If you have decided to charter your new corporation in Virginia, you are embarking on the hallowed American tradition of free enterprise and small business ownership. Congratulations! When you file your articles of incorporation, you will automatically become a C-Corporation. However, an entirely different corporate experience awaits you by checking one box.
As an S-Corporation, shareholders benefit because profits are passed through to them like partnerships and limited liability companies, thus avoiding double taxation. Shareholders are also shielded from other downsides of partnerships and LLCs since corporations are entities that can incur debt and become engaged in lawsuits separate from their owners’ assets. To discuss your business goals, call a Virginia S-Corporations lawyer. At Sparks Law, our passionate attorneys can help determine the best structure for achieving those goals.
Incorporators cannot arbitrarily check the S-Corporation box when filing articles of incorporation. The Internal Revenue Service restricts companies that can benefit from this tax designation. For instance, S-Corporations are not permitted to trade publicly on stock exchanges because they are limited to no more than 100 U.S. shareholders.
Other considerations when deciding whether an S-Corporation is suitable include the following:
A skilled lawyer can discuss other restrictions and benefits of forming an S-Corporation in Virginia.
S-Corporations do not pay income tax. Profit and loss are allocated to shareholders who report it on their personal income tax returns.
Shareholders are permitted to deduct their share of the losses up to their cost basis to offset their personal income, although some adjustments may be in order. A competent attorney can help Virginia businesses with personal taxes that include profits and losses in an S-Corporation.
Virginia Statutes require S-Corporations to file articles of incorporation, pay a filing fee, and then conduct an organizational meeting. At this meeting, the board of directors will be elected, bylaws adopted, and corporate officers appointed. Virginia corporations must maintain at least one director and name a registered agent to accept service of legal and governmental documents.
Virginia law also requires corporations to maintain the books and records of the company, so they are easily accessible to shareholders who are permitted to inspect them. The procedure for doing so should be spelled out in the corporate bylaws, which Virginia also requires with specific guidelines. Bylaws formalize the S-Corporation’s structure and how the company will be managed, along with procedures such as how shareholders’ meetings are conducted and what happens if the company is acquired or wishes to merge.
Virginia S-Corps must also document shareholder and directors’ meetings by appointing a board secretary who takes minutes detailing actions by management, directors, shareholders, and board committees. Minutes are not filed with the state but are kept with the company’s records. Annual reports do have to be filed with a fee in Virginia, which alerts the state that a business is still operating. Any changes in directors or the registered agent are generally filed with the annual report. A local S-Corporations attorney can help ensure the proper filing of all necessary reports.
The main advantage of an S-Corporation is its pass-through tax advantage. Since this entity does not pay federal income tax, shareholders claim their percentage of profit and loss on their personal returns, thus avoiding double taxation.
Explore the other advantages of this designation by contacting Sparks Law for a consultation. One of our Virginia S-Corporation lawyers would be happy to sit down with you if you are considering which corporate entity to charter for your business. We can explain the federal and state rules and regulations to determine what is in your best interest.