How to Start a Business in Virginia
Virginia is an ideal state for starting a business, boasting nearly 800,000 active small businesses and 123,744 new businesses created in 2022 alone. This makes Virginia the 12th highest state for new business formations based on data from the US Small Business Administration and Census Bureau. In addition to a flourishing business landscape, Virginia also offers affordable costs of doing business. Starting costs are below the national average with DBAs at only $10, Corporations at $75, and LLCs at $100. With these low costs of startup, Virginia is an attractive choice for entrepreneurs looking to start their own business. This article will discuss how to get a business started in Virginia in 12 steps.
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12 Steps to Starting a Business in Virginia:
- Research and Plan your Business
- Choose a Business Structure
- Choose your Business Name
- Register your Virginia Business
- Get an EIN
- Register for Virginia Sales and Use Tax
- Apply for Business Licenses and Permits
- Open a Business Bank Account
- Set Up Credit Card Processing
- Establish an Accounting System
- Get Business Insurance
- Hire Employees and Set Up Payroll
Before starting your business, it is crucial to conduct preliminary research on your business idea and develop a comprehensive business plan. Market research will provide clarity on your target market, competitors, and unique selling point (USP).
Once you have gathered this information, it is important to draft a well-thought-out business plan. Although you may be tempted to skip this step and dive right into action, a solid business plan will serve as your support system throughout the entire process. It will guide you in pursuing growth and increase your chances of success. In fact, researchers at Harvard Business Review found that businesses with a clear and written business plan were 16% more likely to succeed compared to those without a plan.
It is worth noting that your business plan doesn’t have to be overly complex. Even a concise plan of just three pages can serve as a strong foundation. Your business plan will provide a framework for the future of your business and answer key questions such as:
- What sets you apart from the competition (USP)?
- Who is your target market?
- What will drive your revenue?
- How will you market and promote your business?
- What resources do you need to get started?
By investing time and effort into developing a well-crafted business plan, you will set yourself up for success and ensure a clear path forward for your business.
Recommended Additional Reading:Unlock the Secrets to Creating a Business Plan that Works
Next, it’s time to choose a legal structure for your business. Consider your comfort level with personal liability risk, desired tax status, and source of capital. There are four common types of business structures to explore:
According to Small Business Administration, LLCs are the most common formal business entity types. They’re a separate legal entity from their members – the people who own them. This provides owners with limited personal liability. If the LLC incurs debt or gets sued, this legal structure can protect the owners’ personal assets.
LLCs allow for an easy-to-manage business entity with favorable tax treatment. They can default as pass-through entities for taxation but are also flexible to elect C-Corporation or S-Corporation taxation. This flexibility lets owners focus on their core business without potentially complicated corporate tax planning. Therefore it shouldn’t be surprising that LLCs have become the go-to choice for many small business owners.
The level of protection and tax advantages offered by LLCs makes them a top choice for entrepreneurs who want limited personal liability protection and favorable tax treatment.
Additional Information:Pros and Cons of LLCs
A corporation is a separate legal entity from its owners. It possesses similar rights and responsibilities as individuals, such as entering legal agreements, borrowing money, hiring staff, owning assets, and paying taxes. Limited liability is a key advantage, where shareholders profit from dividends and stock appreciation without being responsible for the company’s debts. Many large businesses, like Microsoft and Coca-Cola, are corporations. Some corporations have separate business names, like Alphabet Inc. doing business as Google. By separating ownership from operations, corporations enhance long-term planning and can exist indefinitely. They also provide an efficient way to raise capital for business expansion, stimulating economic growth.
Additional Information:What is a Corporation as a business?
If you don’t register a single-owner business in Virginia under a formal structure like an LLC or Corporation, you’re automatically a sole proprietor. It’s a straightforward way to start a business and gives you complete control over your business. In a sole proprietorship, you and the business are legally seen as one and the same, which means any debt the business incurs is your personal liability.
Sole proprietorships are not the best pick for high-risk business ventures, as raising money can be challenging since you can’t sell stock, and banks are often hesitant to give loans to sole proprietorships. Nonetheless, a sole proprietorship can be the way to go for low-risk business ideas when you want to test their business concept before going for something more formal.
Additional Information:A Guide to Sole Proprietorships: Pros and Cons
A general partnership is when two or more individuals agree to share a jointly-owned business’s responsibilities, assets, profits, and financial and legal liabilities. It’s important to know that partners may be personally responsible for unlimited liability in a general partnership. Unlike a limited liability partnership or an LLC, liabilities aren’t capped. Partners can be held personally accountable for the business’s debts and may even have their assets seized. It’s also important to remember that any partner can be sued for the business’s debts. Even if your partners are sued, you can also be held personally liable. Since a general partnership is a pass-through entity, the partnership’s income goes straight to the owners. Partners report their share of the profits or losses on their personal tax return. Remember, the partnership itself isn’t taxed.
