How to Form a Professional Corporation in Virginia


Steve Goldstein
Steve Goldstein
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Form a Professional Corporation in Virginia

Are you considering starting a professional corporation in Virginia? Congratulations! Establishing a professional corporation is an excellent choice for entrepreneurs and professionals alike who seek to benefit from a business structure that provides limited liability protection, tax advantages, and enhanced credibility. However, navigating the process of forming a professional corporation in Virginia can be daunting.

This article aims to provide a comprehensive guide on how to form a professional corporation in Virginia, covering everything from understanding the basics of this business entity to the essential steps and requirements you must comply with to launch your new venture successfully. Let’s dive in and explore the ins and outs of forming a professional corporation in Virginia!

What is a Professional Corporation in Virginia?

A professional service corporation (PSC), sometimes called a professional corporation (abbreviated as PC), is a type of organization authorized by state law to allow owners of particularly licensed professions in Virginia. The owner of a professional corporation is responsible for their own negligence or misconduct, but they are not held personally accountable for the actions of other owners. PC or P.C. is a regularly used abbreviation to identify professional corporations.

PCs and LLCs provide personal asset protection; that is, the personal assets are free from business debts. However, they do not have similar tax benefits. There is no secret formula as to which type of business structure is better than the other. It solely depends on the requirements of your business. However, forming an LLC is easier than setting up a PC in Virginia.

– LLCBuddy Editorial Team

Unlike other types of corporations, owners of Professional Corporations get two types of citizenship. One is where they incorporated the corporation, and the other is where they conduct the business. This benefit is not available for other types of corporations. You can form a free LLC in Virginia if you hire a professional service that provides LLC formation at $0.

How to Form a Professional Corporation in Virginia

To form a Professional Corporation for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Registered Agent, filing the Articles of Incorporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an annual report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in Virginia, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

  • Doctors
  • Architects
  • Engineers
  • Accountants
  • Lawyers and others

You should be qualified to have a license to provide your service. In most cases, once you have graduated with your studies, passed the exam, and got your license, you may now form a professional corporation. However, if you work in an industry that doesn’t offer a license or professional certification, you should consider forming a corporation or limited liability company.

Step 2: Name your Professional Corporation in Virginia

After you have decided on the idea to form a professional corporation in Virginia, deciding the name for your corporation is significant. There is a complete guide on Virginia LLC name guidelines for you to have a proper business name. Here are some regulations you must follow while naming your professional corporation.

  • The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
  • No confusion with a government entity name.
  • A unique name is needed with no match
  • Limit of restricted words that need a license.

In Virginia, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 120 days. To keep the name, you must file a name reservation application with Virginia Secretary of State.

A professional corporation, professional association, service corporation, or professional service corporation must be present in the name if it doesn’t already. You might opt to register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for a DBA (doing business as). In this manner, you can choose any name you desire to run a clinic or law firm.

Step 3: Choose the Virginia Registered Agent

The next step in forming a professional corporation is hiring the Virginia Registered Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in Virginia. Forming a professional corporation for your service will be easier if you have Registered Agent in Virginia.

Alternatively, you can serve as your own Virginia Registered Agent if you have the time. However, you must stay compliant to avoid missing any important documents from Virginia.

Step 4: File the Articles of Incorporation in Virginia

After you hire a Virginia Registered Agent to form a professional corporation, the next step is to file the Virginia Articles of Incorporation. In writing the Articles of Incorporation, the business name, owner’s contact information, corporation address, and Registered Agent contact information should be written. You should also include the names of all co-owners. All owners have to prove they have the proper license to practice the specific profession they intend to.

Filing the Articles of Incorporation in Virginia may be done with three methods that are online, by mail and in-person. The Articles of Incorporation fee may vary from different states. However, in Virginia, it costs $100 for online and by mail filing or in person filing. Get the eForm from the SOS site, login/subscribe to the site, fill up the form, submit online. For offline filing, Send the form by mail to or drop it off in person at State Corporation Commission, Clerk’s Office, P.O. Box 1197, Richmond, VA 23218-1197.

