You’ve decided to start your LLC. In your search for an article that will guide you to the whole journey you have reached here. You’ve found the perfect place. This post will take you to the approach necessary to start a business. To gain a complete understanding of the subject, read the article until the end.
LLC stands for Limited Liability Company. It is one of the most common business models preferred by new entrepreneurs. The members’ liability protection is the most notable advantage it provides. It means the member’s assets are completely protected if the LLC is sued or is in debt. Their assets will not be used to pay off the LLC’s debt. There are also tax advantages. An LLC works as a pass-through entity with a versatile structure. It means that the business’s earnings and expenses are reported on the owner’s income tax returns.
Let us take a closer look at all of the benefits it offers:
✔ The amount of paperwork needed is significantly reduced. This simplifies the process of establishing and sustaining an LLC.
✔ Owners’ will not be responsible for the financial crisis/debts, and their properties will be unaffected.
✔ The taxation system is versatile, and members can choose to pay taxes as an LLC or a corporation.
Let us go through all of the necessary steps for forming a limited liability company.
The first thing that you have to do is to pick a suitable name for your company. It might be an easy-looking process, but it can take up your time. It would be best if you also gave importance to naming your company as it will be your company’s brand and represent your business. Your business will be associated with the name you choose. So, put in your efforts and choose a unique and memorable name. One thing to keep in mind is that the name should not be similar to other businesses. You can check it on the Virginia business entity search. If your name comes up, that means there’s already a company out there with the same title. So, you have to make it different by altering the keywords or trying a new one. There are some naming State corporation commission rules that you have to follow. Before finalizing the name, keep these rules in mind.
- The name should be distinct.
- It should not be confused with other businesses/companies.
- You cannot use obscene words.
- The terms Limited Liability Corporation or its abbreviation must be present.
- Your business structure is LLC, so you cannot use the words Incorporated, Corporation, etc. that might give your company the wrong idea.
- Words like a bank, insurance, the university cannot be used. It might need special permission or an authorized personality to be part of the LLC.
- You cannot name the company to give an impression that it is related to the government.
After you have decided upon the name, you can finalize it by registering it in the Articles of Organization. But if there is a delay in your company’s start, you can also reserve the chosen name so that nobody can register it before you. For that, you have to send the name reservation application along with a payment of $10 to the following address:
Office of the Clerk
PO Box 1197
Richmond, Virginia 23218-1197
You can also drop off the application at the office. You can personally deliver the application to the following address:
There’s only hard copy submission, so you mail it or personally deliver it. It will take around 5 to 7 working days for your application to be processed.
While you are reserving your company’s name, it’s an excellent time to secure your domain name too. Ultimately you have to create a website and will require a URL. A company’s website is very prominent in its success. So, instead of booking it later, it is better to book it now and save your time.
LLC is required to hire a registered agent. The registered agent can be an individual or an entity whose work is to manage the legal correspondence of the LLC. Any legal notices, lawsuits, etc., will be delivered to the agent. The registered agent has to produce these documents for the owner of the company. The registered agent also has to send the essential papers, responses on account of the LLC.
Who can be the Registered Agent?
The registered agent can be a person or an entity. The person can be an individual such as your friend, family, acquaintances, or colleagues. The registered agent has to be present in the office during office hours. There are some rules for an individual to be an agent:
- the individual should be a citizen of Virginia
- he/she should have a street address; only a PO box is not adequate
- the person should be 18 years old or over
You can also make a business entity to be your agent. All your papers will be delivered to them, but there are some guidelines:
- The business should have the correct authorization to conduct business in Virginia
- they should have a street address in Virginia, not just a PO box
Apart from these two, there are two other options too. You can be your registered agent, or you can hire registered agent services. However, being your registered agents might have some disadvantages. As an agent, you have to be present during the regular working hours to collect the paper. That might not be feasible as the company’s owner as you cannot go anywhere for work. Also, the registered agent details are mentioned in the public record. So, it might not be an excellent choice to make your details known. The second option is to hire a professional registered service. They take charge of it all, from the formation of your LLC to appointing a registered agent. It is totally up to you which options you want to go for.
