If you're starting a new Virginia business then the two basic forms of business entity available to you are the corporation and the limited liability company (LLC). A common question is "what are the differences?" In Virginia, there are actually important similarities between a corporation and an LLC so it's useful to discuss those similarities first.
Virginia LLC's and Virginia corporations share three important attributes:
- The owners of a Virginia corporation (shareholders) and a Virginia LLC (Members) are not liable for the debts and obligations of the business. In other words, the owners have limited liability protection and, with a few exceptions, their assets are not at risk if there is a problem with the business.
- Better tax treatment is available for a Virginia corporation and a Virginia LLC through the small business tax election, better known as the "S corp." election. This election, which is available to LLC's, too, despite the shorthand name, allows for the legal avoidance of some of the self-employment taxes assessed against business profits.
- Portions of a Virginia corporation (shares) or a Virginia LLC (membership interest) are freely transferable, either in part or in whole. This means you can sell part of the business while retaining an interest for yourself or you can transfer 100% control to pass on the business seamlessly (aka as a going concern).
So how do Virginia corporations and Virginia LLC's differ? In a few different ways:
- The filing fees are different. All Virginia LLC's pay a flat fee of $100 upon formation and $50 per year regardless of how they are structured or how many owners there may be in the LLC. A corporation, on the other hand, pays a filing fee and renewal fee that depends on the number of authorized shares of stock of that corporation, starting at a minimum filing fee of $75 and a minimum annual renewal fee of $100. In the long run, an LLC is cheaper to keep in good standing.
- There can be less formality with an LLC compared to a corporation. An LLC can waive annual meetings in its Operating Agreement while a corporation is required by law to have annual shareholder meetings and board of directors meetings and keep meeting minutes of those meetings (even when there is only one owner).
- There is more privacy with a Virginia LLC compared to a Virginia corporation. There is no public listing of the members (owners) of a Virginia LLC and assuming you appoint a third party as your registered agent, your personal name and address may not be available publicly. A Virginia corporation must disclose the names and addresses of their directors and officers and update those names and addresses every year on an annual report form.
It’s important to look at your business plan and weigh the pro’s and con’s of these differences to make the right choice for you.Spread the Word