The economy of Virginia is driven by small businesses. The drivers of this economy are the nearly 800,000 small businesses that employ 1.6 million residents of the Commonwealth. The number of small businesses is expected to grow in the future, according to data from the US Census Bureau. In 2022, there were 127,000 applications for small business registrations, a 5.7 percent growth rate year-on-year.
Virginia is among the states with the fastest rates of business startups on the east coast. The state creates a conducive business environment because of the low cost of doing business, robust access to capital for entrepreneurs, comparably lower cost of living, and an overall vibrant economy.
Although Virginia is receptive, small business owners who wish to start a new business in the state must make a series of accurate decisions and take important steps to ensure their business meets legal standards. Using accurate information will make starting a business in Virginia uncomplicated, especially for entrepreneurs who wish to DIY without necessarily hiring an attorney or business professionals in the early stages.
Virginia Economic Trends
- Virginia is the 13th-largest economy in the United States.
- The state has a Gross Domestic Product (GDP) of 654.5 billion (as of 2022) and an average per capita income of $68,000.
- Small businesses make up 99.5 percent of all businesses in Virginia.
- Small businesses received over $10.6 billion dollars in loans in 2020, according to the Small Business Administration.
- Small business exporters accounted for 30.9 percent (4.8 billion dollars) of the state’s total exports in 2020, according to data from the Census Bureau.
The process for starting a business in Virginia can be summarized in the following steps:
- Step 1: Performing Market Research
- Step 2: Drawing up a Business Plan
- Step 3: Acquiring a Business License or Permit
- Step 4: Securing Funding
- Step 5: Choosing a Business Structure
- Step 6: Choosing a Business Location
- Step 7: Meeting the Legal Requirements of the State
Step 1: What Kind of Business Should I Start in Virginia?
Virginia’s economy relies on the following five major sectors:
- Government agencies and government-related enterprises
- Small businesses (Sole proprietorships)
- Technology services
- Agriculture and related enterprises
- Real estate.
Government agencies and government-related enterprises directly employ over 714,000 residents of Virginia. These include military and law enforcement personnel, as well as civilians. Meanwhile, some 650,000 sole proprietorships operate in the state. Corporations are not lagging behind, either, employing over 500,000 residents in tech-related jobs and nearly 200,000 residents in tourism. Although Virginia is not primarily an agrarian economy, it employs over 350,000 persons, and nearly a third of the land is used for farmland.
There are many opportunities in the aforementioned sectors. An intending business owner who wishes to find their niche in the profitable sector of Virginia’s economy must do market research. Specifically, individuals must identify service gaps at the local and state levels to run a successful business and expand in the future. The SBA provides free and low-cost resources intending entrepreneurs may use to find business advice applicable to their locale.
How to do Market Research in Virginia
Market research helps founders identify product and service gaps and create a viable business that fills those gaps. It also helps prospective business owners evaluate how their business idea fits into the economic trend in the state. Entrepreneurs performing market research in Virginia must find answers to the following questions:
- Why start that specific business? (Is it a matter of pursuing interests or monetizing skills?)
- What is the viability of that product or service at the local level and scale? (This involves evaluating the pros and cons of starting that business in a particular location.)
- What business structure is best fit for the business idea (e.g., sole proprietorship, general or limited partnership)
- What business model is appropriate to use (e.g., affiliate, subscription-based, or franchise model)
- How will the business be financed in the beginning and at scale?
- How much time is available to commit to the business?
- Will the business need a physical space, or is it feasible to start at home or on the Internet?
Step 2: How to Write a Business Plan
A business plan is a blueprint for how founders intend to start, operate, and scale their business. Although having a business plan is not necessary before launching, it can make the difference between a successful business and a flop.
Founders who have a business plan can compare expectations and realities down the road and make adjustments where necessary. A web search will provide several templates and guides for creating and developing a business plan. In this way, a good business plan must contain the following:
- Executive Summary
- Product or Service Description
- Market Analysis
- Competition Analysis
- Production and marketing plan
- Organizational and Management Plan
- Financial Plan and Business Projections
- Risk Analysis.