It’s effortless to appoint the registered agent; you only have to write the name on the Articles of organization. We are going to learn about this critical document in the following step.
Articles of Organisation
This step is crucial in officially recognizing your LLC. Articles of Organization make your LLC legal. It is a formal document that acknowledges your LLC. You have to fill a form and submit it; that’s it. Without this document, you won’t be able to start your company. So, be careful in filling the form. There are certain things present in this documents:
- The name and address of the LLC
- The nature of the business
- The name and address of the registered agent
- The management structure
- The name of the members and manager, if any
After the approval of the Articles of Organization, you can create your LLC under the State laws.
Now, you know why; it is time to look at how. How can you file the Articles of Organization? There are three ways for you to submit this document:
You can go to the Secretary of State’s official website and submit the Articles of Organization. It is effortless and won’t take up your time. You also have to make a payment of $100.
Via Postal mail
For the postal mail method, first, you have to download the form, fill it and take a printout. After that, you can mail the form to the below-mentioned address. It will take around 5 to 7 days for your application to get processed.
PO Box 1197
Richmond, VA 23218-1197
You can walk into the office and deliver the Article to the following address:
1300 E. Main St.
Richmond, VA 23219
If you think that it takes a long time to process, you can speed up the process.
- For one day of processing, you have to pay an extra $100
- For the same day service, you have to pay an additional $200
If you want the expedition process, along with the Articles of Organization, submit the Expedited service form.
After your document gets processed, it means that the State Corporation Commission has recognized you. And you can open your doors.
The following important document for your LLC is the Operating Agreement. Vermont does not necessitate the formation of the operating agreement. But it doesn’t mean that you can avoid it. For the efficient working of an organization, an operating agreement is a must.
What is an operating agreement?
An operating agreement is a collection of guidelines, rules, and regulations that determines how the company works. If there are set rules, then it becomes easy to manage a company. You can add things such as:
- the name of the members
- the responsibilities of each member
- how the distribution of profit and share will take place
- what happens when a member leaves or a new one joins
What is the importance of an operating agreement?
It helps you to avoid conflicts. For example, if a dispute occurs regarding the distribution of profits, it will be solved instantly if mentioned in the operating agreement. All the members of the company sign an operating agreement. That means at the time, they all agreed to the terms, and they have to follow them. If anyone deviates from it, then the operating agreement can be used as evidence. Also, working without an agreement, in the event of a dispute, might work against you. Let us understand it with the above example of profit distribution. Suppose you decided that the profit will be distributed depending on the financial contribution of the members. Now, one of the members is demanding that it should be distributed equally. If you have an operating agreement, then this issue will be solved right there then. But in the absence of it, State rules will apply. These state laws are general; they do not adhere to one company. So, most of the time, they might not be in your favor. So it is better to draft the operating agreement. And second thing the vendors, clients can also ask to see the operating agreement before finalizing the deal with you.
If you have sole-proprietorship, you should also have this agreement to separate you from your business.
How can you draft the operating agreement?
There are two ways that you can use to form an operating agreement.
- Draft your agreement: In this way, you can write the operating agreement of your company. This process does not require any specialized training or practice. You can easily create one. Nowadays, there are several templates available online for free that you can use.
- Take the help of a professional: You can also ask a lawyer to do it for you. They are well aware of the state’s rules and all the formalities. They will draft a perfect operating agreement containing all the minute details.
It doesn’t matter whichever way you choose; what important is that you should have an operating agreement.
Obtain an EIN
Employer Identification Number or EIN is a nine-digit code provided by the Internal revenue service (IRS). The IRS uses this number to recognize your business. It works as a Social security number.
What is the importance of EIN?
It is used to open a bank account, pay taxes, hire employees, etc. It also helps in the following ways:
- It protects the limited liability of the members as it helps to prove that the business is a separate unit.
- It prevents a security breach. As you do not have to use your SSN everywhere, it protects your identity.
