Corporate & Business Law
Establishing a business or corporation can be an extensive and complex process. There are multiple steps that entrepreneurs must undertake before opening their doors. Plans must be finalized, and capital raised. Even when that is done, there are multiple legal obstacles that stand in the way. The federal government, along with individual state governments, regulate all corporations. Federal law regulates different aspects of corporate law, including employee rights, environmental protection, taxes, securities, and other areas. State laws cover some of those items, along with some state-specific regulations.
When planning a new business or a corporation, owners will need lawyers who know the laws of Virginia. The Virginia Beach corporate and business lawyers at Anchor Legal Group, PLLC are here to assist clients through these difficult stages.
What are the Steps to Forming a Corporation in Virginia?
Launching a corporation in Virginia follows several steps, like those that exist in other states. However, there are some specific requirements that the commonwealth requires when forming a corporation. There are also steps to take that are a good practice to engage in. For instance, all potential businesses should familiarize themselves with the State Corporation Commission (SCC), which was established in 1902. It regulates several Virginia-based entities, including corporations, limited partnerships, and limited liability companies (LLC). The SCC also serves as a central filing office for those entities who need to file mandated documentation.
Once familiar with the SCC and its functions, entrepreneurs can start the process of establishing their new corporation. Before moving forward, it makes sense to consult with an experienced lawyer on the matter. The steps for launching a Virginia-based corporation are to:
- Choose a name: This goes beyond a creative decision as it must also be checked to ensure there are no legal prohibitions to it. While the name should be catchy and highlight the goal of the corporation, one should also check it with the SCC to ensure no one else is using it. Virginia law requires that all corporations contain one of the following terms: corporation, incorporated, company, or limited, or their abbreviations.
- Select a director: Virginia law requires that at least one person be named director, although the law sets no limitation on the age of that individual, nor does the law prohibit a non-Virginia resident from serving in that capacity or be a shareholder in the corporation.
- File articles of incorporation with Virginia: The SCC’s website contains a simple, fill-in-the blank form to fill out, which serves as the articles of incorporation. There is at least a $25 filing fee, along with a $50 charter fee for each 25,000 shares of stock authorized in the articles. If the initial amount of stock is less, the fee will be based on the fraction of shares offered.
- Create corporate by-laws: The commonwealth does not require that a corporation create any by-laws, however they are a good idea to establish a structure for how to conduct business. Generally, the by-laws should include the goal of the corporation and how it will run. It should also establish the number of directors a corporation will have and the process for going about electing or selecting those directors.
- Hold an organizational meeting: Holding an organizational meeting is a way to launch various aspects of the corporation. This is the time to elect directors, if they have not been established already; appoint corporate officers; issue stock; and adopt the by-laws. It is also the opportunity to handle general housekeeping activities, such as selecting a bank, deciding on a corporate seal, establishing the accounting or fiscal year, and deciding on a stock certificate form.
- Issue stock certificates: A stock signifies that a person owns a certain number of shares in a corporation. Keep track of the number of shares issued and who has them. Issuing stock can place a corporation under certain federal and state securities regulations. However, if the corporation issues less than 10 shares to people who are actively running the corporation, the entity is exempt from those regulations.
- Obtain a local license: Most local or city governments require some type of license or tax registration certificate to do business. One can obtain this from their county or city clerk’s office and the local chamber of commerce will have more information. The only exemptions to this license are those organizations that intend to practice journalism.
- Fulfill any tax regulations: At the federal level, an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) and a VEC (Virginia Employment Commission) account number needs to be obtained when hiring someone from the commonwealth. Whenever a business hires someone who lives in Virginia, it must inform the IRS, as well as the commonwealth.
- Open separate bank accounts: Keeping personal finances separate from business finances is a good idea.
The early stages of forming a corporation may seem like they are complicated and numerous. It is more reason why an experienced lawyer can help with the process.
How can a Lawyer Help My Corporation After It is Formed?
Despite the legal obligations one must meet in the early stages of forming a corporation, there are many aspects of running a corporation that still require legal assistance. For instance, every year the SEC will mail the corporation’s registered agent an Annual Assessment Packet. This packet will contain a pre-printed annual report form and a notice of an annual registration fee assessment.
While there is no filing fee, the registration fee will be based on the number of shares that the corporation has the authority to issue. As an example, a $100 registration fee would apply to those corporations that issue 5,000 or less shares. Virginia requires that certain documents be held at corporate headquarters. The commonwealth also requires that firms make certain annual financial statements available to shareholders upon request.
