Virtual Limited Liability Company

This article is an in-dept study of the meaning, essential features and need of virtual limited liability company. This article also studies the pros and cons of a virtual limited liability company.
Estimated Reading Time: 8 minutes

Introduction

Virtual Limited Liability Company (VLLC) is that which allows the formation of a Limited Liability Company without obtaining any physical address and without obtaining physical presence of the founders or partners. This concept came from Vermont the only US state that allows a Virtual Limited Liability Company to operate. Establishing a VLLC would benefit one to have minimal reporting requirements, but still tax must be paid for the state of Vermont in which the company is allowed to operate. In addition to it, it would not allow one to avoid registration and taxation in your home state where one is operating.

The first preference for most of the individuals is their home state as it is the best choice of where one can form LLC.

Illustration: Assuming you have an intention to operate your business and continue to live in the state where you currently live then you are required to register with your home state and pay tax to your home state no matter which other state you form your LLC in. But if you are just intended to have an LLC in a state that is not your home state, then there are other states that actually offer more favourable tax and or reporting requirements of a company than Vermont, including Wyoming, Nevada, Delaware, or Texas.

A person who formed virtual limited liability company or a VLLC is a type of legal entity which will not require a physical presence or in-person board meetings. This type of entity enjoys certain advantages such as the royalty of virtual office instead of having a real office.

As it is clear that Virtual Limited Liability Company does not require a physical presence or in-person board meetings. This type of company is first originated and legalised in Vermont, USA in 2008.

Current situation of VLLC

In 2010 the Icelandic Modern Media Initiative began drafting legislation based on the Vermont law which would allow virtual companies in Iceland. The project, which was started by MP Birgitta Jónsdóttir (chairman), information activist Smári McCarthy and others was later succeed Vermont Limited Liability Company Act.

The Vermont Limited Liability Company Act is legalised only under Vermont State of US which governs businesses who want to be a Limited liability company in the state.

It explains the duties of an LLC and how to form a new business in Vermont.

Steps to Form a Vermont LLC under Vermont US

  1. Choose your LLC name, which must be distinguishable from other businesses already on file. It must contain either “LLC” or “Limited Liability Company,” or “L.L.C.,” “Ltd.” at the end of the name.
  2. File articles of organization, which is the motive of creating your Limited Liability Company. These applications can be filed online or sent through mail. It will ask for specific information like address, purpose, what is your statement of fiscal year will be, whether it is managed by member or by manager.
  3. Appoint a registered agent, which is required under the Vermont Limited Liability Company Act.
  4. Create your operating agreement, which sets forth the LLC’s guidelines, duties, responsibilities, etc.
  5. Verify you comply with regulatory and tax requirements.
  6. Obtain a Federal EIN number, which is required if the LLC has more than one member, even if there are no employees. Single member LLCs must get an EIN only if it will have employees or you opt to be taxed as a corporation.
  7. Obtain any other required business licenses as required in the state and/or your local jurisdiction.
  8. Check with the Department of Taxes to verify whether you need to register your business.
  9. File your annual report. This is due within three months from the end of your LLC’s fiscal year. There is a fee of $35 for Vermont LLCs and $140 for LLCs registered in a foreign state.[1]

Advantages of a Vermont LLC

There are numerous advantages to VLLC which are governed by Vermont LLC Act:

  1. Members under the act have a freedom which is given by contract to create members of both the classes that is voting and non- voting classes, in addition to that share of profits can be customized, losses can also be customized and contribution in capital can be made on the terms agreed. 
  2. There is no requirement to file member’s names, as the Act allows for a business or legal entity to be the “person” who forms the LLC.
  3. LLCs have unlimited life in Vermont this means it has perpetual succession as a feature, unless there is a section in the articles of organization which limits the LLC’s duration.
  4. Duties of each member can be given by the agreed terms, the working of VLLC is flexible. You can prohibit members from transferring their interest in the LLC agreement.
  5. Creditors only have passive rights instead of having a right of control if a creditor obtains a charging order

Disadvantages of VLCC

  1. There will be more chance of fraudulent cases where the name of members is not even required.
  2. The financial assistance to such companies will not be provided with such pace as given to only LLC’s.
  3. The competition faced by VLCC from other companies will be unfair as they do not have same facilities.