If you work without the Employer identification number, then you cannot open a separate business bank. It would mean that your business and personal expenses will be mixed. So, you can get this number. You can get it from the IRS free of charge. There are three ways to obtain EIN:
The most effective method is to submit your application online. Anyone who wishes for a fast application process should do so online. For this process, you have to visit the IRS’s website. You can apply between the hours of 7 am and 10 pm, from Monday to Friday. You will receive the number instantly after submitting it.
The second most effective approach is to send an application via fax. You must take a print of the Form SS-4 after downloading it. Fill out the form and fax it at this number (855) 641-6935. It might take a few days for your application to be accepted.
Postal mail is the third method. Download, complete and send Form SS-4 to the IRS. This takes a long time compared to the other two techniques. Mail it to the address below, please:
Attn: EIN Operation
Cincinnati, OH 45999
Taxes and Licenses
In Virginia, you have to pay taxes at different levels of government: The federal, Commonwealth, and Local. You might have to file varieties of taxes, like sales tax, used tax, etc. We will learn about them one by one.
Federal income tax
The Virginia LLC doesn’t pay income taxes to the government. However, it doesn’t mean it does not pay any taxes. The owners produce it in a roundabout way. It means that the profits and losses of the company are reported on the owner’s tax return. So, the owners pay the LLC taxes indirectly.
Furthermore, the LLC tax structure is adaptable. The owners can choose between paying taxes as an LLC or as a C Corporation. You must pay a separate corporate income tax if you want to be treated in the same way as a company.
For state taxes, the same rules apply; owners must report their profits and losses on their tax returns. In addition, some local councils and counties charge fees depending on the area. As a result, get in touch with the local government also. However, if you are a multi-member company, then you have to file an annual tax return. Searching the Department of taxation website for the most up-to-date information is always a brilliant idea.
There are also additional taxes depending on the type of business you have. You will be required to pay sales tax if you sell goods and products. You have to report it to the Virginia Department of Taxation. The rate of sales tax in VA varies. It depends on the county, city, or area where you live. If you have employees or you hire them, then you have to pay certain employment taxes:
- Withholding taxes- For this tax, you have to submit the Form R-1 with the Virginia tax online service portal
- Unemployment insurance tax- for this tax, you have to offer the Form VEC-FC-27
Also, there might be some local taxes that depend on the location.
Depending on your business type, you might have to get a certain kind of license. For example, if you want to open a pharmacy, you will need a pharmaceutical license. Or, if you’re going to open a banquet hall that serves liquor, then you will have to obtain Distillers’ licenses, Banquet facility licenses, etc.
You can also consult with the local authorities since some cities and counties need their licenses.
Virginia LLC Annual Report
After you buy a vehicle, you take it for maintenance every year. The same thing is with the LLC; you have to submit an Annual Registration Fee every year. There is a requirement for an annual report in other states, but in Virginia, it is different. Here each LLC has to make a payment of $25 every year after its formation. Don’t forget to make this payment as if you will; you have to pay an extra $25 as a penalty. It will affect your good standing with the Commonwealth. Furthermore, if you continue to do so, it can lead to the dissolution of your LLC. There are two ways to submit the Annual registration fee.
You can go to the state’s official and complete the payment
Or if you want, you can mail the fee to the following address:
PO Box 1197
Richmond, VA 23218-1197
Now, there are few points that you should take a look at. These steps are essential after the formation of an LLC, but they are equally important.
- You have to open a bank account for your business to keep the professional and personal expenses separate.
- Also, apply for a business credit card so that you can manage the finances of the company.
- It is essential to put some effort into marketing and branding. You should create a website for your company. It would be simple as you have already secured the domain name in the first step.
- Managing finances, taxes, and taking care of the business can be a lot. The best thing is to hire a chartered accountant. An accountant will help you to file taxes and look after your finances.
- Always get insurance for your business. There are different types of insurance available. You can go for anyone, whichever suits your interest.
This point is where we end this article. You now know how to form an LLC, and now you are ready to create one. Congratulations. The report might seem long, but you have made it to the end. The result will be worth it. Soon, you will be the owner of your LLC, making amazing deals and growing the business.