Step 5: Write an Operating Agreement in Virginia

An operating agreement is a document that contains all of your company’s organizational details. It is not required to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The Virginia operating agreement includes information like-

  1. About Business
  2. Members and management
  3. Capital contribution
  4. Profit Distribution
  5. Change of membership
  6. Dissolution

Step 6: Designate the PC Board of Directors in Virginia

The next step is to appoint the initial board of directors in your PC in Virginia. All the initial directors must submit their details to the owner. The owner must keep the records and submit them in accordance with the Virginia SOS. When writing the By-laws, as a shareholder and owner, you must make sure there is a point mentioned about appointing a new director later.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

In creating corporate bylaws, you should include the following on how the decisions will be made.

  • The responsibilities are given to each officer.
  • How will judgments in business be made?
  • Where and when are the annual shareholder meetings?
  • The minimum number of shareholders required for decision-making.
  • Location and timing of dividend payments.

Step 8: Hold the First Board of Directors’ Meeting

After drafting the corporate bylaws, gather all the board of directors for the first meeting. This meeting will be finalized by appointing directors to manage the company’s daily operations, approve the bylaws, choose the corporation’s accounting year, and approve the stock issue. All board meetings should have minutes taken and stored with the company’s records.

Step 9: Request an EIN in Virginia

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your professional corporation. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Virginia can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN number, you can benefit in a number of ways. It will give your professional corporation the final advantage necessary to operate at full capacity without encountering legal or judicial issues.

Step 10: Open a Bank Account and Prepare for Taxes

Once you have filed and received your Employer Identification Number, you should open a bank account since you will use this account for yourself, your clients, and your employees.

Your business dealings in Virginia might be simpler by having a US business bank account because it boosts your company’s legitimacy and liquidity. For firms other than sole proprietorships, most banks demand an EIN to create a business bank account. Also, keeping separate finances helps you avoid combining personal and professional finances. Also, having an EIN makes tax preparation easier. With a professional corporation, you can anticipate paying employment and corporate taxes.

Step 11: Get a Business License in Virginia

Before your professional corporation operates in Virginia, you need to have a business license first. A business license is a formal document issued by the state government agency that allows you to operate your business in the geographic region that that agency governs. In Virginia, business license and permit costs depend on the business’s nature and type. You must check with the local authorities if any special licenses or city-based permits are needed.

Step 12: File Your Taxes in Virginia

Finally, you are down to the last step. After getting a business license and being ready to operate, do not forget to file your taxes first. You should start paying taxes quarterly as soon as possible to avoid a large tax bill. Each state has different tax requirements. Go through the Virginia classification of taxes for the taxes an LLC in Virginia has to pay.

Important Information

Maintaining Professional and Business License in Virginia

Now that you have established your professional corporation, you must maintain or renew your professional license every now and then. Even if your business is established but you don’t have a valid license to operate, your business is irrelevant. And, even if your professional license is still valid for a year or two, but your business license is already expired, it is still irrelevant.

Make time to check the status of your licenses at least once per year. Then, you can keep from missing anything significant. If there are any issues, you can address them.

Filing an Annual Report in Virginia

In Virginia, you will be required to submit a report each year. The owners’ and Registered Agent’s names and contact details are listed in the annual report. Also, it should include all of your yearly financial activity. You must submit one yearly in Virginia, and you can do it yourself or hire someone else to handle it. Everything must be precise and up to date.

Advantages of Forming a Professional Corporation in Virginia

A professional corporation takes a lot of time to process and pursue. However, with the help of the Virginia Registered Agent, everything will become easier. In fact, there are advantages that will help you form a professional corporation in Virginia.

  1. Limited Liability: The biggest advantage of setting up a professional corporation is that the owners are not held personally responsible for the debts and obligations of the company. This indicates that only the company’s assets will be confiscated to settle claims and creditors if the business is sued or declares bankruptcy. Additionally, this protection exempts corporate owners from being held accountable for other owners’ reckless or criminally negligent acts.
  1. Tax Deductions: Similar company expenses, such as employee fringe benefits, startup and operating costs, and equipment purchases, can be written off by professional companies in the same ways they can be for other kinds of firms. However, there are several tax deductions professional corporations can take advantage of that other types of businesses can’t. For example, the salaries and bonuses paid to owners and employees are tax-deductible.
  1. Retained Earnings: Professional corporations can keep a portion of their profits under the corporate tax system to grow their companies.

