How to Incorporate in Virginia vs. How to Start a Virginia LLC

People looking to start a business often ask whether they should set up an LLC or incorporate for their new venture. Like everything else in life, the answer depends. Below you’ll find the three factors we think will help you make an informed decision.

• Ease of maintenance
  LLCs are pretty easy to maintain. An LLC can opt to be managed by its members, which allows all owners to share in the business’s day-to-day decision-making, or by managers, who can be either members or outside managers. This is helpful if members aren’t experienced in running a business and want to hire people who are. Corporations have to hold meetings, keep minutes, record votes, and generally file more paperwork compared to an LLC. However, corporations are perpetual, which means they can exist as their own entity forever, whereas an LLC will generally dissolve and cease to exist upon the resignation, death, or bankruptcy of the member or members.
• Desired tax structure
  LLCs offers pass-through taxation, where a company’s profits (or losses) aren’t assigned to the LLC, but rather to the tax liabiliy of the LLC members. For example, “Bass Drum Emporium, LLC” has two members and has made net profits of $100,000 during the most recent fiscal year. These reported net profits will be divided into two and this amount will be taxed as their personal income depending upon their overall tax liability. LLC members who actively work in the business are able to deduct the business’s operating losses on their personal tax return to offset other income. C corporation shareholders are not able to deduct these losses.
• Investors
  If you plan to raise capital for your business, then incorporation probably makes the most sense. Investors prefer the favorable taxation rules of a corporations, and unlike LLCs, a corporation’s shareholders are not taxed on company profits unless profits are distributed. This means the dividends paid from the corporation can be structured to take advantage of the best tax scenario for the shareholders. LLCs If you plan to grow your small business into a larger entity and attract investors, forming a corporation is your best bet.

Don’t sleep on the idea of prestige either. While “Sweet Nicole’s Gun Range, LLC” is a fine upstanding company, it just doesn’t sound as fancy as Nike, Inc. When you hear the word corporation, many people think of Amazon, Apple, and Walmart. While the LLC is perfect for the small to medium-sized business, it doesn’t carry the same cache as the corporation. The corporation is the oldest recognized business entity in the US (LLCs first came into being in the late 1970s), and thus they carry with them an aura of prestige.

Note that whether you form an LLC or a corporation, you’ll need to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN) once your company is officially formed with the state of Virginia. This report provides the federal government with identifying information about your company and those with the most control over profits and business operations. However, unlike state filings, the information shared in your report does not go on the public record and there is no filing fee. (Though if you don’t want to file this on your own, we offer BOI filing service for just $25.)

While we’ve already broken down the differences between an LLC and a corporation, we’re going to dig a bit deeper into the pros and cons of forming an Virginia LLC or corporation. Take a look below to see what makes Virginia LLCs and corporations unique.

• Corporation Filing Fees
  A corporation’s filing fees vary based on the number of shares a corporation has. Virginia charges a minimum of $75 ($25 filing fee and $50 for up to 25,000 authorized shares) to file the Articles of Incorporation. Add another $50 for up to 25,000 shares (add $50 for each additional 25K of shares). The charter fee tops out at $2,500 for over a million shares.
• Annual Report Costs
  Virginia’s Annual Report costs are fixed at $50 for LLCs, and a minimum of $100 for corporations. However corporations are charged nothing, but the minimum fee is $100 (1-5,000) based on shares, and the maximum is $1700 (over 270,000).
• Strong Liability Protections
  Virginia’s Limited Liability Company Act (§§ 13.1-1000, et. seq., by enacting Section 13.1-1041.1) states that “the entry of a charging order is the exclusive remedy by which a judgment creditor of a member or of a member’s assignee may satisfy a judgment out of the judgment debtor’s transferable interest in the limited liability company.” A charging order allows an aggrieved party to put a lien on an LLC’s financials. Virginia’s LLC Act makes this judgement the only way an LLC can be forced to distribute money with regards to a lawsuit. That is pretty strong and decisive protection with regards to LLC liability.
• New Business Incentives
  Virginia offers an exemption from corporate income tax, and up to $2,000 per new job, for companies with no employment or property in the state prior to January 1, 2018. The corporations must meet defined investment and employment requirements.

Virginia LLC or Virginia Corporation? Final Answer.
The Virginia LLC takes the cake by giving you everything you need in terms of keeping you and your property safe from lawsuits, but legally defined enough by the state to run as an income producing entity. If you want to take your company public and attract investors, you’ll want to incorporate, but the LLC is perfect for it’s flexibility, and the way in which it allows small businesses superior protection without all the tedious paperwork.

