One of the nice benefits of an LLC in Virginia is that you have many choices for how you will be taxed by the IRS.  The choices available to you will depend on whether you’re a single-member LLC or a multiple member LLC. 

If you are a single-member LLC, the default tax status is as a sole proprietor.  This means that if you do nothing else, the IRS will disregard your LLC for tax purposes.  If you choose, however, you may elect to be taxed as either a C corp or an S corp.  An S corp may be beneficial for you because you can avoid some wage taxes on distributions.  in order to elect to be taxed as a C corp or a S corp, please keep in mind that you will need to file an additional form with the IRS.  That form, form 2553, can be found on the IRS website (opens as a PDF).

If you are a multi-member LLC, the default tax status is as a partnership.  This means that if you do nothing else, the IRS will disregard your LLC for tax purposes, and the owners will be taxed on their proportion of income and losses in relation to their ownership share.  If you choose, however, you may elect to be taxed as either a C corp or a S corp.

You should check with your CPA for more information on which tax status would be most beneficial for you.

I form a lot of Virginia limited liability companies and Virginia corporations for clients.  When deciding what entity to operate a business under, one of the first questions is "what is the difference between a Virginia corporation and a Virginia LLC?"  Here are my top five differences between the two:

1. Cost: to form a Virginia corporation, the filing fee paid to the State Corporation Commission starts at $75.00 and the annual renewal fee starts at $100.00 (both depending on the number of authorized shares of the corporation.  For a Virginia LLC, the filing fee paid to the Virginia SCC is higher - a flat $100.00 - but the annual renewal fee is $50.00, less than a corporation.  So, in the long run, a LLC pays less in filing fees.
2. Flexibility:  LLC’s are less rigid in their structure than corporations, so you have more flexibility in adapting the LLC to your unique business.  The Operating Agreement of a LLC (which you should definitely have if you are a LLC) can be structured in a limitless amount of ways.
3. Annual Reports: Required for a corporation, not required for a LLC.  Less paperwork = good thing.
4. Formality:  A corporation is a formal entity with officers and directors (at least one of each) required.  A LLC, on the other hand, can be "member managed" and run in a less formal way.  For small, start-up businesses, less formality means you can focus on making money rather than administrative work.
5. Tax Benefits:  LLC’s have more options as to how they are taxed.  Corporationc can choose between taxation as a C corp or S corp (if they qualify) while a LLC can decide to be taxed as a  sole proprietorship (if single owner) or partnership (multiple owners), C corp, or S corp.  You can also switch your tax status as a LLC once every sixty months.  More choices are usually better than less.

Those are my top five differences. I’m sure others out there might have additional differences.  Just keep in mind that the major benefit of corporations and LLC’s are the same (assuming you formed your corporation or LLC correctly) - limited liability for the owners.