FAQs

What is a Professional Corporation in Virginia?
A Professional Corporation in Virginia is a corporation formed under the laws of the Commonwealth of Virginia, primarily by professionals such as lawyers, doctors, and accountants, for the purpose of providing professional services.
What types of professional services can be provided by a Professional Corporation in Virginia?
The types of services provided by a Professional Corporation in Virginia are limited to the scope of services allowed by the particular profession, such as legal services, medical services, and accounting services.
How do I form a Professional Corporation in Virginia?
To form a Professional Corporation in Virginia, you must file Articles of Incorporation with the Virginia State Corporation Commission.
What documents are required to form a Professional Corporation in Virginia?
To form a Professional Corporation in Virginia, you must submit Articles of Incorporation, a Registered Agent Designation form, an Initial Report form, and the applicable filing fee.
What information must be included in the Articles of Incorporation for a Professional Corporation in Virginia?
The Articles of Incorporation must include the name of the Professional Corporation, the address of the registered office, the names and addresses of the incorporators, the name of the registered agent, the duration of the corporation, and the purposes of the corporation.
How much does it cost to form a Professional Corporation in Virginia?
The cost to form a Professional Corporation in Virginia is $50, plus a $25 processing fee.
Is there an annual requirement for Professional Corporations in Virginia?
Yes, Professional Corporations in Virginia must file an Annual Report each year with the State Corporation Commission.
What is the penalty for failing to file an Annual Report for a Professional Corporation in Virginia?
The penalty for failing to file an Annual Report for a Professional Corporation in Virginia is a fine of up to $500, plus a late fee of up to $100.
Are Professional Corporations in Virginia required to have a Board of Directors?
Yes, Professional Corporations in Virginia must have a Board of Directors consisting of three or more directors.
Are Professional Corporations in Virginia required to hold annual meetings?
Yes, Professional Corporations in Virginia are required to hold annual meetings of the Board of Directors and shareholders.
Are there any special tax considerations for Professional Corporations in Virginia?
Yes, Professional Corporations in Virginia are subject to special tax considerations and must file an annual tax return with the Virginia Department of Taxation.
Are there any restrictions on who can own shares of a Professional Corporation in Virginia?
Yes, only individuals who are members of the same profession can own shares of a Professional Corporation in Virginia.
Are there any restrictions on the transfer of shares of a Professional Corporation in Virginia?
Yes, the transfer of shares of a Professional Corporation in Virginia is subject to restrictions and must be authorized by the Board of Directors.
What is the liability of the shareholders of a Professional Corporation in Virginia?
The shareholders of a Professional Corporation in Virginia have limited liability for the debts and obligations of the corporation.
How is a Professional Corporation in Virginia dissolved?
A Professional Corporation in Virginia can be dissolved by filing Articles of Dissolution with the State Corporation Commission.
Are there any special requirements for dissolving a Professional Corporation in Virginia?
Yes, before dissolving a Professional Corporation in Virginia, all debts and obligations of the corporation must be satisfied and all assets must be distributed to its shareholders.
Is it possible to convert a Professional Corporation in Virginia to a Limited Liability Company (LLC)?
Yes, it is possible to convert a Professional Corporation in Virginia to a Limited Liability Company (LLC) by filing Articles of Conversion with the State Corporation Commission.
Is it possible to merge a Professional Corporation in Virginia with another business entity?
Yes, it is possible to merge a Professional Corporation in Virginia with another business entity by filing Articles of Merger with the State Corporation Commission.
Are there any special requirements for merging a Professional Corporation in Virginia?
Yes, before merging a Professional Corporation in Virginia, all debts and obligations of the corporation must be satisfied and all assets must be distributed to its shareholders.
Are Professional Corporations in Virginia required to have a registered agent?
Yes, Professional Corporations in Virginia must have a registered agent that is located in the Commonwealth of Virginia.
What is the role of the registered agent of a Professional Corporation in Virginia?
The registered agent of a Professional Corporation in Virginia is responsible for receiving service of process on behalf of the corporation.
Are there any restrictions on the name of a Professional Corporation in Virginia?
Yes, the name of a Professional Corporation in Virginia must include the words “Professional Corporation” or “P.C.” and must not be the same as or deceptively similar to an existing corporation.
Is it possible to convert a Professional Corporation in Virginia to a C-Corporation?
Yes, it is possible to convert a Professional Corporation in Virginia to a C-Corporation by filing Articles of Conversion with the State Corporation Commission.
Are there any special requirements for converting a Professional Corporation in Virginia to a C-Corporation?
Yes, before converting a Professional Corporation in Virginia to a C-Corporation, all debts and obligations of the corporation must be satisfied and all assets must be distributed to its shareholders.
Are Professional Corporations in Virginia required to have bylaws?
Yes, Professional Corporations in Virginia are required to have bylaws that outline the rights, powers and duties of the corporation.
Are there any restrictions on the location of a Professional Corporation in Virginia?
Yes, the registered office of a Professional Corporation in Virginia must be located in the Commonwealth of Virginia.
Are Professional Corporations in Virginia required to have a Corporate Seal?
No, Professional Corporations in Virginia are not required to have a Corporate Seal.
What are the steps to form a Professional Corporation in Virginia?
The steps for forming a Professional Corporation in Virginia include
What is required to form a Professional Corporation in Virginia?
To form a Professional Corporation in Virginia, you will need to file Articles of Incorporation with the Virginia State Corporation Commission, obtain a Registered Agent, obtain a Certificate of Good Standing, file the professional corporation’s annual report, and obtain a Virginia business license.
Is there a fee to form a Professional Corporation in Virginia?
Yes, there is a filing fee to form a Professional Corporation in Virginia.
What type of business license do I need to form a Professional Corporation in Virginia?
You will need to obtain a Virginia business license to form a Professional Corporation in Virginia.
How long does it take to form a Professional Corporation in Virginia?
It typically takes about 4-6 weeks to form a Professional Corporation in Virginia.
What is the difference between a Professional Corporation and a regular Corporation?
A Professional Corporation is a type of Corporation that is registered with a state or federal regulatory agency to provide services that require certain special qualifications or certifications. A regular Corporation provides general business services and does not require special qualifications or certifications.

