be subject to a penalty of $25. You may also risk getting shut down if the default continues for more than three months from the due date.

Tax Liability for your Virginia LLC

The way your LLC will be taxed depends upon the number of members in your LLC. There are four ways in which LLC will be taxed:

• Sole proprietorship: a business owned by a single person
• Partnership: a business owned by multiple people
• C – Corporation: income is split or segregated for taxation
• S – Corporation: tax liability is split between the business and its owners

Federal Tax Liability

If you’re a single-member LLC, your default taxation type will be that of a sole proprietor or ‘disregarded entity.’ The LLC does not need to file a separate tax return. Instead, the income and expenses of the LLC will become part of the member’s tax return. You would have to report the LLC’s income and expenses under Schedule C, Schedule E and/or Schedule F of Form 1040. 

If your LLC has more than one member, it will be taxed as a ‘partnership’ by default. In this case, the LLC does not need to file a separate tax return. Instead, each member will have to pay taxes on their income from the LLC. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information in Schedule K-1 of each partner. 

If you would like your LLC to be taxed like a C-Corp or S-Corp, you can do so by filing Form 8832 and Form 2553, respectively. In such an event, your LLC will have to pay corporate tax.

State Tax Liability

LLCs are, by default, treated as pass-through entities, which means that you do not have to file income tax separately. But, if your LLC is registered as a C-Corp or S-Corp entity, you’ll have to file income tax separately.

If your LLC is engaged in selling certain physical products or specific services, you will be required to pay Sales Tax in Virginia. For this purpose, you must first obtain a seller’s permit from the State. The tax rate will vary according to the product you’re selling.

If your LLC has hired employees, you must sign up for  Unemployment Insurance Tax and Employee Withholding Tax.

Miscellaneous Taxes

According to Virginia’s tax laws, you might be liable to file other additional taxes according to the field of operation of your business. Examples of such taxes are Forest Products Tax, Soft Drink Excise Tax, Soybean Assessment Tax etc. For more details, visit Virginia Government’s website. 

Permits and Licenses

Licenses and Permits are important ways through which government regulates businesses. It helps the authorities to keep track of businesses engaged in various sectors and also to help ensure that they are compliant with the required laws and regulations.

Depending on your LLC’s business, it will be subject to three licensing jurisdictions: Federal, State and Local.

Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.

Some business activities requiring Federal Licenses and Permits are

• Agriculture
• Alcoholic beverages
• Aviation
• Firearms, Ammunition, and explosives
• Fish and wildlife
• Commercial fisheries
• Maritime transportation
• Mining and drilling
• Nuclear energy
• Radio and radio and television broadcasting
• Transportation and logistics.

At the State level, your LLC should get a sales tax certificate if it sells specific physical products or services. You can apply for a seller’s permit online using Virginia’s Tax Online Services for Businesses portal.

Depending on where you operate your business, you may also be required to get the local government’s license and permit. In Richmond, all businesses are required to have a city business license. To know more about local licensing requirements, get in touch with the office of your local administration.

For more information regarding;

• Department of Professional and Occupational Regulations.
• Federal Permits and License

Business Bank Account & Phone Number

Once you incorporate your LLC, ensure that you open a business bank account. Having a different account helps you to avoid mix-ups and helps ensure that your personal assets are not affected in case of insolvency or lawsuits. Additionally, you may apply for business credit cards. This helps build the credit score of your LLC and will come in handy while you apply for loans in the future.

Using your phone number for your LLC can prove to be very inconvenient. Therefore, it is best either get a separate phone number for your business or hire a phone answering service. Doing this would protect your privacy, look professional and reduce the risk of missing important calls.

Final Thoughts

Setting up your business in Virginia has a lot of benefits. Depending on the type of business, LLCs in the State may be eligible for various incentives such as the Virginia Economic Development Incentive Grant (VEDIG), Virginia Investment Partnership Act (VIP) / Major Eligible Employer Grant (MEE), Commonwealth’s Opportunity Fund (COF), etc.

Get in touch with your local county or city government office to determine if your LLC is eligible for any of these incentives.

On completing the above steps, your LLC is legally incorporated and ready to do business. We wish you and your new business the very best!