How to Form an S Corp in Virginia
Wondering how to form an S corp in Virginia? The process involves two main steps: filing required documents with the state and the IRS.3 min read
2. How to Form a Corporation in Virginia
3. Form 2553
4. Electing S-Corp Status
5. Ownership Restrictions
6. Management 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.
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.
Before a corporation can become an S corporation, it must file Form 2553 with the IRS.
Electing S-Corp Status
Upon filing that required form, your corporation will be transferred to an S corporation.
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.
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.
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