Following up on our discussion of what a PLLC and a PC are, the next logical question is: “when do I have to form as a PLLC or a PC?”
Certain professions, when they choose to form as a separate entity, are required by their regulatory Boards to form as a PLLC or PC. Examples include medical doctors, lawyers, and certified public accountants.
Other professions have the option to either form as a PLLC/PC or as an LLC/corporation based on the wishes of the owners. Examples include professional engineers, occupational therapists, audiologists, and nurses.
You can see a list of all of the different professions that potentially can be a "professional" entity in the Virginia Code.
So if your business involves providing a heavily regulated service (hint: likely if you need a license to practice your profession) then the first thing you should do is to check with your profession’s regulatory Board to see if they require you to operate as a “professional” version of an LLC or corporation or give you the choice to do so.
You may have heard of a PLLC, PLC, or a PC or seen them appended to the end of a company name and wondered what they are. If so, this is the article is for you. PLLC (or PLC) stands for "professional limited liability company" while PC refers to a "professional corporation." Both are separate legal entities, separate from their owners (members for a PLLC/PLC and shareholders for a PC). In Virginia, they are the form of entity required for certain heavily state regulated professions where either state law or the regulatory bodies of the specific profession require their practitioners to form as a PLLC or PC. Examples of such professions are medical doctors, lawyers, certified public accountants, professional engineers, architects, and certain other health care providers and practitioners of the healing arts.
The key difference between PLLC’s/PC’s and a normal LLC/corporation is that the PLLC and PC do not provide the owners with limited liability protection for their own acts of professional malpractice related to the services they provide. This means that if your doctor commits an act of medical malpractice while treating you, they cannot hide behind the veil of limited liability protection when you make a claim against them. This is for public policy reasons to protect the general public from harm.
So you may be asking yourself, why would a doctor, lawyer or CPA form an entity at all if they are not able to get limited liability protection like other businesses? For two reasons: (1) the prohibition on limited liability protection only applies to acts of professional malpractice. If you slip and fall in your doctor’s waiting room that is not medical malpractice – that’s just negligence and your doctor would be personally protected from that claim. And (2) for the tax benefits that operating as an entity allows (namely, the S corp. election).
The laws and rules regarding PLLC’s and PC’s are extremely state-specific so be sure to check your particular state’s laws, especially if you’re outside of Virginia. And if you would like to create a PLLC or a PC correctly, we can help (just use our LLC order form or corporation order form).
What’s the difference between “registering” in Virginia and “incorporating” or “organizing” in Virginia?
If you're not immersed in it every day like we are, certain terminology can be confusing. One of the questions we frequently get is regarding the difference between registering your business in Virginia and incorporating or organizing your business in Virginia.
Business entities (corporations, limited liability companies, benefit corporations, non-profit corporations, etc.) are formed under state laws and not Federal law in the United States. This means that every business entity has a "home state" under which laws it is formed. Even though your company it formed under a certain state's laws, it can still operate in other states subject to complying with those other state's laws first. So when we talk about "registering" your business in Virginia, we are typically referring to getting permission (called "authority" in Virginia) to do business in Virginia for your existing out of state company. For example, you may have a Maryland LLC that is going to be doing business in Alexandria, Virginia or Arlington, Virginia (right across the state line) and you'll need Virginia's permission to do so. Or maybe you're a Tennessee corporation that wants to cross from Bristol, Tennessee to Bristol, Virginia to take a job. Again, the permission of Virginia to transact business across the state line is needed.
On the other hand, when talk about "incorporating" or "organizing," we're typically referring to the initial set up of your new business. It usually makes the most sense to incorporate (if you're forming a corporation) or organize (if you're forming an LLC) in the state in which you are physically located. That will be your "home" state for purposes of legal existence. Although, as discussed above, you're able to take your business to whichever other states you want.
So, if you have a company already formed in another state and want to come in to Virginia to do business, then you'll be registering your existing business by filing an Application for a Certificate of Authority to Transact Business in Virginia. If you're starting a new business in Virginia, you'll either be incorporating (for a corporation) by filing Articles of Incorporation or organizing (for an LLC) by filing Articles of Organization. In all cases, you'll need a Virginia registered agent service, which is where we can help.
If you are (or have) formed a Virginia limited liability company then you may be wondering what an Operating Agreement is and whether you need one. An Operating Agreement is simply a contract between the owners of a limited liability company and the LLC itself. It is the one LLC document that:
- Identifies the owners of the Virginia LLC
- States how much of the limited liability company each owner owns
- Describes how the LLC will be managed and how decisions will be made
- Discusses how new owners may be admitted to the LLC, and most importantly…
- Describes the process for how an LLC owner may leave the LLC, ideally without causing the dissolution of the LLC.
One of the nice things about starting your business in Virginia is that a Virginia Operating Agreement can be customized to fit your exact situation and tailored to how you want to run your new business.
