After you’ve filed your articles of organization with the Virginia State Corporation Commission, your LLC will begin its legal life. But there are still other actions that you need to take in order to make your LLC fully operational. Just when you thought the work was over, you realize that it isn’t!
Below is an outline of some of the steps that you need to take. Some of them are legally required. Others aren’t mandatory, but they’re highly recommended by experts anyway.
Step 1: Draft and Sign an LLC Operating Agreement
First up, let’s discuss the need to draft and sign an LLC operating agreement.
What’s an operating agreement?
It’s a legal document that establishes how your LLC will be run.
So, for example, it will include:
- How decisions will be made
- How money will be distributed
- How disputes will be resolved
Lots of detail here, so take your time as you draft it, and really think about what you’re putting into your operating agreement.
Who’s involved in this process?
All of the members of your LLC need to sign the agreement and agree to follow the rules that it contains. Obviously, if you’re the only member of your LLC, you’re the only one who needs to sign and follow it.
Is this really necessary?
An operating agreement isn’t mandatory, but it’s a great idea to have one, even if your LLC only has one member and you’ll be making all of the decisions.
- Having a written operating agreement lends credibility to your LLC.
- It shows that your LLC is a legitimate business entity that’s separate from you, not just some sham that’s been created to avoid liability.
- It’s really important for single member LLCs (SMLLCs) because, without the formality of an agreement, an SMLLC can appear like a sole proprietorship, which doesn’t provide limited liability.
- Lenders might ask to see an operating agreement before they’ll agree to give you a loan in your LLC’s name. If you’re planning on taking out loans to build your business, this simple document will definitely be helpful.
How long does it need to be, and does it need to be filed anywhere?
The good news is that your operating agreement doesn’t need to be complex or long, especially if you’re an SMLLC. While you don’t need to file the agreement with the Corporation Commission—or anywhere else, for that matter—you should keep this document with all of your other important LLC files.
To learn more about operating agreements, read our Freelancer’s Guide to LLC Operating Agreements.
Step 2: Get a Federal Tax ID (EIN)
Next up is the Federal Tax ID (or Employer Identification Number / EIN).
You should obtain an EIN from the IRS. This nine-digit number will be used by the IRS to identify your LLC, so you’ll need to include it in all of your tax forms and communications with the IRS and the Virginia Department of Taxation.
If your SMLLC doesn’t have any employees, a separate EIN is, generally, not required by the IRS. Instead, you can use your personal Social Security number. But it’s still recommended that you get an EIN.
Why is an EIN an important part of doing business?
First, it helps prove that your LLC is a legal entity that’s separate from you personally, just like the operating agreement. Plus, using your EIN rather than your Social Security number can be a smart step in avoiding identity theft, which is frighteningly common today.
On top of all of that, many banks will actually require an EIN when you’re ready to open up a business bank account in your LLC’s name.
What’s the process for getting an EIN?
Thankfully, it’s easy to get an EIN, and it’s free as well! You can complete an online application at the IRS website.
For additional information, see our article, Freelancer’s Guide to EIN (Federal Tax ID).
Step 3: Register with the Virginia Tax Department
Generally, if you have a business activity in the Commonwealth of Virginia, you need to register with the Virginia Tax Department (“Virginia Tax” for short) and get a Virginia Tax account number.
You can register online at the Virginia Tax website.
If you plan to hire employees, you can register with the Virginia Employment Commission (VEC) at the same time that you register with Virginia Tax if you register online. VEC is responsible for collecting unemployment tax.
Step 4: Get a Business License
Whether or not you’ll need to get a business license for your LLC will depend on where your business is located.
If you do need a business license to operate, you can get one from your city or county government.
- Just like an operating agreement and EIN, obtaining your business license helps prove that your LLC is legitimate.
- It helps preserve your limited liability.
- If your local government were to find out that you failed to get a required license to run your company, it could impose penalties and fines that cost a lot more than it would’ve cost you to just get the license in the first place.
What’s the process for obtaining a business license?
Fear not! Obtaining a local business license is usually simple and straightforward. The specific details for your particular license will be available from your local government, so some research is required. Once you know what you need, you’ll have to fill out an application and pay a fee.
How many licenses are required?
In addition to a local business license, you might also need to get a license or permit from the Commonwealth of Virginia, or even from the federal government. This will depend on the work that you do. For example, real estate brokers and salespeople must be licensed by the state.
Pro tip: When you join Collective, we help you obtain the appropriate business license(s), so it’s one less thing that you need to worry about!
Want more information on business licenses? Check out our article, Freelancer’s Guide to Business Licenses in Virginia.
Step 5: Open a Business Bank Account
It’s highly recommended that you open a bank account in your LLC’s name, rather than use your personal bank account for business purposes. Once again, it boils down to ensuring that your LLC is recognized as a separate, legal entity that’s a legitimate business.
Why is this necessary?
Combining your personal funds with your LLC’s funds in a single account is a bad idea.
If you use your personal bank account for business purposes, you might even end up losing the limited liability that you obtained by creating your LLC. You definitely don’t want that!
Setting up a business bank account might seem daunting at first, but you can read through our article, Freelancer’s Guide to Banking to learn more.
Step 6: Pay Annual Registration Fee
All Virginia LLCs must pay a $50 registration fee each year. This fee is due by the last day of the month that you filed your articles of organization. For example, if you filed your articles in September, your $50 registration fee is due by September 30th each year.
How do you pay this fee, and what happens if you don’t pay?
You pay the fee online through SCC eFile. If you don’t pay the fee, your LLC can be terminated. To make sure you’re aware of the fee, the Virginia Corporation Commission sends a notice of annual registration fee assessment to your LLC’s registered agent.
Step 7 (Optional): File a Fictitious Name Statement
Did you know that you aren’t required to operate your LLC under the legal name that’s listed in your articles of organization? It’s true; you can use a different name! This name is referred to as an assumed name, fictitious name, or dba, which stands for “doing business as.”
How do you operate under a different name?
In order to operate under a different name than your LLC’s legal name, you have to:
- File a fictitious business name certificate with the Clerk of the Circuit Court in the county or city where you have a business location.
- File a certified copy of your certificate with the Virginia State Corporation Commission.
Pro tip: Check your county’s fictitious name records to be absolutely sure that the name you wish to use isn’t already taken by another business. You should also check the Corporation Commission records to see if a similar name has been filed. Then, file the form and pay the required fee.
For additional information, check your county’s website for details.
You can also learn more about naming your LLC by reading our article, Freelancer’s Guide to Naming an LLC in Virginia.
Maintaining Your LLC Doesn’t Have to Be Complicated
Wow, those are a lot of rules! But try to relax, and just take things one step at a time so that you don’t become overwhelmed.
Collective is here for you to help you through all of the important steps above!
With the right strategy and the right support, you can rest assured that your LLC will have everything it needs to operate legally and be recognized as the legitimate business that it is.
Stephen has dedicated his career as an attorney and author to writing useful, authoritative and recognized guides on taxes and business law for small businesses, entrepreneurs, independent contractors, and freelancers. He is the author of over 20 books and hundreds of articles and has been quoted in The New York Times, Wall Street Journal, Chicago Tribune, and many other publications. Among his books are Deduct It! Lower Your Small Business Taxes, Working with Independent Contractors, and Working for Yourself: Law and Taxes for Independent Contractors, Freelancers & Consultants.