Start a Virginia S Corp

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.