How to Start and Manage a Virginia S Corp for Your Business
Learn how to establish and manage a Virginia S Corp, from formation and ownership to tax obligations and state compliance requirements.
Choosing the right business structure affects taxes, liability, and operations. A Virginia S Corporation (S Corp) provides tax advantages while preserving limited liability for owners. However, setting up and managing an S Corp requires strict adherence to state and federal regulations.
Understanding formation, management, and legal compliance is crucial for maintaining good standing.
Starting a Virginia S Corp
To form an S Corporation in Virginia, file Articles of Incorporation with the Virginia State Corporation Commission (SCC). This document must include the business name, registered agent, and share structure. The filing fee is $75 for up to 25,000 authorized shares, with additional costs for higher amounts. The corporation’s name must include “Inc.” or “Corporation.”
After incorporation, obtain an Employer Identification Number (EIN) from the IRS for tax reporting and banking purposes. To elect S Corp status, file Form 2553 with the IRS within two months and 15 days of the tax year’s start. Missing this deadline results in default classification as a C Corporation, which has different tax implications.
Virginia requires corporations to register for state taxes, including corporate income tax and sales tax if applicable. Businesses selling taxable goods or services must register with the Virginia Department of Taxation to collect and remit sales tax, which is 5.3% statewide, with additional local surtaxes in some areas. Employers must also register for withholding tax if they have employees.
Ownership and Management
An S Corporation in Virginia is limited to 100 shareholders, all of whom must be U.S. citizens or residents, certain trusts, or estates. Unlike LLCs, which allow different membership classes, an S Corp can issue only one class of stock, meaning all shareholders have equal rights to profits and voting power.
Management is handled by a board of directors and corporate officers. Virginia law requires at least one director, though larger businesses often appoint multiple directors. Shareholders elect the board, which appoints officers such as a president, secretary, and treasurer. One person can hold multiple roles, but maintaining clear distinctions between ownership and management helps protect limited liability status. Proper documentation of meetings and financial decisions is necessary to uphold corporate formalities.
Corporate bylaws outline operational procedures, including voting rules, stock transfers, and dispute resolution. While Virginia does not require corporations to file bylaws with the state, having a clear set of rules helps prevent internal conflicts. Restrictions on stock transfers are particularly important, as transferring stock to an ineligible shareholder—such as a corporation or non-resident alien—can terminate S Corp status.
Tax-Filing Duties
S Corporations in Virginia do not pay federal income tax at the corporate level. Profits and losses pass through to shareholders, who report them on their individual tax returns using Schedule K-1 (Form 1120-S). The corporation must still file Form 1120-S annually with the IRS. Late filings can result in penalties of $220 per shareholder per month, up to 12 months.
At the state level, Virginia does not impose a corporate income tax on S Corps, but they must file Form 502, the Pass-Through Entity Return of Income. This form allows Virginia to track income distributed to shareholders and ensure proper tax payments. If a shareholder is a nonresident of Virginia, the corporation may need to withhold a 5% tax on that individual’s share unless they file a Virginia nonresident return.
If the S Corp has employees, it must withhold and remit state payroll taxes, including unemployment insurance tax, which is based on the company’s taxable payroll and experience rating.
Virginia also requires corporations to pay an annual registration fee based on the number of authorized shares. Corporations with up to 5,000 shares pay $100, while those with more than 270,000 shares owe $1,700. This fee is due by the last day of the anniversary month of incorporation. Late payments incur a 10% penalty, and prolonged nonpayment can lead to administrative dissolution.
Required State Filings
An S Corporation in Virginia must file an Annual Report with the Virginia State Corporation Commission (SCC) by the last day of its anniversary month. This report updates corporate information, such as the names and addresses of officers and directors. There is no separate fee for filing, but failure to submit the report can lead to administrative dissolution.
Corporations in regulated industries, such as financial services, healthcare, or professional practices, may have additional licensing and reporting obligations. The Virginia Department of Professional and Occupational Regulation (DPOR) oversees industry-specific requirements, including license renewals and compliance audits. Some professions, such as law and accounting, must also meet reporting standards set by their respective state boards, which may involve continuing education certifications or financial disclosures.