Incorporator The Journal of U.S. Formation
Start Free Quiz
Editorial 9 MIN READ

West Virginia in September 2019: the $100 door and the $25 renewal

A cheap formation, a franchise tax that died in 2015, and a state that wants operators more than it wants holding entities

The Editors
Staff, Incorporator.org
9 min read Updated
Contents 7 sections
  1. The mechanics
  2. What West Virginia repealed, and why it matters
  3. Maintenance is where the money you save shows up
  4. The registered-agent question
  5. The Uniform LLC Act, briefly
  6. Who West Virginia actually makes sense for
  7. Sources

West Virginia LLC costs $100 to form and $25 a year to keep. The Business Franchise Tax that used to sit on top of that number has been gone since tax year 2015, which is the part most founders who last looked at this state a decade ago still have wrong.

This is a guide for someone forming in September 2019, written for people who already know why an LLC and are trying to work out whether this particular state is the right envelope. It is not a pitch for West Virginia, and it will say so where the answer is to form somewhere else.

The mechanics

You file Articles of Organization with the Secretary of State's Business and Licensing Division. The form is Form LLD-1. The statutory filing fee is $100, fixed by W. Va. Code § 59-1-2a and collected at the counter, by mail, or through the state's One Stop Business Portal at business4.wv.gov. Veteran-owned organizations get the $100 fee waived for the first four years under a 2015 statutory add-on, provided the applicant files the veteran affidavit with the articles.

The articles themselves are short. You name the LLC (the name must include "Limited Liability Company," "LLC," "L.L.C.," or a permitted variant, per W. Va. Code § 31B-1-105), you give a street address for the designated office, and you name an agent for service of process with a West Virginia street address. You declare whether the LLC is member-managed or manager-managed, and whether it is at-will or for a definite term. You sign. That is the whole filing.

Turnaround through the portal is typically two business days at the standard fee. Expedited processing is available at published tiers: $25 for 24-hour service, $250 for two-hour, $500 for one-hour. The $25 tier is the one most filers actually use; the others exist for closing-day emergencies and are priced accordingly.

After the articles are accepted, you will want an EIN from the IRS, which Form SS-4 produces online in the time it takes to finish a cup of coffee. You will want an operating agreement, which West Virginia does not require you to file and in fact never sees, but which § 31B-1-103 of the Uniform Limited Liability Company Act treats as the governing document for most internal questions. And you will register for any tax accounts the business actually needs through the same One Stop portal, which hands you off to the State Tax Department for withholding, sales and use, and (if applicable) severance.

What West Virginia repealed, and why it matters

For a long time, the sticker price of a West Virginia LLC was a bad number to quote without an asterisk, because the state charged a Business Franchise Tax on top of income tax. The BFT was a tax on the capital of a business entity, graded by a rate that phased down over a decade from 0.75% to 0.1%. For holding companies with large book equity and modest operations, it was the kind of tax that made people form somewhere else and foreign-qualify in only where they had to.

Senate Bill 411, passed in the 2015 regular session, completed the phase-down and repealed the tax. For tax years beginning on or after January 1, 2015, there is no Business Franchise Tax return to file and no BFT to pay. The repeal removed the single biggest historical reason not to form here. If you are reading older advice that warns about the BFT, the advice is out of date; check the year the article was written.

The flip side is that West Virginia's remaining tax burden on an operating LLC is a function of the state's individual and corporate income regimes, which are not especially cheap. For 2019, the individual income tax is graduated from 3% to 6.5%, with the top bracket reached at $60,000 of taxable income. The corporate net income tax, which applies to any LLC that elects C-corp treatment or does business in the state through a corporate parent, is a flat 6.5%. A single-member LLC treated as a disregarded entity pays individual rates on the member's share; a multi-member LLC taxed as a partnership passes through to members on Form IT-141 or directly through Schedule K-1, depending on the election.

The practical point: the formation and annual-report math is cheap, and the ongoing tax math is ordinary. Neither is a reason in itself to pick West Virginia, and neither is a reason to avoid it if the business actually operates here.

Maintenance is where the money you save shows up

Every West Virginia LLC files an annual report with the Secretary of State. The fee is $25, fixed by W. Va. Code § 59-1-2a, and the report is due by July 1 of each year following the calendar year of formation. If you form on September 3, 2019, your first annual report is due by July 1, 2020. The report is a short confirmation of the LLC's address, its agent, and its principal-office information; it is filed through the One Stop portal and accepted instantly on payment.

Miss July 1 and the Secretary of State assesses a $50 late fee on top of the $25 report fee. Continued non-filing leads to administrative dissolution, which the state will do without drama after a notice period under W. Va. Code § 31B-8-809. Reinstatement is available, at the cost of filing all delinquent reports plus penalties, so the failure mode is recoverable but embarrassing.

