How to Start an LLC in Virginia
Virginia may be for lovers but it’s pretty good for business too. The state’s gross domestic product (GDP) climbed to $498.8 billion in 2022, showing a 1.3% increase from last year. That growth is the annualized rate over the past five years. Virginia was once known for its tobacco farms but now its economy features the largest data center market in the country, manufacturing, and a growing tech services industry. It has plenty of coastlines and ports for the fishing industry and shipping and also is home to the Norfolk Naval Station. Virginia ranks high for business because it’s well-balanced between government, farming, manufacturing, and technology. It has more than 4.1 million civilian employees with more than a third working in the service industry. The unemployment rate is consistently around 2.6%. Those forming an LLC in Virginia have plenty of opportunities. We created a step-by-step guide to help you get started. It has advice and links that will navigate you through all the procedures so you can get your new business entity up and running.
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An LLC has a lot of benefits, including personal asset protection, personal liability coverage, easy tax preparation, and the company is simple to set up. However, LLC formation starts with you selecting a name for your limited liability company.
Name your LLC
Think you have the perfect name for your LLC? Find out if it’s available by researching the state’s business directory. Names that show up are unavailable. If your chosen name doesn’t appear, it’s yours to claim.
Picking a name for your business is the first thing you should do because the state will ask for it on everything else you do. It’s as important as selecting a name for your child because your business will forever be identified by it.
Check name availability
States, including Virginia, require that business names be unique from every other business in the state. Selecting a unique name requires some research on your part. The best place to start is with the free name search tool on the State Corporation Commission Clerk Information System page.
To use the tool, you can either look for an exact match of a name or names that contain certain words. You should do both to make sure you have a truly unique name. Enter your preferred name in the search and see what businesses show up.
Those that have your exact name can’t be used but you may be able to use your name if another business has some of the same words. However, your name must be distinctive so it can’t look or sound similar. You can check out Virginia’s rules for distinctive names here.
Consider what makes a name memorable
It can be a challenge to pick a unique business name that is catchy and suits your brand. You may need to test out several to find one you like. Business names should describe the business’ activity, be clearly understood, and be one that people will easily remember.
Business names will also be used for marketing so pay attention to how they sound and look too. Some people like clever names that play off of common sayings and phrases. That can work well but also can be a disaster so keep it simple. No one likes to have to figure out what a name means.
Those who are having trouble selecting a name may want to use a business name generator. These are paid online tools that will help you brainstorm business name ideas. They are affordable to try and some come as part of an overall business startup package so those who have never started a business before should check them out.
File a name reservation
If you have a name but aren’t ready to formalize it with the state, you can reserve it in Virginia. Those who want to keep others from using their proposed business name while they work on starting their LLC can reserve it for up to 120 days with an application with the State Corporation Commission. The cost is $10.
Virginia is unique in that LLC owners can renew the reservation for additional 120-day periods if they file during the 45 days preceding the reservation’s expiration. Those names not renewed for a reservation will lose state protection and be revoked. You can start by creating an account and reserving your business name here.
Select a registered agent
Virginia requires every business owner to submit the name of their registered agent when they create their business. A registered agent is someone who can accept court and other legal documents, like service of process, on behalf of the business.
States consider this an important function so that businesses facing court action can be properly served.
Virginia has basic rules about registered agent qualifications. They include:
- They must be a Virginia resident.
- They must have a physical Virginia mailing address, not a P.O. box.
- They must have a registered office.
- They must be available during normal business hours.
Business owners can be their own registered agents in Virginia. However, that may not be the best choice because you will likely need to list your business address as the registered office. That means a process server will come to your business to serve you with legal papers if you are ever in a legal matter. That won’t look good if you have customers watching.
To alleviate that problem, as well as the stress of being your own registered agent, many business owners hire a registered agent service. Some will choose an attorney for the job but others seek out a professional business services company to handle it.
Professional business service companies can handle a host of things associated with starting a business from filing your business with the state, to getting your employer identification number (EIN), being your registered agent, and making sure you comply with all state laws. Several national companies like Northwest Registered Agents, ZenBusiness, and Incfile are authorized to operate nationwide.
File Articles of Organization
If you’re doing business as an LLC, you need to file for registration of your business with the State of Virginia. It’s a fairly simple process using Virginia Form LLC1011. Articles of Organization list the basic information of your LLC such as the business name (not an abbreviation or a nickname), its address, its registered agent, and LLC members’ names and addresses.
You can file your Articles of Organization online or mail them. Those who want a step-by-step guide on how to register your business can go here.
You can register your formation documents in Virginia here.
The filing fee for this type of business, an LLC, is $100.
Virginia processing time
Those filing for business registration online can get their application processed in two to three business days. Those filing by mail may need to wait up to two weeks to get an answer. You can pay an additional fee for expedited service.
Those who want expedited service can pay an additional $200 and submit their filing by 10 a.m. to be filed by 4 p.m. the same business day.
Create an LLC operating agreement
Virginia doesn’t mandate that LLCs have an operating agreement but it’s still a smart thing to do. An operating agreement not only sets how you run your business but becomes the legal foundation for its management. That could be important if there is ever a conflict with any of your LLC members or even in other legal matters.
An operating agreement helps guide the business in tricky situations like the death of an LLC member, how to handle it if a member leaves, transferring interest, and compensation for members. These are things that shouldn’t be assumed but must be discussed and approved by the members.