To start a corporation in Virginia, you must file Articles of Incorporation with the State Corporation Commission. You can file the document online or by mail. Currently their online filing system is unavailable. The Articles of Incorporation cost a minimum of $75 to file ($25 for the Articles and an added $50 per 25,000 authorized shares, eventually topping out at $2,500 for over a million shares).

To form a Virginia LLC, you must complete and file the Articles of Organization with the State Corporation Commission. The Articles cost $100 to file. For $25 plus state fees (total $125) we’ll fill out and file your Articles for you.

Each Virginia corporation and LLC that is authorized to transact business in the state is required to file an annual report every year. The annual report form contains pertinent business information and any changes the entity made during the year. It does not contain shareholder data, financial data or other information that relates to the financial performance or status of the corporation. Corporations must list of the names and addresses of the corporate officers and registered agent on the annual report. The corporate annual registration fee assessment is based on the number of authorized shares. Both the report and registration fee are filed together and may be filed online or delivered by mail or in person.

How do I file my Virginia Annual Report? 
VA Corporations and LLCs can file the annual report and pay the registration fee using Virginia’s SCC eFile system. The online system is easy. You need your corporate ID number to get started. VA Corps and LLCs may also go to the same SCC webpage and request to have the pre-populated form sent to you, if you would rather mail it in with a check. Virginia’s Online Filing System is Currently Unavailable.

Mail your annual report to:

State Corporation Commission
Office of the Clerk
PO Box 1197
Richmond, VA 23218-1197

When is the Annual Report due? 
Virginia’s annual report filing deadline for Corporations and LLCs will be the last day of their anniversary month. If you organized your LLC in on the 5th of July, your Virginia report will be due on the last business day of July.

How much is this report going to cost me? 
Here’s the rub. LLCs pay an annual registration fee of $50. Nonprofits pay half that, $25. Corporations are charged $50 per 25,000 shares of stock, for a minimum of $100 and a maximum of $1,700.

Almost no one enjoys taxes. They are, however, an integral part of successfully doing business in America. While we’re not tax professionals, we definitely will do our best to try and explain what kind of taxes your business will be expected to pay.

How will my corporation be taxed?
Corporations face “double taxation.” First they pay taxes on net profits from the business, and then get hit a second time when on the dividends they receive from those earnings. Dividends are taxed at the shareholder’s personal tax rate. An LLC doesn’t have this problem, which means anyone looking to form a corporation should take note of a state’s corporate income tax and personal income tax.

How will my LLC be taxed?
Single member LLCs, meaning it’s just you running your business, are treated like sole proprietorships by the IRS. This means that any profits or losses your LLC experiences, will pass-through to you as the single owner. All you have to do is file a Schedule C with your personal tax return (IRS Form 1040). It should be noted that an LLC can elect to be taxed as a corporation under Subchapter C, by filing IRS Form 8832 (Entity Classification Election), or as a corporation under Subchapter S by filing IRS Form 2553 (Election by a Small Business Corporation).

What if my LLC has more than one member?
As with a single member LLC, the IRS will view your multi-member LLC as a pass-through entity for tax purposes. It will also designate you as a partnership, which means each member will have to file Ia Return of Partnership Income form (IRS Form 1065). This document lets the IRS check and make sure each owner is reporting their income properly. Beyond that, each LLC owner will attach a Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc.) to their Form 1040. This form shows the IRS each member’s share of the LLC’s profits and losses.

Here’s a tip: if your LLC is going to have more than one member, it would be a good idea to draw up a simple operating agreement. Most states don’t require an LLC to have one, but with so many cooks in the kitchen, you’ll want clear documentation with regards to ownership percentage, voting rights, distribution of profits and losses, as well as rules for buying out a member. You won’t be require to file the agreement, but it should be signed by each member and kept with the LLC’s important documents.

Beyond the basic information you’ll also need:

• payroll documents
• bank and credit card and interest statements
• accounting documents
• partnership agreements
• depreciation schedules
• gross receipts

What tax forms do I need to file?
Corporations: Form 500
Partnerships: Form 502
LLCs: Form 760

What’s the Virginia corporate tax income rate? 
Flat tax rate of 6%.

What’s Virginia’s personal income tax?
$0 – $3,000                2%
$3,000 – $5,000        3%
$5,000 – $17,000      5%
$17,000+                   5.75%

When are my business tax returns due? 
April 15th.

What if I need an extension? 
Virginia grants an automatic filing extension for corporate income tax returns. Corporations have an automatic 7-month extension, and all calendar year filers have an extended due date of November 15th.