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Start Your S Corporation in Virginia

How to Start an S-Corp in Virginia

Creating a Virginia S Corporation may be a great step to make your business more successful and competitive. Declaring your company as a Virginia S Corporation is not the same as creating a business structure like a corporation or limited liability company (LLC). You first create your company by choosing either a corporation or LLC. You then declare your S Corporation status with the IRS.

This allows your Virginia corporation or Virginia LLC to take advantage of tax and other benefits of having an S Corp status. By using our simple, step-by-step guide, we can help you create the right business entity for your Old Dominion business, including the Virginia S Corp tax designation. 

What is an S Corporation?

S corps are pass-through taxation entities and are not business entities like LLCs and regular corporations. A company with an S Corp tax designation files an informational federal return (Form 1120S), but no income tax is paid at the corporate level. The only taxes that are paid are those at the individual level once company income is passed down to the owners.

Use our Virginia S Corp guide

We can help if you’re starting a new business and need to file for S Corp status. We offer everything you need to create your business at either our Virginia LLC page or our Virginia corporation page.

Once your legal entity structure has been created, you can use the information on our Virginia S Corporation page to learn how to form an S Corporation in Virginia. But we also offer everything you need for your business to remain compliant and successful.

Step 1: Choose a Name

Choosing a name for your company is fun and simple. You should follow Virginia’s business naming guidelines. Most importantly, the name should be unique, easily recognizable, memorable, and web-friendly since a lot of marketing a business is done online.

Step 2: Choose a Registered Agent

A registered agent is required by state law for every corporation,  LLC, or other registered business entity in Virginia. This is an important role because the agent is there to accept legal paperwork on behalf of your business.

Step 3: Choose a Director or Managers

A director or manager is someone that is in charge of the corporation or LLC. You would need to appoint a director if you’ve created a corporation or a manager and members if it’s an LLC.

Step 4: File Articles of Incorporation/Organization with the Virginia State Corporation Commission

You next have to file the Articles of Incorporation (for a corporation) or the Articles of Organization (for an LLC) with the State Corporation Commission. This document must be filed for the state to recognize your company and its legal status. You can file your Articles of Incorporation/Organization online or via mail.

Step 5: File Form 2553 to turn the business into an S Corporation

Filing form 2553 with the IRS designates your company as a Virginia S Corp. This task can be done when you obtain your EIN from the IRS. This form has to be filed to obtain the tax and other benefits of an S Corporation status.

S Corporation requirements and limitations

Although there are many benefits to having an S Corp status, there are some limitations and requirements that you have to maintain to run an S Corporation in Virginia.

Your business must:

  • Be a domestic corporation or other eligible business
  • Have only certain kinds of corporate shareholders, including individuals, estates, exempt organizations, and certain trusts, but not partnerships, corporations, or non-resident immigrants
  • Have no more than 100 shareholders
  • Have no more than one class of stock
  • Not be an ineligible corporation, such as an insurance company, international sales corporation, or a  certain kind of financial institution

Also, note the time limitations on filing for S Corp status. The form must be filed no more than 2 months and 15 days after the beginning of the tax year that the election is to take effect. The other filing option is that it can be filed at any time during the tax year preceding the tax year it is to take effect.

Weighing the pros and cons of creating an S Corporation

The benefits of being an S Corporation are significant. But, depending on your type of business and circumstances, there could be some negative consequences you have to consider.

Pros

The positives about having a Virginia S Corporation are the following:

  • You receive all of the personal asset protection that LLCs and corporations offer.
  • You avoid double taxation due to pass-through taxation and income.
  • You are also allowed to be more flexible with income designation, which can ultimately save you more on taxes.

There are other benefits to an S Corp status, but these are the most important. Also, it’s pretty easy to make the S Corp designation.

Cons

There are restrictions and certain requirements that might not be appropriate for your plans.

  • There can be only one class of stock offered, so all stockholders are treated the same.
  • There is a limited number of stocks that can be offered.
  • There is more extensive IRS oversight.
  • There are more stringent eligibility requirements.

If you have questions about the pros and cons of S Corp status for your business, we encourage you to consult a tax professional.

What to know before creating an S Corporation in Virginia

The first thing to know is that if you don’t declare your company as an S Corp, the IRS will automatically designate its tax filing status as a regular C corporation, which is subject to double taxation. There are also time limitations for filing for S Corp status for Virginia corporations or Virginia LLCs that already exist.

S Corporations are basically small business corporations that have limited corporation shareholders but aren’t subject to corporate double taxation.

What’s the difference between an S Corporation and a C Corporation?

The most important difference between an S Corp and a C Corp is how each type of designation pays taxes. C corps are separately taxable entities from their owners. A C Corp files a corporate tax return (Form 1120) and pays taxes at the corporate level, before any dividends are paid to the corporate shareholders.

Can LLCs choose an S Corporation election?

Yes! A Virginia LLC can choose to have the S Corp designation with the IRS. Even though LLCs already offer the notion of pass-through taxation, it’s still a good idea to elect S Corp status. There are still potential tax savings that Virginia LLCs can take advantage of with an S Corp status. Learn more about LLCs and taxation on our Tax Information for Limited Liability Companies page.

We can help

With our help, we can get you started on the road to success when you create a Virginia S Corporation. By using our quick and easy steps found on our S Corporation formation page, you’ll be on the path to growing your company. We can also help you stay in compliance with our Worry-Free Compliance Service. Whether you’re in Virginia Beach or Williamsburg, we have the tools and services to help your business grow.

Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Virginia S Corp FAQs

  • The main benefit is that your company avoids the double taxation that a company with the C Corporation tax designation status is subject to.

    With an S Corp, there is instead pass-through taxation to the corporation stockholders, who then pay taxes on the business income only once and at the individual rate.

  • Yes! Even though an LLC already has some of the tax benefits as do S Corps, there are still other tax benefits that an LLC can take advantage of with an S Corp status.

  • It’s important to choose the right name for your S Corp since this is how the world will first see your business. Your company’s name can usually be whatever you want, as long as you follow Virginia’s naming guidelines.

  • Filing your local, state, and federal taxes for a Virginia S Corporation can be complicated. Make sure to consult a tax professional to help you compile your tax filings.