Additional Information:Pros and Cons of Operating as a Partnership
Need More Info to Choose a Structure?
If you’re struggling to decide on the most suitable business structure for your needs, our comprehensive guide How to Choose a Legal Structure for your Business can offer valuable assistance. Within the guide, we delve into the intricacies of the four different business structures, providing a thorough comparison to help you make an informed decision.
Every business needs a name. The next step for your Virginia business should be to choose one so that you can get ready for business registration. Your business name helps to form its identity and can affect how your business is viewed, so be careful to choose something that works for your business. Your business name should help you to start building your brand identity. You also want it to be something your customers can easily pronounce, remember, and search online.
Use our guide on how to think of a business name if you need more detailed help creating your name.
Once have made the decisions regarding your business structure and name, the next step is to focus on officially registering your business. The process for getting your business name registered in Virginia may differ depending on the chosen business structure. Let’s explore each of them briefly.
- Register a Virginia LLC
- Register a Virginia Corporation
- Register a Virginia Sole Proprietorship
- Register a Virginia Partnership
Forming an LLC in Virginia requires you to file Articles of Organization with the Virginia State Corporation Commission (SCC) which has a filing fee of 100. Before you can complete your filing, you first need to check that no other business is using the name that you want to use. Carry out a Virginia business name availability search to do this, and you can file your Articles of Organization if your name is available. If not, you will have to come up with a new one. Your filing needs to include the name and address of your LLC, as well as the owner’s or owners’ contact information. It is also necessary to appoint a Virginia registered agent. At this stage, it’s also smart to create an operating agreement to outline how your business will operate, who owns how much of the LLC, and what voting rights owners have.
Learn How to Start an LLC
Ready to start your own LLC? Take a look at our step-by-step guide, Steps to Starting an LLC in Virginia, which provides a thorough explanation of each step you’ll need to take.
To a corporation in Virginia, you need to submit Articles of Incorporation to the Virginia State Corporation Commission (SCC) and pay the 77 filing fee. It is also crucial to appoint a registered agent who will handle service of process documents. Moreover, drafting a corporate bylaws document will provide you with a comprehensive set of internal operating rules for your corporation.
The process of starting a sole proprietorship in Virginia is a simpler process than forming an LLC or Corporation. You aren’t required to file any documents at the state level, but there are some formal steps that you might need to take. Since sole proprietors are required to operate under their personal name or a name that at least includes their last name, you’ll likely need to file a Virginia DBA (also known as an Assumed or Fictitious Name). If you want to use an Assumed or Fictitious Name, instead of your own name, you need to register your a Virginia an Assumed or Fictitious Name with the state.
A general partnership in Virginia does not require any formal filings to start. However, it is a good idea to write a partnership agreement document. Although it’s not legally required, it ensures you are clear about how decisions are made within the business. This can help to deal with disputes later. If the partners’ last names are not used in the business name, you will also need to file a Virginia an Assumed or Fictitious Name with the state.
An Employer ID Number (EIN) is used by the IRS for both tax filing and employment. Not every business is required to have one, but it can be useful even for businesses that don’t need one. A Corporation, Partnership, or an LLC needs to have an EIN. Even if your business is a sole proprietorship or an LLC with only one owner, getting an EIN is a good idea because you can use it on forms in place of your social security number.
How to Apply for an EIN
You can apply for an EIN by using the Online EIN Assistant, as long as you have an SSN. If you are having trouble or don’t have an SSN you can use Northwest Registered Agent’s EIN service to obtain your EIN.
If your business has a Virginia sales tax nexus, you sell taxable goods or services to Virginia residents, or if your buyers have to pay sales tax, you’ll need to collect and remit sales tax in Virginia. To ensure you comply with state and local laws, you must effectively manage the taxes you collect. Neglecting this responsibility can lead to penalties and interest charges.
How to Know if you need to collect Sales Tax in Virginia?
According to Virginia Department of Revenue regulations, businesses in Virginia must obtain a sales tax collection license if they have a physical presence. Note that the minimum thresholds for remote sellers mentioned below do not apply to businesses with a physical presence in Virginia. A person or business who meets one of the following definitions for a vendor must license to collect and remit sales tax:
- If you are conducting sales of tangible personal property, admissions, or taxable services in the state of Virginia.
- This definition includes individuals who start an online business in Virginia.