While the structure and content of some parts of the business plan are standard or require little modification of the template used, others will depend on the nature of the business. Specifically, the format of the business plan will depend on whether the founder wishes to use a traditional or lean business plan.
Generally, traditional business plans are detailed and best suited for founders going into partnerships, creating a large business, or planning to seek investment from third parties. Conversely, lean business plans are for self-starters, entrepreneurs looking to start a small business and launch their products or services to the market as soon as possible.
Step 3: Do I Need a Business License in Virginia
More often than not, businesses in Virginia will need one or more licenses. Generally, an entrepreneur must obtain a license or business permit if the nature of their business requires it. Business licenses serve as a form of identification for businesses, ensure that the products or services are safe to use, and are used to track the business for tax purposes.
For example, starting or operating a trucking business, investment or finance-related company, or manufacturing consumable products would require a federal, state, or municipal license. In some cases, many business owners would need more than one license.
The agency handling the licensing will depend on the nature of the business. Generally, professional associations handle member licensing. In some cases, such as businesses producing alcoholic beverages, dedicated government agencies handle licensing. The Virginia government provides additional information on the kind of license required based on the nature of the business venture. Similarly, the SBA provides additional information on obtaining federal and state business licenses.
How Much Does a Business License Cost in Virginia?
It depends. The state of Virginia does not have a general business license. Instead, the cost of obtaining a business license will depend on the nature of the business, the licensing body, as well as the location of the business.
On average, the cost of obtaining starter licenses or certifications in Virginia can be as low as $15.00 or even free, or as high as thousands of dollars. Furthermore, business licenses have set validity. A small business owner must renew their licenses upon expiration to be in good standing with the laws regulating businesses in the state. While some licensing agencies charge for renewal, others may renew members’ licenses for free. It all depends on the nature of the business, the location, and the licensing body.
How to Register for a Sellers Permit in Virginia
A seller’s permit, also known as a sales tax permit, authorizes business owners in the state to sell products and services. The agency in charge of this permit is the Department of Taxation. To obtain a sellers permit, business owners must complete a business registration online or complete the business registration form (R-1). The form contains instructions as well as requirements applicants must meet. Application for the sellers permit is free. Intending business owners may reach the Department via:
Virginia Department of Taxation
P.O. Box 1114
Richmond, VA 23218-1114
Phone: (804) 367-8037
Fax: (804) 367-2603.
Step 4: How Much Does it Cost to Start a Business in Virginia?
Independent sourced estimate that the cost of starting a business in Virginia ranges from $15 to $3000. This amount may be lower or higher depending on the type of business, its structure, location of operation, and business size.
For instance, starting a sole proprietorship will be significantly less than starting a corporation. Many sole proprietorship businesses do not require large spaces to start, but corporations typically do. In the same vein, starting manufacturing businesses that rely on raw materials and machinery will cost more than a dropshipping business.
Entrepreneurs estimating the cost of starting their business must consider the following factors:
- Market research (especially if outsourced to a business consultant)
- Location (including the cost of leasing an office or factory space or making a website)
- Inventory (of all the raw materials needed)
- Licenses and permits
- Equipment and supplies
- Advertising and marketing
How to Self-Fund a Business in Virginia
The act of self-funding a business, aka bootstrapping, typically applies to small businesses that require low startup capital. Of course, founders with deeper pockets or lines of credit may also bootstrap their business.
Bootstrapping is ideal for small-scale businesses that require minimal start-up capital. As the business grows, however, and the founder wishes to scale their business, funding from third-party sources will be needed.
Generally, business owners who intend to bootstrap their business must consider the status of their personal finance, including savings, liquid assets, and credit history. Furthermore, they must look for means to save on start-up costs: usually by using free tools provided by the government and non-profit organizations.
How to Find Investors in Virginia
Investors are individuals with money, expertise, or network to support the financial and non-financial aspects of a business. In most cases, however, entrepreneurs seek investors who are willing to write a cheque for liquid cash.
