How to Form a LLC in Virginia

A Limited Liability Company, or LLC, is a business structure that offers its owners (members) limited liability protection similar to that of a corporation while still having a partnership’s structural and tax flexibility.

The LLC’s limited liability feature shields the members’ personal assets from creditors and litigation that may be brought against the company. The decision to tax the company as a corporation or a pass-through structure, such as a partnership, is up to the incorporators.

What Distinguishes a Limited Liability Company from Other Business Structures?

The structure of LLCs differs from those of other popular corporate structures. Revenue from LLCs is only taxed once, unlike income from corporations. In other words, the LLC is not taxed on the income; rather, only the individual members are.

This tax structure also applies to limited partnerships and sole proprietorships. The ownership structure of limited liability businesses is different from that of corporations. Corporations are owned by shareholders, whereas individual owners own LLCs.

Regarding liability, LLCs are distinct from both partnerships and sole proprietorships. A partnership’s partners are personally responsible for any debts the partnership accrues.

These debts consist of obligations made by the other partner. In other words, if a partnership owes a creditor money, the creditor has the right to “come after” the partners’ personal and real property to collect on the debt.

In most cases, LLC owners are not held personally responsible for the obligations or debts incurred by the LLC. Because of this reality, LLC owners can operate the company without worrying about losing their individual assets.

Who Should Establish a Limited Liability Company?

People who want to run a small business should think about creating an LLC. Creating an LLC limits liability to the assets owned by the LLC, protecting individual assets.

A small business owner can avoid using their personal assets to cover legal costs by creating an LLC. People who want to start a business with the least amount of paperwork and expense should also think about incorporating an LLC. The state must be notified of the creation of an LLC by filing “articles of organization” and a fee.

Usually, this charge is lower than the one needed to incorporate a corporation. When compared to corporation creation, LLC formation often involves less documentation to be filed with the state.

Keeping track of LLC earnings and outlays is not difficult. Separate tax returns need not be filed under an LLC. Members and management instead record their earnings and outlays on personal tax returns.

Additionally, managing an LLC can be fairly easy. An LLC with at least two members may create an operating agreement. The members specify in this agreement how the LLC will be run, how earnings will be distributed, and which members’ votes will be required for which decisions.

The operating agreement may also specify the procedure for dissolving or terminating the LLC. The operating agreement may also specify procedures for resolving disputes amongst LLC members. What happens if an LLC member passes away or becomes incapable of working may be covered by the operating agreement.

What Conditions Must an LLC Meet?

Only state law permits the formation of an LLC. As a result, there are significant regional differences in the rules and regulations for LLCs. Virginia allows for a lot of flexibility in the formation and structure of LLCs, but some conditions must be met:

• Select a name for your LLC: The label “Limited Liability Company” (LLC or LLC) or “Limited Company” (LC or LC) must be included in the name, and it must be distinct from all other business names listed with the Virginia State Corporation Commission.
• Determining the registered agent: Every business entity must have a registered agent in Virginia to ensure that any critical information or legal issues reach the LLC. Any Virginia resident who is also a member of the Virginia State Bar, a member of the LLC, or a manager of the LLC is eligible to serve as a registered agent.
• Articles of Incorporation: For the creation of all kinds of commercial companies, the State Corporation Commission offers PDF fillable Articles of Organization. The name of the LLC, the address of the LLC’s principal office, the name of the registered agent, and the registered agent’s business address must all be included in this form (must be in Virginia).

What Documentation is Required to Form an LLC?

The State Corporation Commission website has the forms needed to register your company as an LLC. You can submit the Articles of Organization and processing fee to the State Corporation Commission online or by mail.

What Perks Does an LLC Receive in Virginia?

There are several reasons you would wish to set up your company as an LLC:

• Liability limitation: Similar to a corporation, an LLC insulates the individual assets of its owners from the obligations and legal liabilities of the business.
• Tax flexibility: LLCs have a choice between being taxed as corporations or as pass-through entities. To avoid the double taxation associated with corporations, the majority of LLCs elect to be taxed as pass-through entities. If the LLC elects to be taxed as a pass-through entity, then business profits are only subject to personal income tax when received by the members of the LLC.
• Organizational flexibility: By drafting an operational agreement, a limited liability company (LLC) is given the freedom to decide whether its members (owners) or external management will run the business.
• Annual report: In Virginia, LLCs are not required to submit annual reports.

What Drawbacks Does an LLC Face in Virginia?

Although an LLC’s limited responsibility and tax flexibility may be alluring, there are some drawbacks to choosing this business structure:

• Fees and Filing: In contrast to a general partnership or a sole proprietorship, an LLC must file formation documents, pay some administrative fees—up to $100 for the initial filing, $50 annually for registration—and maybe retain legal counsel.
• Limited Legal Precedent: Because LLCs are a more recent type of corporate organization, there isn’t as much case law addressing their protections and restrictions.

When Would LLC Members Be Individually Liable?

The LLC structure shields owners from personal liability for misconduct committed by other members while the business is in operation. The LLC, not a specific member or owner, is responsible if the violation occurs while conducting business.

If members negligently cause harm to another person while conducting business, commit fraud while doing so, or steal LLC assets, they are held personally accountable.

LLCs frequently purchase general liability insurance to cover the costs associated with lawsuits alleging carelessness. This insurance covers these injuries’ expenditures.

Therefore, it is unnecessary to transform business assets into cash to pay a court judgment. Individual managers, members, and staff are all capable of acting negligently. Plaintiffs in negligence claims may demand significant financial awards.

The LLC can be forced to dissolve if it lacks general liability insurance and has insufficient assets to cover losses. Professional limited liability companies (PLLCs), often known as LLCs operated by professionals, should consider acquiring both general and professional liability insurance. Lawyer and medical malpractice insurance are examples of professional liability insurance.

Where Can You Find the Ideal Attorney?

Contact a Virginia corporate lawyer immediately if you need assistance structuring your business and are looking for legal representation.