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Whether you prefer hiking in the mountains or spelunking in one of West Virginia’s cave systems, you can insulate your personal assets from the liabilities of your small business by forming a West Virginia LLC.
4 SIMPLE STEPS TO FORM A WEST VIRGINIA LLC
- 1) Name
The name of a West Virginia LLC is subject to two statutory requirements. It must both be distinguishable from every other current business entity name on record in West Virginia, and it must include “limited liability company,” “limited company,” “LLC,” “L.L.C.,” “L.C.,” or “LC.”
- 2) Formation
To form a West Virginia LLC, an organizer files articles of organization with the Secretary of State and pays a $100 fee. The articles of organization must include the LLC name, if the LLC will have a specified term of existence, the address of the initial West Virginia office (if any) and the principal office, the name and address of the registered agent, if the company is managed by managers and a list of their names and addresses if so, the name and address of each organizer and member with authority to execute documents, the purpose of the LLC, and an email address to receive notices from the state.
- 3) Operating Agreement
West Virginia operating agreements, which regulate the membership relationship and the conduct of the LLC, do not need to be written. However, we recommend that they are written and executed by all members in order to minimize conflicts.
- 4) EIN and Annual Report
EIN: Federal tax returns filed by employees or members in a multi-member LLC will require an Employer Identification Number from the LLC. This can be found by requesting one from the I.R.S. or asking an incorporation service to do so.
Annual Report: West Virginia LLCs must file an annual report every year with the Secretary of State. This report must include the address of the designated West Virginia office and principal office, if any, the name and address of the registered agent, the names and addresses of managers and members with authority to execute documents, and an email address to receive state notices in addition to a $25 fee.
WHY FORM AN LLC IN WEST VIRGINIA?
The Benefits and Advantages of Creating a West Virginia LLC
West Virginia Has a Growing Economy
Each year, West Virginia forms over 4,000 new LLCs. West Virginia has over 21,000 active LLCs. The U.S. Chamber of Commerce ranks West Virginia eighth for short-term job growth.
- Advantages of Forming a West Virginia LLC
The West Virginia LLC Act gives members contractual freedom to create voting and non-voting classes of membership and to customize their capital contributions and shares of profits and losses. The ability to create voting and non-voting classes of membership facilitates everything from complex, multi-million dollar business deals to succession planning in family businesses and estate planning by gifts of non-voting interests. The ability to specify a method for allocating profits and losses in an LLC agreement that is greater or lesser than a member’s portion of capital contributions gives members contractual flexibility to tailor their income and risks of loss to further their big-picture asset management plans.
The Act provides for an LLC’s unlimited life. A West Virginia LLC may have an “at-will” duration. An LLC’s existence can therefore outlive its members’ lifetimes.
Dealing with Business Partners
The West Virginia LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties. Section 31B-4-409 has default rules that members and managers owe limited fiduciary duties of care and loyalty. The duty of care requires members and managers to refrain from “engaging in grossly negligent or reckless conduct, intentional misconduct or a knowing violation of law.” The duty of loyalty requires members and managers to not compete with the LLC or take a business opportunity away from the LLC, not deal with the LLC in a manner adverse to it or on behalf of parties who have an interest that is adverse to it, and act as a trustee of the LLC’s property.
But the Act gives members and managers contractual freedom to vary the default rules. Section 31B-1-103 provides that an LLC agreement may “identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable.” In addition, it contains a “safe harbor” provision for “interested” transactions, which are transactions between an LLC and one or more of its members or managers. It provides that an LLC agreement may “[s]pecify the number or percentage of members or disinterested managers that may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.”
Preventing Unwanted Business Partners
The West Virginia LLC Act allows members to protect their control of an LLC. An LLC agreement may prohibit members from transferring their distributional interests. But if an LLC agreement does not prohibit it, a transfer does not dissolve the LLC or entitle the transferee to participate in management or to become a member. Instead, the transferee may receive only the distributions to which the transferor would have been entitled, and the non-transferring members must unanimously consent to the transferee becoming a member.
Creditors Only Get Passive Rights, Not Control Rights
Section 31B-5-504 provides that if a judgment creditor of a member obtains a charging order against the member’s distributional interest, the charging order is only a lien on the interest. The judgment creditor has only the right to receive distributions which would otherwise be paid to the member. The judgment creditor does not have a right to participate in management. A court may foreclose on the lien and order the member’s distributional interest to be sold, but a purchaser at the foreclosure sale obtains only the distributional interest and does not become a member. Section 31B-5-504 is the judgment creditor’s exclusive remedy.
Furthermore, section 31B-6-601 states that a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors, becomes a debtor in bankruptcy, or fails to contest a petition seeking the appointment of a trustee, receiver, or liquidator over his or her property. These events are considered “events of dissociation.”
- West Virginia Registered Agent
A West Virginia LLC must continuously maintain an agent for service of process in the state. A commercial registered agent service may act as a West Virginia registered agent.
Because of the advantages of forming an LLC in West Virginia, over 4,000 new LLCs are formed in the state each year.
Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in West Virginia. What are the advantages of a Delaware LLC? (Delaware LLC Advantages). We can then help you file an application for registration to do business in West Virginia with your Delaware LLC (Form Delaware LLC).
- West Virginia LLC Act Statutory References
§ 31B-1-101 “Definitions” § 31B-1-103 “Effect of Operating Agreement; Nonwaivable Provisions” § 31B-1-108 “Designated Office and Agent for Service of Process” § 31B-2-202 “Organization” § 31B-2-203 “Articles of Organization” § 31B-2-211 “Annual Report for Secretary of State” § 31B-4-404 “Management of Limited Liability Company” § 31B-4-405 “Sharing of and Right to Distributions” § 31B-4-409 “General Standards of Member’s and Manager’s Conduct” § 31B-5-502 “Transfer of Distributional Interest” § 31B-5-503 “Rights of Transferee” § 31B-5-504 “Rights of Creditor” § 31B-6-601 “Events Causing Member’s Dissociation” § 31B-10-1002 “Application for Certificate of Authority”
West Virginia vs. Delaware LLC's: Which State Is Better?
|States||LLC Filing Fee||Required to Name Members or Managers||Report Frequency||Annual Fee?||Reduce Fiduciary Duties?||Series?||Charging Order as Exclusive Remedy||Maximum Freedom of Contract||Separate Equity Court?|