To find and pique the interest of an investor, business owners must have a traditional business plan and a pitch deck. A pitch deck is a summary of the business plan as well as a value proposition to potential investors. This document helps founders connect with and hold the interest of potential investors in a highly competitive market.
Armed with a business plan and pitch deck, founders typically begin the search for potential investors on online platforms like AngelList, Crunchbase, and Gust. It is also possible to find investors within the circle of friends and family, especially for business owners who have bootstrapped their businesses thus far. Applying to business incubators and attending networking events are also potential ways to find investors in Virginia.
How to Get a Loan to Start a Business in Virginia
Loans are temporary capital injections that help businesses solve short or long-term financial obligations. Founders typically get business loans from family, friends, banks, credit card companies, or even the government.
The Small Business Association (SBA) is one of such sources of government-backed business loans. The SBA offers three loan programs, depending on the amount needed and the purpose of getting the loan. Of these, SBA microloans are best suited for entrepreneurs who need financial support to start their ventures. However, the amount is capped at $50,000.00. The requirement for obtaining this loan will depend on the microlender as well as the business structure.
Banks also extend loans to new and veteran business entrepreneurs in Virginia. The application process and requirements to get a loan will depend on the bank. Furthermore, banks charge interest on the principal amount loaned over the loan tenor. The interest rate on a bank loan is determined by the bank’s perceived risk of the business. As such, demonstrating a viable business is crucial to a successful application and obtaining favorable loan terms.
Similar to banks, credit unions also offer loans to self-starters. For instance, the Virginia Credit Union offers business loans to persons who want to start a business in Virginia. In addition to completing an application, a borrower may need to provide a business plan, business credit score, and personal credit history, as well as a loan proposal.
In any way, organizations that provide business loans typically require the following documents from applicants:
- Proof of ownership
- Proof of registration
- Employer identification number (EIN)
- Tax returns
- Lease agreements
- Personal/Business Account Statements
- Tax returns
- Proof of insurance
How to Find Virginia Business Grants
A business grant is money awarded to a business that the owner does not have to repay. This financial support can be a lifeline to entrepreneurs who want to start or expand their businesses. Most grants come from the government, but it is also possible to get grants from private organizations.
The state government provides a list of business grants for interested business owners in Virginia. Likewise, the Office of the Secretary of the Commonwealth maintains a list of grants that business owners may apply for. Some of these include:
- Hazard Mitigation Grant Program
- Flood Mitigation Assistance
- Alcohol Education & Prevention Grants
- Nonprofit Security Grant Program
- Community Services Block Grant (CSBG)
- FedEx Small Business Grant
- Prospera Small Business Grant.
Can I Start a Business with No Money in Virginia?
It is possible to start a small business if, for example, the business owner is offering a skills-based service or makes products from materials they already possess. However, money will be required as the demand for the product or service increases or the business owner wishes to scale their business. In these cases, funding may come from personal savings, cash gifts from loved ones, grants, or loans.
Step 5: Choosing a Business Structure in Virginia
According to data from the SBA, sole proprietorships are the most common business structures in Virginia. Besides this, founders have the option to choose to structure their businesses as a partnership, corporation, or limited liability company.
Generally, the business structure an entrepreneur chooses to operate will depend on the estimated size of the business. Furthermore, the individual will need to consider factors like taxes and if they wish to take on personal liability for the business’ expenses, debts, and legal suits.
Sole-proprietorships are typically single-owner, one-employee businesses. Entrepreneurs typically choose this business structure when they are just starting out, bootstrapping their finances, or launching a small business. As such, a sole proprietorship is best for freelancers, small bakers, hobbyists, and indie ventures. While this structure is simple and agile, it exposes the owner to liability. The business owner is directly responsible for all business debts, expenses, and legal actions that may arise against the business. Furthermore, the continuity of the business is typically tied to the owner’s lifespan.
Partnerships in Virginia can either be general partnerships or limited partnerships. The fundamental difference between both is in how the owners designate the handling of day-to-day operations and the partners’ exposure to liabilities.
