For an individual starting a business in Virginia, it is important to understand the regulations concerning limited liability companies before committing to the business structure. The state regulations for single-member LLCs are the same as those pertaining to multi-member LLCs. However, owners should be especially cautious about actions that may lead to personal liability for the business.
An LLC provides limited liability to the owners of a business: if the business is sued or otherwise owes money, the owners are typically not responsible for paying the debt from their own personal funds. In Virginia, an LLC may be owned and operated by one individual. While a single-member LLC may operate similarly to a sole proprietorship, the appeal of registering the business as an LLC is often to protect the owner's personal assets from any claims that may be brought against the business.
You may form an LLC in Virginia by filing articles of organization with the State Corporation Commission, using Form LLC-1011, available on the SCC website. You must name the LLC, including the term "limited liability company," "limited company," or an abbreviation. Further, you must designate a registered agent who will be responsible for accepting legal documents on behalf the business, as well as the address of the LLC. Finally, you must sign the form. Virginia LLCs are permitted to, but are not required to, form an operating agreement, which sets the rules for how the LLC will be managed and operated.
Virginia law requires LLCs to maintain records at the principal place of business, including the names and addresses of the owners, formation documents, and tax documents. If the business has an operating agreement or financial statements, the LLC must also keep those records at its principal office. If it is not covered by the operating agreement, business records must also include how much money the owner contributed to the business, how profits will be distributed, and when and how the LLC may be dissolved.
The IRS does not recognize an LLC as a business entity, and instead all profits "pass through" to the members, who report their earnings on their personal tax returns. The simplest option for a single-member LLC is to file taxes as a sole proprietorship, reporting business income on Schedule C. A single-member LLC, like other LLCs, may request to be treated as an S corporation for tax purposes, with somewhat more complex tax reporting requirements.
Risk of Personal Liability
Owners of single-member LLCs must be careful to maintain their business separate from their personal affairs to reduce the risk of personal liability for the business. If an LLC owner regularly uses the business's assets for personal use, or does not clearly convey to the public that he is operating as a separate business and not as an individual, the owner may be personally liable if someone were to sue the business -- this of course defeats the purpose of setting up an LLC. Further, a business owner may become personally liable if the LLC engages in illegal or unethical activity.
Read More: Regulations for Limited Liability Companies
- University of Richmond Intellectual Property and Transactional Law Clinic: Limited Liability Companies
- Small Business Administration: Limited Liability Company
- Internal Revenue Service: Single Member Limited Liability Companies
- Digital Media Law Project: Forming an LLC in Virginia
- Code of Virginia: § 13.1-1028. Information and records.
Elizabeth Rayne earned her J.D. from Penn State University and has been practicing law since 2009, advising clients on issues ranging from employment law to nonprofit management. For two years, she served as a contributing editor for the "Vermont Environmental Monitor."