The limited liability company ("LLC") is a Popular Business Structure for Small Businesses
Many entrepreneurs choose the LLC structure in Virginia because of its flexibility. The LLC offers limited liability protection while allowing its owner to elect to be taxed as a sole proprietor or partnership (by default) or make an election to be taxed as a Corporation (C-Corp or S-Corp). Finally, establishing and maintaining an LLC is typically easier to manage than other corporate entity structures. A business minded attorney can help determine if this structure is best for your new business, handle the details, and serve as registered agent.
Steps to forming an LLC
Ready to form a new lLC in Virginia?
Forming the LLC entity in Virginia can be completed online through the Virginia State Corporation Commission Clerk’s Information System; however, that is not the end of the process. Forming, operating, and maintaining the benefits of an LLC requires proper planning and execution.
Formation
- Develop an appropriate name for the LLC, for example:
- The name cannot include certain signs and symbols
- The name cannot misleadingly associate with a sector or business. For example, the LLC cannot imply it is a professional service, bank, insurer, or other similar business if it is not in fact legally permitted to engage in such activity.
- The name must contain an approved variation of “LLC”.
- The name cannot conflict with another registered name.
- The name should not include any words that conflict with another’s trademark.
- See the VCC’s FAQ Section for more details.
- Register Online through the Clerk’s Information System. Key steps require you to:
- Select the appropriate entity type.
- Determine if the business be Manager-Managed or Member-Managed.
- Prepare Articles of Incorporation for review or use the online form.
- Designate a Registered Agent.
- Identify the Originator and Sign.
- Pay the filing fees.
Post Formation
Properly forming an LLC does not stop with the initial entity creation. Best practice necessitates that the new LLC:
- Obtain an employer identification number (“EIN”) from the IRS (you must have an EIN to open a bank account or hire employees).
- Draft and sign a formation resolution to formally approve the formation of the new entity.
- Determine its preferred taxation method and file any necessary elections (with the assistance of a qualified tax advisor).
- Draft and approve an initial operating agreement.
- Open a business bank account.
- Purchase insurance plan(s) (Such as: Commercial General Liability, Auto, Workers Compensation, Errors & Omissions, Umbrella).
- Obtain a business license in your locality.
- Register with the Employment Commission and State Department of Taxation (if applicable).
- Obtain accounting software and create a new accounting instance for the new business.
- Properly document any loans or contributions.
Working with legal and tax professionals can empower entrepreneurs with the knowledge they need to lawfully engage in business and plan for the good, the bad, and the ugly.
Essential steps to Maintain LLC protection
In order for the new entity to provide the limited liability protection that you desire, you must observe the following principles:
- Observe corporate formalities by holding of meetings, or documenting significant actions by signing consents in lieu of such meetings, and keeping an LLC minute book;
- Operate the LLC as a separate financial unit, with separate income statement, balance sheet and bank account so that you can avoid comingling funds;
- Avoid representations that would lead an outsider to believe that the business is being conducted as a sole proprietorship or partnership;
- Capitalize New Entity with sufficient cash to meet obligations as they come due; and
- Enter contracts and transact other business in the correct legal name or a registered doing business as name tied to the New Entity
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