Virtual Limited Liability Companies functioning

Virtual LLCs are those which do not have a physical address and it does not require a physical presence of its founders or partners. Vermont first legalized these in 2008.

You would have minimal reporting requirements in Vermont with a VLLC of your own, but there would still be some tax exposure which is to be paid. If you intend to live and operate your business in whatever state you reside, you are still required to pay tax in your home state, regardless of what state your LLC is formed in.

Contents of a Vermont LLC Operating Agreement

To draft agreement of VLCC, there are some basic requirements which has to be fulfilled:

  1. Basic Identifying Information to show the identity of the members so that fraud activities can be minimized.
  2. Date on which the agreement is made and names of the parties under the agreement.
  3. The name of the company distinguished from others and under which the LLC will be conducting their business.
  4. Purpose and motive of the LLC
  5. Principal office
  6. Registered agent who is the mediator
  7. When the LLC will start and details regarding termination date, if any.

How additional members are added

Through Capital Contributions which are made and initial contributions. No interest has to be allowed on capital contributions unless expressly provided in the operating agreement which is drafted at the time of registering VLLC.

Allocation of Profits and Losses

The procedure to determine the profit and losses

One way of deciding the profit and losses is to through the Time intervals for distributions which has to be agreed. No right for members to demand the return of their capital unless expressly noted in the agreement

Indemnification- compensation for harm or loss

An indemnification clause is important to include in your operating agreement notice if a member wants to transfer interest

Virtual Office

The virtual office rental provides facilities in the form of leasing business addresses to be listed as company domicile and correspondence address, without the rent of office space such as rent in general. Virtual office was originally known as a serviced office.

Virtual office is more intended as a business presence or shows the existence of a business. In the virtual office service, there is no space that is dedicated to being used all the time, but it needs to do a loan again or booking to use the virtual office provider space. This also depends on the availability of space or space in the office centre and its limited time to use. This again returns to the main objective of the virtual office that provides users with a prestigious address to show the identity of a business, and not as a form of office space rental in general. Virtual office users usually use this service for the needs of administrative addresses and numbers that can actually be contacted without actually renting a room in the office.

For entrepreneurs who have high mobility in doing their jobs, then renting an office is not a major requirement. But because of the administrative requirements for the establishment of a business entity, a business needs to have a business address. Virtual office is an option for these entrepreneurs. This virtual office can be used for administrative purposes while at the same time providing business credibility because it seems to have an office. In addition, a virtual office that is actually a rental business address is not a problem when employers or companies work anywhere and anytime because the virtual office also provides flexibility in doing work.

Technological developments increasingly provide ease of communication and offer efficiency, which is important for those who run businesses. Because it is supported by technological sophistication, there is flexibility in running a business, resulting in a virtual office. The virtual office phenomenon shows that business activities begin to rarely use offices as a place to run their business. The main objective of a virtual office is to provide users with a prestigious address to show the identity of a business, and not as a form of office space rental in general. Virtual office is intended as a business presence or shows the existence of a business, generally used by start-up companies. Virtual office is one way that can be used as an effort to legalize its business in the establishment of a Limited Liability Company.[2]

Example:

A company which is incorporated as Virtual Limited Liability Company can be formed in the state where it is legalised to operate, and the tax must be paid to such state only. There are no famous companies which comes under VLLC. As, this concept is new and is still emerging. Not every state and country has recognised this concept. Therefore, it is not known to many people and is an infamous type of a company. There is only a slight difference between LLC and Virtual limited liability company that the VLCC does not require any physical office and neither the board of directors has to be present physically unless this all the features are same as of LLC. VLLC provide more flexibility and take less financial requirement or loans or investment.

The topic and initiation of this form of company is still ongoing and will accepted by many other countries in the coming era of time with the needs of having such kind of company or availability of such kind of company.

Conclusion

In conclusion the virtual limited liability companies are those which does not have any physical office. It is beneficial for the modern world which are growing with the start-ups which have less financial assistance and have less resources. These can be registered as similarly the LLC are registered and have features relating to the liability, membership, voting rights, taxation, credibility, investment and name. Thus, it is a better way to promote the economy.


[1] www.upcounsel.com

[2] The role of virtual office to support start-up in Indonesia by Milla Sepliana Setyowati1 Racha Arif Luthf and Adang Hendrawan

Most Read Articles

Hey there!

come here often?

Login To Come In