An operating agreement should include things like:
- Listing LLC activities
- Naming decision-makers
- Voter rights
- Member interest transfers
- Initial contributions
- Profit and loss management
- Responsibilities of members
- Management structure (like member-managed, manager-managed, or single-member LLC)
- Bookkeeping methods
- Dissolution procedures
Running a business can get complicated. One of the more complex aspects is dealing with taxes.
Get your EIN
Almost all businesses are required by the IRS to get an employer identification number (EIN) for tax purposes. This number is like a Social Security number for a business and is used for everything including filing business taxes, hiring employees, and opening a bank account.
You obtain this number from the IRS. The good news is that it can easily be done online in just a few minutes by going to the Internal Revenue Service (IRS) website and applying. Your business will be assigned an EIN after you answer a few basic questions.
Virginia requires new businesses to register for state tax filings also. You do that by going to the Virginia Tax office and registering for a state tax number.
You can get your EIN by visiting the IRS website.
Get Virginia business licenses
You may need to check out to see if you need any other required licensing in Virginia. Some professionals, like accountants and even hairstylists, are required to get specific professional licensing in some states before working.
Open business bank accounts
Setting up your business finances is critical. You will need to open a business checking account to pay employees, vendors, and operational costs. You will need your EIN and state tax numbers to do that.
You may want to check with your bank to see what is required to open a business bank account as each bank has its own requirements.
It may also pay to open a savings account so you can stash some revenue away for times when cash flow isn’t great. Some businesses find it helpful to have a separate payroll account to ensure money is always there to pay employees, withholding taxes, and other required payments associated with employees.
Businesses should also have at least one credit card they can use to buy what it needs like inventory, equipment, or office supplies. A credit card can help preserve cash and many today come with other benefits like cash-back bonuses.
Review LLC tax rules in Virginia
LLCs are pass-through entities, so taxes are paid via personal tax returns.
Virginia has a corporate tax rate of 6%. It’s a flat tax so it will remain the same no matter how big your LLC grows. The state mandates that all pass-through entities (PTEs) that conduct business in the state or receive income from those in the state must file Form 502 as an annual state income tax return.
Sales tax in Virginia
Virginia has a 5.30% sales tax and also allows local cities and counties to have their own sales tax with a maximum rate of .70%. That makes the average combined state and local sales tax 5.75%.
Virginia offers several tax incentives and exemptions for those seeking to start businesses there. One is an income tax credit that equals half of the qualified investments made to businesses during the year. This allows business owners to claim up to $50,000 in credit on their returns as long as they don’t exceed their tax liability. You can also carry unused credits for up to 15 years.
The state also offers an exemption on your corporate income tax of up to $2,000 for each new job created. This is for companies that began after Jan. 1, 2018, with no employees or no property in the state before that.
File an annual report
The State of Virginia requires all businesses to file an annual report. The report is due on the last day of the 12th month after the business was formed. You can file an annual report online or by mail. The filing fee is $50.
Those with questions about annual reports can get answers here. (Note, an annual report is sometimes called a Statement of Information).
The form for filing an annual report for an LLC can be found here.
Get insurance for your LLC
Insurance is an important aspect of running a business because it protects you, your LLC members, and your business. There are three primary types of insurance to consider and they are liability, worker’s compensation, and property insurance.
Virginia, like most states, doesn’t require that businesses have general liability insurance. LLCs do have liability protection, but getting insurance is a good idea as it protects you and the business should someone sue over a product or damage or injury caused by your service.
The state is strict about workers’ compensation insurance. The Virginia Workers Compensation Commission regulates businesses regarding workers’ injuries while on the job. The state requires those businesses with more than two employees to have workers’ compensation coverage.
Additionally, the state uses broad terms in defining qualifying employees. They define employees as anyone who works part-time, seasonal, and temporarily. They also include minors, trainees, immigrants, and working family members in their definition.
Property insurance is important because it will pay to rebuild if there is ever a fire, natural disaster, theft, or vandalism. Landlords may require this if you are renting commercial space.
Additional resources to help you set up a business in Virginia
There are numerous resources in Virginia to help get your business started. The state website offers these guides for entrepreneurs:
What are all the different types of taxes businesses must pay in Virginia?
Besides the corporate income tax, businesses must pay a withholding tax, unemployment insurance tax, sales, and use tax, and utility consumption tax.
LLC owners will pay federal taxes and state taxes too, on their personal income tax return.
Is Virginia a good place to start a business?
CNBC ranked Virginia third in the country in 2022 as a top spot for starting a business, be it an LLC, sole proprietorship, or corporation. It was number one in 2020 and 2021.
What’s the benefit of starting a business in Virginia?
Most experts state the best part of starting a business in Virginia is that the educational system produces qualified, skilled workers. The state ranks high in education and welcomes a variety of business structures.
What is Virginia’s most profitable product?
The state still has a lot of agriculture and tomatoes are its most profitable product. Virginia also produces soybeans, hay, tobacco, and peanuts.
What is the average household income of those living in Virginia?
The average household income of Virginia residents is $106,023 in annual pay.
What area of Virginia is the most profitable for business?
The county of Arlington is the area that produces the most earnings. That is followed by the cities of Falls Church and Alexandria. The fourth most profitable area is Fairfax County, just outside the District of Columbia.
What is Virginia’s largest employer?
The U.S. Army is the state’s largest employer. It has more than 500,000 employees in the state. That is followed by Dollar Tree, Hilton hotels, DXC Technology, and General Dynamics.
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