In general partnerships, two or more entrepreneurs pool resources to start and operate a business. The partners directly and equally share expenses, profit, and liability. Conversely, in limited partnerships, there is a general partner who handles daily operations and one or more limited partners who contribute to the financial aspect of the business. Limited partners avoid liability entirely but do not have control of the business. Indie ventures, law firms, and startups are common businesses with this structure.
In the corporation business structure, the founders and the venture are regarded as separate entities. In this form of business, the business owners are shareholders protected from personal liability for business debts.
Corporations are of two types: S corporations and C corporations. The distinction between the two types lies in how profit is taxed. In S corporations, shareholders are responsible for paying the taxes on profits instead of the corporation. Conversely, in C corporations, the business pays an income tax on its profits, and shareholders pay taxes on their dividends.
Virginia also classifies corporations as stock or non-stock corporations based on profit goals. Stock corporations are profit-generating businesses, while non-stock corporations are typically non-profit organizations.
Limited Liability Companies (LLCs)
LLCs have the characteristics of corporations and partnerships. For one, the business is a separate entity from the business owners. Unlike partnerships, the owners in LLCs have some control over business operations but are, generally speaking, not personally liable for the business’s financial or legal liability. LLCs are similar to S corporations in how they are taxed. This structure is suitable for single-member businesses, family-run businesses, and even partnerships.
How to Start a Sole Proprietorship in Virginia
Sole proprietorships are one-owner businesses where the business owner is the founder and sole employee. To start a sole proprietorship, the main element is meeting local registration requirements for compliance and taxation purposes. The owner may also choose a business name and launch the business in the meantime, provided they don’t break state or local regulations. The size and structure of sole proprietorships mean that the business finances and personal finances are mixed. The owner pays state and federal income tax as they would normally would if employed elsewhere.
How to Start a Corporation in Virginia
A corporation is a business operating as a separate legal entity from its owners or shareholders. As such, the owners and shareholders are not personally liable for the business’s financial or legal liabilities.
As a separate legal entity, corporations have the legal rights and responsibilities ascribed to individuals. A corporation can make contracts, get loans, hire employees, pay taxes, sue, and be sued.
Generally, to start a corporation in Virginia:
- The shareholders or business owners must first choose a unique business name and trademark. Corporation names end with “Inc.”
- The shareholders must select or employ a registered agent, usually an attorney, who accepts and mails paperwork on the corporation’s behalf.
- The shareholders must draft and file an Article of Incorporation with the State Corporation Commission. The Article of Incorporation must contain important information like the business name and location, as well as a description of public and private shares and bylaws.
- The applicant must also pay the applicable charter fee as well as the filing fee depending on the type of corporation.
How to Start an LLC in Virginia
Limited liability companies offer the same liability protection as corporations and are typically used by sole proprietors and partnerships for that reason. LLCs let business owners and partners protect their personal assets from business losses, debts, and legal actions.
Generally, to start an LLC in Virginia, the founders must:
- Choose a business name and trademark.
- Hire a registered agent to receive and handle paperwork relevant to the company.
- File an Article of Incorporation with the State Corporate Commission.
- Obtain an employer identification number (EIN) from the Internal Revenue Service. Sole proprietors operating as LLCs do not need to get EINs unless they wish to be taxed as corporations.
- Set up a business bank account and finance structure.
- Obtain the relevant business licenses and permits needed to operate in their chosen location.
How to Start a Business Partnership in Virginia
There are three types of business partnerships: general partnerships, limited partnerships, and limited liability partnerships (LLPs). In all three types, there’s usually a general partner who controls daily business operations and limited partners who mainly contribute to funding the business. The limited partner will also have responsibilities ascribed to them per the partnership agreement.
To form a limited partnership in Virginia, the partners must register with the SCC. General partnerships in Virginia do not have to register with the SCC, but the business owners may file partnership statements with the SCC online or submit a Statement of Partnership Authority (Form UPA-93).
How to Start a Nonprofit in Virginia
Nonprofits are organizations that primarily exist to further social causes and public benefits and are generally exempt from paying taxes. Non-profits in Virginia register as non-stock corporations with the SCC. Generally, starting a nonprofit in Virginia involves six steps:
- Develop the organization’s mission, goals, and bylaws: Nonprofits advocate or support a social cause or public benefit. At this stage, the founder must outline the organization’s purpose and objectives. In addition, the founder must also develop rules and procedures governing the actions of its officers.