Put the numbers side by side and the ongoing cost of a West Virginia LLC is plain. You pay $25 a year to the Secretary of State. You pay your registered-agent renewal, which at commodity commercial providers runs roughly $50 to $125 a year. If the business has no West Virginia operations and you elected S-corp treatment, that is close to the entire state-level maintenance bill. For comparison, Delaware collects $300 a year from the same LLC even if it did nothing, and California collects $800 a year minimum under R&TC § 17941 even if it lost money. The difference compounds across years in a way that matters for small holding structures and doesn't matter at all for any business that generates meaningful profits.

The registered-agent question

Every West Virginia LLC needs an agent for service of process with a West Virginia street address, under W. Va. Code § 31B-1-108. A post office box does not qualify. Members and managers can serve as their own agent if they live in the state; otherwise the agent is a commercial provider.

The market for commercial agents in West Virginia is competitive but thinner than the market for Delaware agents. National providers (Northwest Registered Agent, CT Corporation, CSC, Registered Agents Inc., InCorp) all cover the state at their standard national pricing, which in 2019 runs roughly $100 to $300 a year depending on tier. Local specialists sit a little below. If this is a first filing and the business has no in-state contacts yet, pay something in the middle of the range; the agent is the piece of the structure most likely to catch a registered letter you otherwise wouldn't have known about, and the difference between a good agent and a cheap one shows up the one time it matters.

The Uniform LLC Act, briefly

West Virginia adopted the 1996 version of the Uniform Limited Liability Company Act in 1996 and recodified it as Chapter 31B of the West Virginia Code. The practical consequence for a founder is that the governing statute looks a lot like the statutes of the other Uniform-Act states (Alabama, Hawaii, Idaho, Montana, South Carolina, Vermont): default fiduciary duties between members, written operating agreements permitted to vary most defaults, judicial dissolution available for deadlock and oppression. This matters if you care about the case-law ecosystem; it does not give West Virginia its own Chancery Court, and the state's business-dispute docket runs through circuit courts the way most states' do.

The Uniform-Act pedigree does mean that a well-drafted operating agreement written for a West Virginia LLC will read almost identically to one written for a Hawaii or Alabama LLC. If your lawyer has a template keyed to the RULLCA or the 1996 ULLCA, it will port with minimal changes. The parts you cannot vary by agreement, listed at W. Va. Code § 31B-1-103(b), are the usual ten or so limits on waiving duty of loyalty, unreasonably reducing duty of care, and restricting access to records.

Who West Virginia actually makes sense for

Three categories of filer belong here.

The first is any business that physically operates in West Virginia. If your crew is in Morgantown, your office is in Charleston, or your mineral interests are in Logan County, you will form here regardless of what any Delaware-first blog post claims, because foreign-qualifying a Delaware LLC into West Virginia costs $150 upfront and $25 a year under the same statute, and gets you nothing except an extra annual filing and an extra registered-agent contract. Forming at home is cheaper and simpler, and the Delaware premium buys nothing a pure operating business in West Virginia needs.

The second is anyone with a stake in the state's energy and extractive economy. West Virginia sits on the Marcellus and Utica shale plays across its northern and central counties, and the royalty, lease-holding, surface-rights, and gathering-pipeline LLCs that attach to those plays are almost always formed in-state because the land, the recording, and the severance-tax accounts are all here. For an out-of-state investor, the correct structure is usually a Delaware or home-state holding entity that owns a West Virginia operating LLC, with the split chosen for tax and governance reasons rather than for formation-fee savings.

The third is a small business whose owner values a low-friction annual compliance calendar and does not need anything from a specialty jurisdiction. The $25 annual report is among the cheapest in the country. The July 1 deadline is easy to remember. The Secretary of State's portal works.

The businesses that should not form here are holding companies with no West Virginia operations, venture-backed startups whose investors will require Delaware at the Series A, and anyone who expects to litigate a governance question for which Delaware case law is the national reference. The tax burden on an ordinary operating LLC is middle-of-the-pack; if the business is going to be taxed as a pass-through and the members live elsewhere, the state's individual rates bite through the pass-through in a way that a no-income-tax state would not.

For the founder forming this week and running a local operating business, file Form LLD-1 through the One Stop portal, pay the $100 and move on, and set a calendar reminder for July 1 of next year. For the founder with a cap table that will see institutional money in the next eighteen months, do not start here even if you live here; the conversion to Delaware after a term sheet lands is more expensive and more irritating than the extra $200 a year of running a Delaware entity with a West Virginia foreign qualification on top.

The last thing worth saying about the state is that the repeal of the Business Franchise Tax was the quiet change that made the formation math legible again. For twenty years the right answer to "should I form a holding company in West Virginia" was no, mostly because of a tax that no longer exists. The answer is still no for most holding companies, but it is no for ordinary operational reasons now, and that is a healthier place for the conversation to sit.

Sources

Keep reading

More from the journal.