5 Steps to Set Up Your Own Business in Virginia

Date: March 22,2020 in For You

Virginia has a long history as a “business friendly” state. It still remains. Of course, many choices of business entities and new laws have also made it complicated to choose and set up a business. Generally, the question I am asked is not so much where and how to file for a business, but with so many choices, which form of business is the right one for me.

As an entrepreneur, I understand how you feel about starting your own business. It could be overwhelming and confusing, but I will show you five steps to form your business and open it:

Choose your business entity
Register your business entity
Draft governing documents
Get tax identification numbers
Open the doors

Choosing a Business Entity

There are many types of business entities that you can select and register. Remember that a business, once formed, becomes a legal entity/person and while you can change it later, it is best to consider several factors before choosing the structure and form of the business. You should consider the purpose, long and short-term goals, operations, duration, nature and amount of risk, financial requirements, potential income, ownership, size, geographic scope, how to exit or leave or sell, estate planning, and tax consequences. You may then choose from one of the following to form your own business based on the factors mentioned above:

Sole Proprietorship is a business owned by one person and generally there are no formal requirements to establish. You may employ others and you are personally liable for all of the obligations of the business.
Stock Corporation (C and S) is a business that can be formed as C corporation or S corporation. You are authorized by law to issue shares of equity in the corporation in order to conduct any lawful business. Requirements for Stock Corporations include forming a board of directors and officers and having meetings and record-keeping. The business — not the shareholders — are liable for the Stock Corporation’s obligations. C and S corporations are formed based on the federal income tax treatment as Subchapter C or Subchapter S of the Internal Revenue Code (I.R.C.§301 et seq.)
Non-Stock Corporation is a business formed generally for non-profit charitable purposes. Non-Stock Corporations are organized exclusively for charitable, religious, educational, and scientific purposes, and any distribution to the corporation will qualify as tax exempt if approved under Section 501(c)(3) of the Internal Revenue Code. Otherwise, generally the same formalities apply as for Stock Corporation.
Professional Corporation is a stock corporation organized to provide professionals services listed in Section 13.1-543 of the Virginia Code. Shareholders of a professional corporation are personally liable for his/her own negligence in providing professional services in his/her field, but not liable for the negligence of other shareholders.
Benefit Corporation is a business created with some elements of non-profit. The law allows businesses to consider profit as well as providing general public benefit, i.e., public welfare, religious, charitable, scientific, literary or educational purposes. A benefit corporation must balance its fiduciary duty between shareholders and stakeholders.
General Partnership is an association of two or more persons as co-owners to conduct business for profit whether or not the persons intend to form a partnership. General Partnership can be formed to conduct any type of business. While no partnership agreement is required, however, it is good practice to have a written agreement stating how the business will be managed, termination and winding up shall be handled and that profits and losses are to be distributed.
Limited Liability Partnership is formed by one or more general partners and one or more limited partners pursuant to the Virginia Revised Uniform Limited Partnership Act (VRULPA). This business entity is suited for any type of business and when some partners do not want to be involved in the day-to-day management of the business and limit their liability.
Registered Limited Liability Partnership is either a general partnership or limited partnership. It becomes a registered limited liability partnership when you file a statement of registration with the State Corporation Commission (“SCC”) in accordance with the law.
Limited Liability Company is an unincorporated business with one or more members organized in accordance with the Virginia Limited Liability Company Act. LLC is the most popular form of business entity as it provides personal protection from liability for the obligations of the LLC and also allows you to file taxes as an individual owner and not taxed at the LLC level as a corporation.
Professional Limited Liability Company is organized only to provide the professional services listed in Section 13.1-1102 of Chapter 13 of the Virginia Professional Limited Liability Company Act.
Business Trust is formed by one or more persons to conduct any type of business. Business trusts are generally managed by a trustee for the benefit of beneficiary. There are many purposes for which a business trust is formed including mutual funds, real estate investment trusts (REITs) and mortgage and other finance entities that secures assets.

Register with the State Corporation Commission

Once you selected the business entity that you want to form along with its name, partners, members, and the likes, then you can go online to the State Corporation Commission (SCC) website to register the business. First is the name check to make sure it is available, and then file the proper form with fees to register your business. You will file the article of incorporation for corporations, articles of organizations for LLCs, certificate of limited partnership or articles of trust. Click here to find all the forms and fees.

Draft Governing Documents

Governing documents outlines your business’ internal and external activities. You can decide how the business should be managed, who should manage it, how many members of the board, officers, how and how much you pay them, who can sign contracts, how you share profits and loss, how you can leave the company, sell, or buy a partner’s shares, or what happens in case you are sick, or cannot continue to work, or die. These are all important aspects of running a business and it is usually best to draft such documents to manage the affairs of your business. For corporations you will draft bylaws, for LLC you will draft operating agreements, or you may need partnership agreement, or shareholder agreement.

Obtain Tax Identification

You and I have a Social Security Number and our businesses have Employer Identification Number (EIN). The EIN is needed for other reasons, including opening bank account. You can file for EIN online by clicking here. It is free of charge. Depending on the type of business, you may also need to get other state or county licenses.

Open the Door

You are ready to open the door and be your own boss. Some other steps to take before opening the door include: finding a suitable place for your business (office, shop, etc.) and signing a commercial lease agreement, furnishing your office, getting phones, fax, internet, designing and printing brochures, signs, business cards and website. Most importantly, setting up policies for hiring employees, keeping financial records, employee handbooks, and getting insurances suited to protect your business.

If you have any questions about this article or any other issues related to your business, please send me your questions at shafeek@seddiqlawfirm.com, or (703) 558-9311, or go to my Facebook page https://www.facebook.com/SeddiqLaw/?modal=admin_todo_tour .