Key Takeaways

  • Forming an S corporation in Virginia requires filing Articles of Incorporation and Form 2553 with the IRS.
  • You must comply with Virginia’s unique requirements, such as registering with the SCC and appointing a registered agent.
  • S corporations must observe ownership restrictions, including a shareholder limit and U.S. residency rules.
  • Ongoing obligations include annual reporting, maintaining corporate records, and paying the annual registration fee.
  • Choosing the right registered agent and drafting corporate bylaws are critical steps for compliance and organization.

Wondering how to form an S corp in Virginia? The process involves two main steps: filing required documents with the state and the IRS.

Forming a Virginia S Corp

The requirement in the state of Virginia for forming an S corporation is similar to the process of forming an LLC. The business owners must file the articles of incorporation, a required document, with the State Corporation Commission. The State Corporation Commission offers a template for drafting and completing the articles of incorporation. You can also file the document online through the commission's website.

Upon acceptance by the commission, you will need to pay the required filing fee. Your corporation will then be a legally formed and recognized business in the state. The owners of an S corporation are called shareholders. However, upon registering a business as a corporation, it will be set up as a C corporation, not an S corporation.

The profits of C corporations are subject to double taxation, while S corporations' profits are not. Therefore, many corporation owners choose to make the selection of Subchapter S. C corporations are taxed separately, which means they are required to file annual corporate tax returns that report all business losses and profits. The double taxation factor comes into play because the shareholders must also report any dividends received as income on their own tax returns.

When a corporation is formed as an S corp, it doesn't have to pay income taxes separate from its shareholders. Instead, all shareholders report their portions of the business profits and losses on their personal tax returns.

Virginia-Specific Requirements

To form an S corporation in Virginia, you must meet specific state requirements beyond filing Articles of Incorporation:

  • Name Requirements: Your corporation’s name must be distinguishable from existing entities and must include “Corporation,” “Incorporated,” “Company,” or an abbreviation like “Corp.” or “Inc.”​.
  • Registered Agent: Virginia law mandates that your corporation appoint a registered agent with a physical address in Virginia (P.O. boxes are not accepted)​.
  • Articles of Incorporation: You must file Articles of Incorporation with the State Corporation Commission (SCC), including required details such as the initial director(s) and the corporation's principal office address​.

How to Form a Corporation in Virginia

After you have made the decision to incorporate a business in the state of Virginia, use these resources to move forward in the process:

  • Obtain an employer identification number (EIN) through the IRS website.
  • File Form 2553 with the IRS to be taxed as an S corporation.
  • Bookmark the websites for the state Small Business Development Center (SBDC) and the Richmond small business administration (SBA) office.
  • Use the services of a professional licensing company to file the paperwork and get the required licenses for your business.

Additional Steps After Incorporation

After your Articles of Incorporation are approved, take these essential next steps:

  • Draft Corporate Bylaws: Bylaws outline your company's internal rules, such as shareholder meetings, officer duties, and voting rights. Although bylaws are not filed with the SCC, they are critical for governance​.
  • Hold Initial Board Meeting: Your initial directors should meet to adopt the bylaws, elect officers, and authorize the issuance of stock certificates to shareholders​.
  • Obtain a Business License: Depending on your industry and location, local business licenses may be required to operate legally in Virginia​.
  • Register for State Taxes: If you plan to hire employees or sell goods subject to sales tax, you must register with the Virginia Department of Taxation​.

Form 2553

Before a corporation can become an S corporation, it must file Form 2553 with the IRS.

Important Deadlines for S Corporation Election

Filing Form 2553 must happen within:

  • 75 days of forming the corporation, or
  • No later than March 15 of the tax year you want S corporation status.
    Missing this deadline could result in your corporation being taxed as a C corporation for that year, so early filing is recommended​.

Electing S-Corp Status

Upon filing that required form, your corporation will be transferred to an S corporation.

Maintaining S Corporation Status

Once your S corporation election is approved, maintaining your status requires ongoing compliance:

  • Annual Reports: Virginia requires S corporations to file an annual report to keep the SCC updated on directors and officers​.
  • Annual Registration Fee: Corporations must pay a $100 annual registration fee to the SCC​.
  • Corporate Records: Maintain detailed minutes of shareholder and director meetings to reinforce your corporate status and limit liability​.

Ownership Restrictions

When determining how to form a business entity, many business owners compare S corporations and limited liability companies (LLCs). The IRS regulations imposed on these business types impact the restrictions around ownership for each type. In order to be taxed as an S corporation, a business cannot have more than 100 shareholders or more than one stock class. S corporations are also restricted from having any shareholders that are other legal entities, such as other corporations or partnerships. A corporation with a non-resident alien as a shareholder also cannot be treated as an S corporation.

The IRS doesn't impose any restrictions on the owners of an LLC, who are referred to as members. An LLC can have an unlimited number of members, and those members can be individuals, partnerships, other LLCs, or other legal entities. Under state laws, the members of an LLC and the shareholders of an S corporation can draft a written agreement to restrict ownership and limit the conditions under which the transfer of ownership can occur.

Stock Issuance and Restrictions

S corporations can only issue one class of stock, but variations in voting rights are permitted. Additionally, you must:

  • Issue stock certificates (recommended but not legally required).
  • Maintain a shareholder ledger listing all owners and the number of shares each holds​.
    Failure to properly structure your stock issuance could risk your S corporation status.

Management and Organization

When organizing and managing an LLC and S corporation, the owners must follow state laws. The laws around organization and management show the greatest contrast between the two business entities.

After going through the incorporation process, the owners of an S corporation must hold a meeting to:

  • Adopt bylaws.
  • Elect a board of directors.
  • Appoint any necessary officers, including a president and secretary at the very least.

S corporations must also hold annual shareholder meetings and maintain records of all of these meetings. No requirements are in place for an LLC, making it easier to form and organize this type of business entity. However, the members of an LLC may choose to draft an operating agreement to govern its members' responsibilities and rights, as well as all business activities.

Benefits and Challenges of an S Corporation in Virginia

Benefits:

  • Pass-Through Taxation: Avoids double taxation since income is reported directly on shareholders' tax returns.
  • Limited Liability: Shareholders' personal assets are typically protected from business liabilities.
  • Credibility: Incorporating often enhances a company's credibility with investors and customers.

Challenges:

  • Strict Eligibility Requirements: Only U.S. citizens and residents can be shareholders, and there’s a 100-shareholder cap.
  • Formalities: S corporations must maintain strict formalities such as issuing stock, adopting bylaws, holding annual meetings, and keeping meeting minutes​.
  • Ongoing Costs: Annual fees and professional services for legal and tax advice can add up.

Frequently Asked Questions

  1. How much does it cost to form a corporation in Virginia?
    The filing fee for Articles of Incorporation in Virginia is $75, plus a $100 annual registration fee​
  2. How long does it take to form an S corporation in Virginia?
    Standard processing by the SCC typically takes 7–10 business days, but expedited options are available​
  3. Do I need a business license for my Virginia S corp?
    Yes, depending on your business activities and location, you may need local or state business licenses​
  4. Can a Virginia S corp have non-U.S. shareholders?
    No, only U.S. citizens and resident aliens can be shareholders in an S corporation​
  5. What happens if I miss the deadline to file Form 2553?
    If you miss the deadline, your corporation will be taxed as a C corporation until you file and receive S corp status approval​

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