- Find a funding source: Funding for nonprofits typically comes from donations, grants, and sponsorships from patrons. While securing funding sources, it is also important to have bank accounts dedicated to the organization. In addition, having accounting systems that foster transparency can bolster sponsors’ confidence in the organization.
- Assemble a board of directors: Florida nonprofits must have a board of directors with at least 3 members.
- File Articles of Incorporation: This step is required to register and legalize the nonprofit. Here, the founder must submit an online application with the SCC or complete the Articles of Incorporation (Form SCC 819).
- Apply for an EIN: Although nonprofits are tax-exempt, the organization must still pay its officers and, as such, requires an employer identification number (EIN). The IRS provides instructions for applying for an EIN online.
- Apply for Tax-Exempt Status: Even after completing the above steps, nonprofits are not exempted from paying taxes by default. To become a tax-exempt organization, the founder must apply for 501(c)(3) status with the IRS. At the state level, the nonprofit must apply for sales tax exemption.
Step 6: Choosing a Business Location
The location of a business can be a deciding factor between a successful launch and failure, especially in the early stages. Hence, founders must consider the appropriateness of a location for their short and long-term business objectives.
For example, a manufacturing business that relies on locally-sourced materials should be near the sources of raw materials to reduce the overall burden of shipping. Similarly, a mom-and-pop shop should be located close to residential areas or places with high foot traffic while considering local crime rates.
Besides closeness to resources and safety, founders must also consider local ordinances regulating how they may operate in their chosen location. For example, certain cities prevent residents from establishing certain businesses near school zones. Similarly, local ordinances and homeowner association rules may restrict the kind of business residents can run from home.
What Kind of Business Can I Run From Home in Virginia?
Virginia laws allow residents to run businesses from home. However, business owners must follow local regulations for running a business in a residential area. Generally, home-run businesses must comply with local zoning ordinances, association rules, and lease agreements. Freelance creative works, arts and crafts, recruiting agencies, pet daycare, dropshipping, consulting, and online tutoring are some businesses Virginia residents can run from home.
How Do I Start A Small Business From Home in Virginia
Virginia residents who intend to start a business from home must:
- Confirm that they are legally allowed to run their business from home.
- Choose a business name and register it with the SCC if the business structure requires it. For example, sole proprietorships do not need to be registered with the SCC. However, LLSs and Corporations must be registered.
- Obtain a business license or permit, especially if the nature of the business mandates it.
- Set up the business finances, such as bank accounts and accounting systems.
Starting a Business Online in Virginia
Online businesses are businesses that primarily exist on the Internet. In this type of business, the owner sells their products and services via a website or social media. Online businesses are attractive to new entrepreneurs because they are convenient, can be automated, and it is possible to streamline the supply chain. These factors also make it attractive to existing businesses looking to diversify or expand.
Even though a business exists online, residents must still comply with municipal, state, and federal laws. For example, the owner must register the business and obtain a permit if necessary. Furthermore, they must register the website address, i.e., get a domain name and hosting. Online businesses set up on corporate marketplaces or social media platforms do not require special domain names or hosting. However, they must create accounts for accepting and processing customer orders.
Meanwhile, governments and the platforms that support online businesses have restrictions on what merchants may sell online. For instance, individual sellers may not sell prescription drugs, scheduled drugs, items that promote hate or are provocative, and recalled items, among others. Even among authorized merchants for restricted items, there is strict regulation.
Step 7: Legal Requirements for Starting a Business in Virginia
Generally, new and existing Virginia businesses must comply with municipal, state, and federal laws that protect consumers. The legal requirements for starting a business in Virginia will depend on the type of business. These requirements include:
- Choosing and registering a business name
- Obtaining a license
- Setting up the business in an approved location or zone
- Operating up to health, safety, and insurance codes
- Meeting employment and labor law requirements
- Following advertising, promotion, and solicitation standards
- Filing state and federal tax registrations
- Setting up a payment & accounting system.
