By: Chetana Kaasam and Sismi Menachery
Please note that this article is Virginia specific and for information on incorporation in other states, please contact us. Also, for a detailed guide to incorporating a business in Virginia, please e-mail Chetana.kaasam@chugh.com or Sismi.menachery@chugh.com.
A common question encountered by entrepreneurs during the nascent stage of business is – what would be the most suitable form of entity structure for their business? Although Delaware, has been a popular jurisdiction for incorporating businesses, please be cautioned that a Delaware corporation may not be suitable to all. Unless carefully considered, incorporating in Delaware might entail additional tax, reporting and other obligations. The chart below gives a comparative overview of the various entity structures for business needs. To determine that the entity structure aligns with business needs, however, it is advisable to consult a legal and accounting professional.
| Sole Proprietorship (SP) |
General Partnership (GP) | Limited Liability Company (LLC) | S Corporation (S Corp) | C Corporation - General Stock (C Corp) |
|
| How to form | City tax license may be required. No state filing required. | No state filing required. Some states allow GP’s to file at state agency. An Agreement between two or more parties. Partnership agreement should be created. |
Required to file formation document with the State filing agency. Most states require an Operating Agreement | Required to file formation document with the State filing agency. Must elect S status through the IRS, additional filing required | Required to file formation document with the State filing agency. |
| Initial Cost | Business tax License fee as applicable | Business tax License fee as applicable | State filing fee as applicable | State filing fee as applicable | State filing fee as applicable |
| Owners | Individual ownership | Two or more owners | Unlimited number of owners | Up to 75 members/ Shareholders | Unlimited number of shareholders |
| Can foreigners be owners | Yes | Yes | Yes | No | Yes |
| Liability | Unlimited liability and can lose personal assets | General Partners have personal liability for losses. Liability of other partners typically determined by partnership agreement. | Members are not liable for debts accrued by the company unless a member secured the debt with a personal asset | Shareholders are not liable for the debts of the corporation. Officers can be held liable in limited circumstances. | Shareholders are not liable for the debts of the corporation. Officers can be held liable in limited circumstances. |
| Default Taxation | Taxed Once | Taxed Once | Taxed Once | Taxed Once | Double; both the corporation and shareholders are taxed |
| Pass through taxation for both income and loss | Yes | Yes | Yes | Yes | No |
| Management | Entirely managed by the sole proprietor | General Partners have the responsibility to manage day to day affairs. Roles of other partners as defined in the partnership agreement | By members or managers, in accordance with the operating agreement | Directors and officers as elected by the shareholders. | Directors and officers as elected by the shareholders. |
Steps to Incorporate a Business in Virginia
The first step to incorporating in Virginia is to select a unique business name that is not already in use or reserved by another business entity in the state. Our legal professionals can do the necessary research to make sure your company's name meets Virginia state standards. We can also help reserve a corporate name in accordance with the state law, should you need additional time to incorporate your business.
The next step is to file the articles of incorporation with the appropriate authorities and pay the filing fees. Please note that at this stage you will need to have identified a registered agent as permitted by the State of Virginia. Under Virginia law, your company cannot serve as its own registered agent. A member of the Virginia Bar is permitted to act as a registered agent. Our legal professionals, from time and again act as registered agents and respond to government correspondences, thus saving entrepreneurs valuable time.
Lastly, as part of immediate steps of incorporating in Virginia, the business entity is required to obtain a federal Employer Identification Number (EIN). The company then must also register with the Virginia Department of Taxation wherein it will be assigned a Virginia Tax account number, which should be included on tax returns, payments and other tax filings. If the business will be collecting sales tax, it will be issued a certificate of registration, which is a permit to collect sales tax, and issue and receive tax exemption certificates. Such certificate of registration should be displayed prominently in the physical place of business.
We offer comprehensive incorporation packages and handhold you through the process. If you are looking to start a business, call us today for a free consultation.
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