Virginia S Corporation: Everything You Need to Know
A Virginia S corporation is a business entity in Virginia that is designated as an S corporation for tax purposes with the IRS. 3 min read
2. S Corporation Election in Virginia
3. S Corporations in Virginia
4. Maintaining an S Corporation in Virginia
Virginia S Corporation
A Virginia S corporation is a business entity in Virginia that is designated as an S corporation for tax purposes with the IRS. An S corporation is a C corporation that has taken S corporation election with the IRS, which will give it distinct tax advantages, the main one being pass-through taxation.
Pass-through taxation means that profits and losses related to the S corporation are not taxed on the corporate level but passed through to the individual owners and taxed on the personal level. Thus, double taxation is avoided with this method, and this is in many cases the main reason why business owners choose the S corporation for their business.
S Corporation Election in Virginia
S corporation election can be made by filing Form 2553 with the IRS. This should be done within two months and 15 days of the start of a corporation’s tax year. When this election is made on the federal level, most states honor it on their level as well. Virginia is one of these and does not require a separate state filing or tax treatment different from that which is given on the federal level.
Additionally, it is also important to note that an S corporation election is not a permanent decision. You can revert to a C corporation if you file a request with the IRS, although you will have to maintain the calendar fiscal year as required of S corps and you will not be able to return to S corporation status for another five years. Thus, it is important to carefully consider what tax designation is best for you. You may want to consult an accountant, tax advisor, or attorney on this issue.
S Corporations in Virginia
Before one takes the S corporation election in Virginia, there are a number of points one should consider, such as:
- Shareholder limitations. S corporations are limited to 100 shareholders and these shareholders must be U.S. residents and cannot be other corporations, LLCs, partnerships, some trusts, or non-U.S. residents. Other business forms do not have such limitations.
- Limited liability. Shareholders of S corporations have limited liability from damages from legal rulings or debt collection related to their business. Corporate assets can be affected, but personal assets are usually protected.
- Ease of raising capital. S corporations can raise capital more easily than some business types because they can sell stock to do so, although they are limited to only one stock class.
- Taxation benefits. Aside from avoiding double taxation, S corporations are also audited less often than partnerships and sole proprietorships.
- Fringe benefits. Owners of S corporations who work for the business are considered to be employees and are considered eligible for profit-sharing and retirement plans, group insurance plans, and bonus and stock option plans.
- Perpetual existence. S corporations are not affected by the departure of an owner or owners as LLCs are. In theory, an S corporation can exist forever.
- Perception. S corporations, and corporations in general, are generally seen as being more impressive operations than partnerships or a sole proprietorships. Vendors, investors, prospective employees, and others may be more inclined to work with an S corporation than some other entities.
Maintaining an S Corporation in Virginia
Organization and management requirements for S corporations in Virginia are governed by Virginia law, which requires that S corporations hold an organizational meeting after incorporation. In this meeting, a board of directors will be elected, bylaws will be adopted, and a secretary, president, and other necessary officers will be appointed.
To maintain your status as an S corporation after this, you are required to keep certain corporate documents in Virginia. The two most important ones are:
- Corporate bylaws. These formalize the S corporation’s operating procedures, management, and structure. Such bylaws must be in accordance with all Virginia laws.
- Meeting minutes. These keep a record of actions and decisions made in meetings of your shareholders and directors. Such records must be kept for a minimum of three years, but they need not be filed with the state and they can be kept with your corporate papers.
These are just some key aspects of an S corporation that one should consider. If you need help further understanding the Virginia S corporation, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.