Also Read

Why Virginia Professional Corporation is So Important

One of the main reasons why a professional corporation is so important is liability protection. When you operate as a sole proprietor or in a general partnership, your personal assets are at risk in the event of a lawsuit or dispute. However, by forming a professional corporation, you can insulate your personal assets from business liabilities, meaning that your house, savings, and other belongings are not on the line if something goes wrong with your practice.

Furthermore, a professional corporation allows professionals to share ownership with other licensed professionals. This can be particularly beneficial for individuals looking to grow their practice and take on partners. By forming a professional corporation, professionals can define equity ownership, profit distribution, and decision-making processes, ensuring that everyone is on the same page and able to work together effectively.

In addition, a professional corporation in Virginia provides tax advantages that can help professionals save money and effectively manage their finances. With proper planning and guidance from a tax professional, individuals operating under a professional corporation structure may be able to take advantage of tax deductions, income splitting, and retirement planning strategies that are not available to sole proprietors or general partnerships.

Furthermore, a professional corporation can enhance the credibility and professionalism of your practice. By operating under a corporate structure, professionals can project a more established and reputable image to clients, partners, and other stakeholders. This can help attract new clients, retain existing clients, and differentiate your practice from competitors in the market.

When it comes to succession planning and continuity, a professional corporation offers clear and defined mechanisms for transferring ownership, managing succession, and ensuring business continuity in the event of retirement, death, or disability of the owners. By establishing a buy-sell agreement and delineating clear guidelines for ownership transitions, professionals can protect their investment in the practice and provide peace of mind for themselves and their loved ones.

Overall, choosing to operate under a professional corporation in Virginia can provide a wide range of benefits for licensed professionals looking to protect their assets, grow their practice, manage their finances, and enhance their credibility. It is important for professionals to carefully consider their individual circumstances, consult with legal and financial advisors, and weigh the pros and cons of forming a professional corporation before making a decision. With the right planning and support, a professional corporation can be a valuable tool for success in today’s competitive business environment.

Conclusion

In forming a professional corporation in Virginia, having someone to help you build it is not necessary but suggestible. Even though it is easy because of the listed benefits and advantages above, forming your group of professional individuals will make it somehow successful. Just make sure to be guided by the steps and ensure that every one of the details and records is accurate and precise. And if you have any questions, share them in the comment section below.

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