WHAT YOU NEED TO KNOW ABOUT STARTING A BUSINESS IN THE CITY OF RICHMOND, VIRGINIA
www.ci.richmond.va.us

There are certain procedures that need be followed when starting a business. While there are many steps you need to follow in starting a business, this brochure gives you an easy-to-understand, brief overview of starting a business in the City of Richmond. It is NOT intended for use without the involvement of or discussion with your Certified Public Accountant and attorney and your other important financial advisors. The forms and deadlines discussed here incur substantial penalties if not timely filed. Always consult professional advisors before starting any business venture. The use of this brochure without their substantial input could be hazardous to your wealth.

THE BUSINESS ENTITY

Perhaps one of the most important steps is choosing the type of entity structure for your business. This should be among the first decisions, as it will determine how you will keep your records and how you will be taxed.

Sole Proprietorship: A sole proprietorship is a type of business entity which is unincorporated and consists of one person, who pays tax on all income and is personally liable for all losses and liabilities.

Partnership: A partnership is an entity formed by two or more persons contributing abilities, money, and other assets. In a general partnership, the partners are liable for all debts. Each partner pays tax on his or her share of the income.

Corporation: A corporation is a separate legal entity from its owners. The three main characteristics of a corporation are 1) limited liability, owners can only lose their investment in the corporation, 2) easy transfer of ownership through the sale of stock and, 3) continuity of existence. A corporation can be either an "S" corporation or a "C" corporation. An S corporation has fewer than 75 stockholders and income tax is paid once, at the individual level. If a corporation is not an S corporation, it is a C corporation. A C corporation, on the other hand, is taxed at the corporate level and stockholders are also taxed on any dividends taken by shareholders.

Limited Liability Company: The limited liability company (LLC) income tax is paid by the partners, not the company. With an LLC, the personal liability of its owners is more limited and, unlike an S corporation, an LLC can have more than 75 stockholders, which may be corporations and foreigners.

SOME COMMON FEDERAL AND STATE FORMS

• Form SS-4 is used to obtain a Federal Employer Identification Number (EIN) and is filed with the Internal Revenue Service.

• Certificate of Assumed Name needs to be filed with the Clerk of the Circuit Court in the city or county in which your business is located if it will have a name other than the legal business name.

• Articles of Incorporation and a charter fee need to be filed with the State Corporation Commission.

• Articles of Organization and a filing fee need to be filed with the State Corporation Commission.

• Form VEC-FC-27 needs to be filed with the Virginia Employment Commission if your business is subject to unemployment tax.

• Form R-1 needs to be filed with the Virginia Department of Taxation if corporate income tax, sales tax, employer withholding tax or any other state tax applies to the operation of the business.

• Form 2553 needs to be filed with the IRS by the 75th day of an S corporation’s existence.

WHAT FORMS DO YOU NEED?

Sole Proprietorship

Form SS-4, if you have at least one employee; sole proprietorships are not required to file with the State Corporation Commission or with the Clerk of the Circuit Court, unless you need to file a Certificate of Assumed Name; Form VEC-FC-27 and Form R-1, if applicable

Partnership

Form SS-4; a partnership also must file Articles of Partnership with the Clerk of the Circuit Court where the business will be located; and, if applicable, Certificate of Assumed Name; Form VEC-FC-27 and Form R-1

Corporation

Form SS-4; Articles of Incorporation; Form R-1 and if applicable, Certificate of Assumed Name, VEC-FC-27, and Form 2553 (If "S" status elected)

Limited Liability Company

Form SS-4; Articles of Organization; and if applicable, Certificate of Assumed Name; Form R-1 and Form VEC-FC-27

APPLICATION FOR A LOCAL BUSINESS LICENSE

If your business will operate in the City of Richmond, you should start with the Tax Assessment Division. You must first file a Certificate of Zoning Compliance. Costing $40, this process takes between one and five days. Then, if your business operates under a tradename, you must register the name at the John Marshall Courts Building for a fee of $10. Finally, you can file for a business license, for a fee of $40. The Tax Assessment Division will mail you these forms if you would like.

The tax liability will be based on either a flat rate or an amount per $100 plus a $30 fee, depending on the type of business and a filing fee. Usually, the total tax owed is calculated based on a business’ gross receipts or gross purchases (for a wholesale merchant) from the previous year. Persons starting new businesses will need to estimate gross receipts or purchases for the year. There are basic classifications of business types which are not subject to a flat rate of tax. Some of the most common classifications, in order of tax rate, from highest to lowest are, professional service, personal service, repair, restaurant, retail merchant,and contractor. The flat rates also vary by business classification. It is acceptable for a business to have more than one business license, for segments of the business, which would be subject to various tax rates. Business licenses expire on December 31 and you must renew them annually. For renewals only, the first half of the tax is due March 1 and the second, June 15. For all new business licenses and flat rates, the tax must be paid in full within 30 days of beginning business.

Additionally, you might also want to contact other state agencies, such as the Alcoholic Beverage Control Board, Department of Health, Department of Housing and Community Development, Virginia Department of Occupational Regulation, Department of Labor and Industry, and some other departments which may have other requirements for your particular type of business.

BUSINESS PERSONAL PROPERTY TAX

You must also file, by May 1, a City of Richmond Return of Business Tangible Personal Property. On the form you will list all furniture, equipment, tools, office machines, signs, and other property used in the operation of your business. The tax due is based on the purchase cost of the property and the time you have owned it. You not only pay tax In the year you purchase property, but for each year it remains in use. Manufacturers in Richmond are exempt from having business licenses, but must still pay business personal property tax on all machinery and tools.

OTHER LOCAL TAXES

Your business may also be subject to some other local taxes, depending upon the nature of the business. Some other taxes include a lodging tax, a meals tax, and an admissions tax.

WHAT IS THIS PLACE CALLED RICHMOND?

The Richmond area was first explored by the Jamestown settlers May 27, 1607 and by 1634 it had a population of 419. It was named for its resemblance to Richmond, on the Thames in England. It became a city in 1782, just three years after being named the capital of Virginia.

The City of Richmond actively promotes businesses to locate in the city through its Office of Economic Development. The office has information available about two programs: 1) Enterprise Zone, for tax benefits, and 2) Bank Participation Loan Program, for help in financing small businesses. The Enterprise Zone gives tax benefits to qualifying businesses who hire a percentage of low-income employees and who operate within a certain area. The loan program helps people, who meet the qualifications, acquire a loan for their small business.

IMPORTANT PHONE NUMBERS

INTERNAL REVENUE SERVICE

1-800-829-1040

FOR FEDERAL TAX FORMS

1-800-829-3676

VIRGINIA DEPARTMENT OF TAXATION (Richmond District Office)

(804) 367-8037

STATE CORPORATION COMMISSION

(804) 371-9733

VIRGINIA EMPLOYMENT COMMISSION

(804) 786-7159

BUSINESS LICENSE

646-5690

ZONING COMPLIANCE

646-6340

TAX ASSESSMENT DIVISION

(804) 646-5690

CLERK OF THE CIRCUIT COURT

(804) 646-6530

OFFICE OF ECONOMIC DEVELOPMENT

(804) 646-5633