Do I Qualify as an S Corporation?
An S corporation is a smaller corporation that enjoys similar advantages to that of a C corporation. An S corporation, or S subchapter, meets certain requirements put out by the IRS. Even though they enjoy the benefits of a corporation, the IRS taxes them as a partnership. There are specific requirements that an S corporation must comply with to maintain its status, including:
- There cannot be any more than 100 shareholders.
- All shareholders must be individuals, estates, or certain trusts.
- All shareholders must be domestic.
- Corporations may have only one class of stock.
An S corporation does not have to pay any federal income tax, although it will pay a tax on certain capital gains and passive income. Instead, it will pass along any profits and losses to individual shareholders, who will pay taxes on those based on the individual tax rate of each shareholder. The only requirements to file as an S corporation are at the federal level. The commonwealth does not require a corporation to file anything to qualify for the designation.
How Does Virginia Treat Deceptive Trade Practices?
A deceptive trade practice is a deliberate act orchestrated by a corporation meant to purposefully mislead the consumer or public. The law that primarily regulates deceptive practices in Virginia is the Virginia Consumer Protection Act of 1977. The law bans false advertising and other actions that are designed to intentionally mislead a person. In the commonwealth, while Virginia officials can file a suit under this law, the commonwealth also allows individuals to file suit as well. The law lists about 50 different acts that it would consider to be a deceptive act. Some of those acts include:
- Misrepresenting that a product has a certain quantity or characteristic that is not accurate.
- Proposing to sell used, damaged, or tarnished products and putting them off as new.
- Using any type of deception, fraud, or false pretense during a business transaction.
- Selling a children’s product that has been recalled by the U.S. Consumer Product Safety Commission.
- Failing to disclose all the conditions of a return policy or a layaway plan.
Protecting a corporation from these charges will serve the overall health of a business. Maintain close supervision on the perception about the services offered to potential clients. It is a prudent move to have an experienced lawyer look over any marketing materials and other public communications to ensure that they do not run the risk of violating the Consumer Protection Act.
How can a Lawyer Help Me with My Employees?
Another aspect of running a corporation has to do with managing employees. In Virginia, there are certain requirements for benefits that an employer must offer. Some of it depends on how many employees one brings on. Along with the benefits offered, how a business treats employees is an aspect that must be carefully considered.
Employees want to be able to operate in a safe and comfortable environment. The laws are constantly in flux as to what constitutes a safe environment. Regardless, an employer must protect all employees. That means having a system in place should one lodge a complaint against another, as well as accommodating the needs of all employees, especially if they are disabled. Consulting with a knowledgeable lawyer can help one keep abreast of constantly changing employment laws.
What Other Types of Business Law Should I be Aware of?
There are multiple facets to running a business or corporation and they can get confusing and complicated. Among some of the areas to beware of include:
- Anti-trust laws: These laws encourage competition by preventing one company from growing too large. Like deceptive trade laws, an individual citizen can file a case claiming a violation of the anti-trust laws. If successful, the case may result in an injunction against the corporation.
- Contracts: When two parties enter into a business agreement to sell a product, part of the business, or establish a working relationship, the two sides will sign a contract that lays out the details of their working relationship and the conditions of said relationship. A lawyer can ensure that the deal is fair and equitable.
- Intellectual property: Developing new ideas, products, and techniques in the marketplace can be the source of a company’s success. Therefore, protecting the rights to those ingenuities becomes vastly important to the success of that company. It is important to protect one’s rights and know how to defend the ideas that originated within a company.
- Bankruptcy: Sometimes businesses take a wrong turn or hit a bit of bad luck. There are instances when a situation arises that is beyond their control that puts them on the brink of shutting down. There are options for companies that can protect their assets and prevent them from having to close. It is best to work with a lawyer to discuss various options to determine which one makes the most sense for a corporation.
- Taxes: All corporations must pay taxes, and in many cases, at higher levels than the actual employees. As a corporation, it is important to verify the taxes it is obligated to pay and their amount. The taxes many companies must pay include income tax on the profits of the company, along with sales tax on products and/or services, as well as any property tax owed for property that the company owns. Other taxes are self-employment taxes, employment or payroll tax, dividend taxes on corporate shareholders, and excise taxes on certain products a business might use.