While the law does not require you to have an Operating Agreement, be aware that if your Virginia LLC does not have an Operating Agreement then the Virginia Code (specifically the Virginia Limited Liability Act) will make all of those decisions for you. And you may not like the result, especially in the situation where an owner wants to leave. So you should consider having an Operating Agreement that puts you in control of what happens with your company.
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.
A Virginia registered agent, also commonly referred to as a Virginia resident agent, is the official contact point for your company and receives communications on behalf of your business from the Virginia State Corporation Commission and other state agencies. Your registered agent also receives service of process, whether that is a lawsuit involving your company, a garnishment of wages for one of your employees, or a subpoena. The role of the registered agent is to make sure you receive those documents and communications as quickly as possible.
It is very important that your Virginia registered agent is responsible, diligent, knowledgeable, and responsive because your company is deemed to receive anything that has been delivered to your registered agent, whether they forward it to you or not. This means that if you are sued and the lawsuit is served on your registered agent, the court will consider you to have knowledge of the lawsuit and the time to respond starts ticking (in most cases, 21 days from the date of service of process in Virginia). If you don’t know about the lawsuit and don’t respond within the time limits, you won’t get the opportunity to defend yourself and you’re facing a default judgment that can be difficult, if not impossible, to undo. At the very least, it’s going to be an expensive effort, the expense of which far exceeds whatever you may have paid your registered agent for a year of service.
Many of our clients have come to us after experiencing the frustrating and expensive situation of not receiving their documents from their previous registered agent. Sometimes this resulted in them have little or no time to defend a lawsuit. And sometimes this resulted in them losing their authority to transact business in Virginia, risking a deal, a license, or protection from individual liability. In all cases, they have been frustrated by not receiving a service they paid for either because their previous registered agent was located far from Virginia and took a long time to receive and forward documents, or because their resident agent had a whole nation of clients to try to keep track of, or because their registered agent was offering a “free” or very low cost service and simply could not afford to be responsive and diligent. For these reasons, it’s very important to you and your business that you pick a quality Virginia registered agent that will provide the level of service and assistance that you deserve. This is why we are here and why we only focus on providing registered agent service in Virginia – our clients are our number one priority and we do everything possible to protect them.
If you live in a State other than Virginia but own four or more properties within Virginia in your individual name, then §55-218.1 of the Virginia Code mandates that you appoint a registered agent in Virginia. That Code section specifically states that "any nonresident person who owns and leases residential or commercial real property consisting of four or more units within a county or city in the Commonwealth shall have and continuously maintain an agent who is a resident and maintains a business office within the Commonwealth. Every lease executed by or on behalf of nonresident property owners regarding any such real property shall specifically designate such agent and the agent's office address for the purpose of service of any process, notice, order or demand required or permitted by law to be served upon such property owner." This is important to do because if you don't you can't bring a lawsuit to enforce your rights. The last thing you would want to find out when dealing with a tenant in default is that you can't legally do anything to get them out. We can help you with this with the appointment of a resident agent in Virginia. Just order registered agent service from us and we'll help with the paperwork that gets filed with the County or City in which your properties are located.
At Virginia Professional Services, LLC, our core service is providing Virginia registered agent service to our clients. But we do more than just serve as a resident agent. We can help with other Virginia business things, such as forming a new Virginia company, or preparing a Virginia Operating Agreement for your limited liability company.
We have a page on our web site that lists of all of the things that we do to help Virginia entrepreneurs every day. But if you need something that’s not on that page, please contact us to see if we can help.
As a Virginia business, it's nice to see our home state being recognized as a good place to operate. According to Forbes Magazine, in their ranking of business-friendly states in the U.S., Virginia moves up from the number 2 spot in 2012 to be ranked as the number 1 state for business.
According to the article, the Forbes study looked at "six important factors for businesses: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. Virginia is the only state to rank in the top five in four areas—only missing on costs and growth prospects."
While some of the registration processes and paperwork can be a bit confusing, especially compared to some other states, overall Virginia is a great place to be. We're happy to be in the business of helping other companies take advantage of what Virginia has to offer!
If you're thinking of starting a new Virginia limited liability company for your business, there are several steps involved. The order of completing them is important so the following list is both what you should do and when you should do it:
- Clear your desired name (meaning make sure it's available and not an infringement of someone else's name)
- Prepare and file Articles of Organization with the Virginia State Corporation Commission
- Prepare and sign an Operating Agreement
- Get an EIN (Employer Identification Number) from the IRS for your new LLC (don't use your social security number for business purposes, even if allowed)
- Obtain any required County or City business licenses (check with the local government office where you're located)
- Start doing business!
Doing these things in the correct order means you won't have to redo them.
We can help you with as little or as much of the process as you like. All of our options for helping you start your new Virginia LLC can be found here.