- Obtaining business insurance including general liability insurance, commercial property insurance, professional liability insurance, and business interruption insurance.
How to Get an EIN Number in Virginia
The Employer Identification Number (EIN) is a unique nine-digit number assigned by the IRS to businesses located in the US for tax purposes. It is also known as a Federal Tax Identification Number. The IRS provides three options for business owners to obtain an EIN: online, fax, or mail-in application.
Generally, before applying for an EIN, the business owner must first possess a valid Tax Identification Number (TIN), such as a Social Security Number or an Individual Taxpayer Identification Number. Then, they may apply, choosing the most convenient option. In fax and mail-in applications, the applicant must download and complete Form SS-4. Then, they must submit the application:
Internal Revenue Service
ATTN: FIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
How to Get a Virginia Registered Agent
A registered agent is an individual or business that handles legal documents and notices on behalf of a company. Virginia laws require corporations, limited liability companies (LLCs), and limited partnerships (LPs) to have registered agents. In some cases, and provided they meet the requirements, business owners may act as their own registered agents.
Business owners generally hire registered agents for privacy, convenience, and lower opportunity cost. An online search for “registered agents in Virginia” will provide a list of accredited agents. Business owners may also use registered agents recommended to them by family, friends, attorneys, or business consultants. The cost of hiring a business agent is between $35 and $300 per year.
Patents, Trademarks, and Copyrights in Virginia
A patent is a legal protection given to new innovations and intellectual property. Once filed, a patent prevents other people from using an individual’s invention for a specific number of years from the date of filing—usually 20 years. The U.S. Patent and Trademark Office in Virginia is in charge of issuing patents under the Patent Act, Title 35 of the US Code.
Interested persons may file a patent by contacting patent attorneys and agents in Virginia or visiting the Patent and Trademark Resource Centers (PTRCs) for Virginia.
Federal Circuit Bar Association National Clearinghouse
1620 Street NW, Suite 801
Washington, DC 20006
Phone: (202) 466-3923
Fax: (202) 833-1061
American University, Washington College of Law (patents and trademarks)
4300 Nebraska Ave Northwest
Washington DC 20016
Phone: (202) 274-4000
Howard University School of Law
2900 Van Ness Street Northwest
Washington, D.C. 20008
Phone: (202) 806-8000
Email: firstname.lastname@example.org (patents)
Email: email@example.com ((trademarks)
Liberty University School of Law (trademarks – preference to central and southern Virginia)
1971 University Boulevard
Lynchburg, VA 24515
Phone: (434) 592-5300
University of Richmond School of Law (trademarks)
203 Richmond Way
University of Richmond, VA 23173
Phone: (804) 289-8740
On the other hand, a copyright is a legal protection that grants authors of creative work exclusive rights to that work. Third parties may not reproduce, distribute, perform, display, or create derivative works of copyrighted work without permission throughout the life of the author, plus 70 years. This protection is codified in Title 17 of the US Code.
Meanwhile, trademarks are words, phrases, symbols, or designs that distinguish a brand, individual, or business. Trademarks are registered with the United States Patent and Trademark Office under the Federal Lanham Act and the Virginia State Corporation Commission under the Virginia Trademark and Service Mark Act.
Requests for patents and trademarks go to the United States Patent and Trademark Office. Applicants may conduct a patent/trademark search on the USPTO database to ensure the invention is eligible for patenting before applying on the USPTO’s Electronic Filing System. The cost of obtaining a patent varies with the type of patent and the applicant’s business status (large entity, small entity, or micro entity).
Are Business Records Public in Virginia?
Yes. Virginia business records are publicly available per the Virginia Freedom of Information Act. As such, interested persons may obtain copies of business records from the record custodian. The SCC is the custodian for business records in Virginia.
Note, however, that although business records are presumed publicly available, documents containing certain information are restricted from public access. Generally, records containing sensitive information, such as social security numbers, financial information, private contact information, trade secrets, and intellectual property, are not available to the public. In cases where these documents are made available, the sensitive details contained therein are generally redacted.