- If your online business offers taxable products or services, you are required to obtain a sales/use tax license and comply with all the regulations that pertain to a physical store.
Those without a physical presence within Virginia can still be required to remit sales tax if they meet either of the following criteria:
- Gross revenue from sales of tangible personal property, admissions, or services delivered into Virginia is more than one hundred thousand dollars ($100,000.00)
- 200 or more separate transactions for delivery into Virginia.
For more detailed information visit the Virginia Department of Taxation: Retail Sales and Use Tax page or contact a qualified Virginia tax professional.
Get Help Registering for Virginia Sales and Use Tax
If you’d like assistance registering for Virginia Sales and Use Tax you can use Swyftfilings Seller’s Permit service to complete your registration.
To ensure legal compliance with federal, state, and local laws, it is important for your business to obtain one or more business licenses and/or permits. The specific licenses and permits required will vary depending on various factors, such as the nature of your business, the products and services you offer, the data you collect, and your location. It is crucial to understand and adhere to these requirements to operate your business smoothly and within the bounds of the law.
Federal Licenses and Permits
Your business may need a license or permit to operate legally if your business is involved in an activity that is regulated at the federal level, such as:
- Alcoholic beverages
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
- Transportation and logistics
For more detailed information on federal business licenses and permits visit the Small Business Administration: Federal Licenses and Permits page.
State and Local Licenses and Permits
A general business license is not required in Virginia, however most businesses will require a local business license.For more detailed information visit the Business in Virginia Business License page.
Virginia Business License Research
Figuring out what business licenses you’ll need can be pretty complicated. You can use MyCorporation’s Business License Compliance service for expert help to determine which licenses you’ll need.
A separate business bank account is important to have for your business. It ensures you can avoid mixing up your personal and business finances, known as “co-mingling funds”, which can cause problems for you later. Keeping your finances separate makes it easier to maintain your accounting and bookkeeping. It also means you won’t risk losing your limited liability if your business is an LLC or Corporation. Separate business finances protect you from debt and legal issues.
Not only does this make bookkeeping and accounting much harder, but it can also result in losing your limited liability status if you’re an LLC or Corporation. If you mix your personal and business funds, you can put yourself at serious legal risk if your business is sued by piercing the corporate veil. By opening a dedicated business bank account and use it strictly for business activity, you can avoid these risks.
Take a look at our guide to opening a business bank account to find more details on how to choose a bank account provider and open up your business bank account.
If your business doesn’t accept debit and credit card payments, you could miss out on a lot of business. Whether you have a brick-and-mortar business, an online business or need to accept payments on the go, card processing is important.
For a more detailed breakdown of the topic, see our Guide: a href=”https://stepstostartingabusiness.com/how-to-accept-credit-card-payments/” target=”blank”>How to Accept Credit Card Payments
An accounting system allows you to track and manage your business finances in a number of ways. When you set up your accounting system, you will be able to create budgets, keep an eye on your incomings and outgoings, and create financial reports for your business.
Our Small Business Accounting 101 guide gives you more help on how to set up your accounting system, making important decisions about your accounting, and the essential steps, which you can find here.
Recommended Accounting Software
We recommend using Freshbooks for your accounting needs. Freshbooks allows you send professional invoices, take online payments, timetrack and more.
Don’t forget one of the most important steps of starting a business in Virginia – taking out business insurance. The right insurance will protect your business in various ways. If you experience a lawsuit, an accident occurs, or a natural disaster or weather event takes place, your business is protected with insurance in place.
Check out our guide on Small Business Insurance, where we go over the six types of business insurance so that you can make sure you’re covered.
Hiring employees makes it easier to grow your business. When you hire employees, you’ll need to set up payroll to ensure they are paid properly and to withhold any necessary taxes.
There are two items that employers must complete to be federally compliant when hiring new employees. You must verify that any employee is eligible for employment in the US and obtain a signed IRS Form W-4 to ensure you are withholding the correct amount for federal taxes. For more detailed information, visit the IRS page for Businesses with Employees.
Since Virginia has a state level income tax, you’ll need to withhold taxes from your employees and remit them to the state. In addition to this you’ll also need to register for unemployment insurance. Luckily in Virginia both of these registrations are done with the Virginia Department of Taxation. For more specific information about your requirements as an employer in Virginia visit the Virginia New Hire Reporting Center: FAQs page for more info.
Recommended Hiring Software
If you’re hiring employees we recommend using Gusto. Gusto can not only automate your payroll but also help with hiring & onboarding, file employment taxes, aid with compliance and even identify hidden tax credits for your business.