A LLC or Limited Liability Company is a way of structuring a business that provides limited liability to its members (owners) like a corporation, but also the structural and tax flexibility of a partnership. The limited liability aspect of the LLC protects the personal assets of its members from creditors and lawsuits that may come from the business. The incorporators can also choose whether the business should be taxed as a corporation or as a pass-through entity such as a partnership.
A LLC can only be formed under state law. As a result, the requirements and protections for LLCs can vary widely from state to state. While there is a lot of flexibility in creating and structuring LLCs in Virginia, there are a few mandatory requirements:
- Choose a name for the LLC. This name must be different from all other business names on record at the Virginia State Corporation Commission and must include the label “Limited Liability Company” (“LLC” or “L.L.C.”) or “Limited Company” (“LC” or “L.C.”).
- Choose a registered agent. Virginia requires that every business entity have a registered agent to make sure that any important information or any legal issues will make it to the LLC. A registered agent can be any resident of Virginia that is also a member of the Virginia State Bar, a member of the LLC, or a manager of the LLC.
- Articles of Organization. The State Corporation Commission provides PDF fillable Articles of Organization for creating all types of business entities. This document requires the name of the LLC, the principal office of the LLC, the name of the registered agent, and the business address of the registered agent (must be in Virginia).
The forms required to form your business as a LLC can be found at the State Corporation Commission website. The Articles of Organization along with a processing fee can be filed online or mailed to the State Corporation Commission.
There are several reasons why you might want to structure your business as a LLC:
- Limited Liability: Like a corporation, LLCs shields the personal assets of its members from the debts and legal liability of the company.
- Tax Flexibility: LLCs can choose either to be taxed as a pass-through entity or as a corporation. Most LLCs choose to be taxed as a pass-through entity to avoid the double tax associated with corporations. If the LLC chooses to be taxed as a pass-through entity, then company revenues are only taxed when received by the LLC’s members and taxed according to their personal income bracket.
- Organizational Flexibility: Through writing an Operational Agreement, LLC’s can choose whether they will be run by members (owners) or other managers and provides the LLC flexibility to operate as needed.
- Money Distributed by Agreement Not Ownership: Members of the LLC can choose any desired method for distributing profits and are not bound by traditional partnership agreements. The only limitation is that it must be included in the Operational Agreement.
- Annual Report: LLCs are not required to file annual reports in Virginia.
While the limited liability and the tax flexibility of an LLC can be appealing, there are a few disadvantages to structuring your business as a LLC:
- Filing and Fees: Unlike a general partnership or sole proprietorship; LLCs require filing formation forms and payment of some administrative fees which can cost upwards of $100 for initial filing, $50 in yearly registration fees, and may require hiring lawyer.
- Limited Legal Precedent: LLCs are a newer form of business organization and have less case law covering its protections and limitations.
If you are looking for an attorney to help you with structuring your business, then contact a local Virginia business lawyer today to get the help you need.