Congratulations on making the choice to establish a business; it is an exciting step forward. You've most likely already begun thinking about the business structure for your new company, or how to restructure your current company, and making that choice is not always an easy one.
I'll go through the fundamentals of what a Vermont Limited Liability Company (LLC) is and why it may be the best business structure for you.
(If you want to skip to the “How to Form an LLC” section, click here.)
What Is a Vermont LLC?
A Vermont LLC is a Limited Liability Company formed in the state of Vermont that is governed by the laws, regulations, and statutes of the state of Vermont.
Why Choose an LLC?
Many business owners choose to form an LLC in Vermont instead of an alternative business structure, such as a sole proprietorship or a corporation, for the following reasons:
1. Limited Liability and Asset Protection
The first and most important reason why many business owners prefer to establish a Vermont Limited Liability Company (LLC) rather than a different business entity is personal liability protection.
The formation of an LLC in Vermont provides the business owner with limited liability as well as personal asset protection. An LLC creates a barrier between you and your business liabilities and debts, so that LLC owners' personal assets and finances will not be listed as sources of financial recompense in the event of a bankruptcy or litigation against their firm.
When you consider that the last few years have shown that even the most well-prepared and successful business may be devastated by unexpected circumstances, it's easy to see why so many business owners value the personal asset protection that comes with establishing an LLC in Vermont.
The capacity to protect your privacy and keep sensitive information off the public record is the second major benefit of choosing to form an LLC.
Hackers, scammers, and other types of fraudsters have grown more sophisticated over time. Even the most basic information about you may be used by cybercriminals to steal your identity in today's technology-dependent society. Often, individuals are completely unaware that they have been victimized until criminals have amassed thousands of dollars in debt in their names.
When you start a business with a structure other than an LLC, such as a sole proprietorship, your personal information will be included in the public record, making information such as your name, address, and phone number readily accessible online without any kind of security.
In the case of a Limited Liability Company, however, you have additional choices.
You can hire an LLC formation service to assist you with forming and filing all your LLC paperwork. The Vermont Secretary of State will register their information, rather than yours, with the state, enabling your personal information to stay off the public record and safe from those who might abuse it.
My top two recommendations for an LLC formation service are Northwest Registered Agent and ZenBusiness.
The last reason that many Vermont company owners opt to establish LLCs is the tax flexibility that LLCs provide.
Limited Liability Companies have a default tax status of “pass-through entity” which exempts them from most federal taxes. Other types of business structures, such as corporations, may not always possess the same benefits.
If you choose a corporation as your business entity, you will face what is known as double taxation.
Double taxation refers to the fact that corporations typically pay corporate income tax on their profits before they distribute them to shareholders as dividends. After receiving such dividends, shareholders must pay personal income tax on their already-taxed profit shares.
Because LLCs are pass-through entities, they are exempt from this double taxation. LLCs are not subject to federal income tax or corporate tax rates, and LLC members are only required to pay personal income tax on their profit shares.
To supplement the advantage of avoiding double taxation, the 2017 Tax Cuts and Jobs Act included a new tax benefit for Limited Liability Companies called the Qualified Business Income Deduction (QBID).
The Qualified Business Income Deduction (QBID) was established as part of the 2017 Tax Cuts and Jobs Act. QBID is a tax credit that enables Limited Liability Companies to save up to 20% on their taxes. Due to the fact that this discount is offered exclusively to Limited Liability Companies (LLCs), it is an excellent reason to consider forming an LLC in Vermont.
How to Start an LLC in Vermont
With a firm understanding of what a Vermont LLC is and why many company owners select this structure, you can make an educated choice about whether an LLC is the right structure for your organization. If you're still considering establishing an LLC, the following are the necessary procedures:
*IMPORTANT* If you need assistance navigating the complicated bureaucracy associated with forming a Vermont LLC, dealing with all the formation documents, and protecting your privacy, some types of businesses will complete the Vermont LLC formation procedure on your behalf.
They're called LLC formation services and they can help you establish a Vermont LLC for as little as $0 plus state filing costs (though my top-rated LLC formation service charges $39 per state per year plus state filing fees).
If you're seeking personalized assistance navigating layers of bureaucracy and safeguarding your personal information, check out my guide to the best LLC service.
1. Obtain Articles of Organization Form
The first step in establishing an LLC in Vermont is to get a copy of the Articles of Organization form from the Vermont Secretary of State.
This is the primary form you must submit to the Vermont Secretary of State Corporations Division in order to create your LLC. You may file online via the Vermont Secretary of State's State Business Services Division website, or by postal mail. To file by mail, visit the Business Services Division's website and choose that option.
The steps below correspond to the fields on the Vermont Limited Liability Company Articles of Organization form.
2. Choose Your Business Name
Following the acquisition of the Articles of Organization for your Vermont LLC, the next step is to choose a name for your business.
Unfortunately, you cannot just register the first company name that occurs to you.
Under Vermont Law, your LLC name must contain the words “Limited Liability Company” or “Limited Company” in its name, or the abbreviations “LLC,” “LC,” L.L.C.,” or L.C.” The terms “Limited” and “Company” may be abbreviated as “Ltd.” and “Co.” respectively. Your business may also use the abbreviation of “Ltd Liability Co.” Additionally, Vermont Law prohibits your LLC from using terms that refer to a government agency, such as “State Department” or “CIA.”
Furthermore, your LLC name must be distinct from the names of any other business entities registered with the Vermont Secretary of State's office. If you are uncertain whether a particular given name is available, you can consult the Vermont Secretary of State's business name database.
You may reserve a business name for 120 days by filing an Application to Reserve a Specified Business Name with the Vermont Secretary of State. Reservations may be filed by mail or online. To register via postal mail, you must complete the online method and select the mail filing option at the end. A filing fee of $20 is required for both options.
If you are dissatisfied with the LLC name you had to register for your Vermont LLC, you may use a trade name, DBA (“Doing Business As”) name, or fictional name on signs, advertising, and websites. You may register a trade name online or by mail with the Vermont Secretary of State. To register by mail, you must first complete the online registration process and then choose the mail filing option at the end. The filing cost is $50 for either option.
3. Choose a Vermont Registered Agent
Appointing a registered agent is the next step in the business formation process in Vermont. All Vermont LLCs must have a registered agent.
A registered agent is an individual or business entity that will act as the point of contact for your LLC, receive mail and legal documents, accept service of process during business hours, and safeguard your information by registering their name and address with the Vermont Secretary of State rather than yours.
When it comes to selecting a Vermont registered agent for your LLC, you have two options. You may act as registered agent for your company on your own or via a professional registered agent agency.
If you choose to serve as your LLC’s registered agent, it is important to understand that you will be legally required to receive mail, legal papers, and service of process during regular business hours on business days. This can complicate your business because the majority of Vermont LLCs work during regular business hours on business days and stretching oneself too thin by serving as registered agent/resident agent is not a smart idea.
If your Vermont Limited Liability Company fails to comply with a service of process, it may leave you defenseless against a default judgment. Additionally, failure to timely reply to a service of process may result in your LLC losing its “good standing” status with the Vermont Secretary of State, thereby barring you from doing business in the state.
Using a Vermont registered agent service rather than operating as your own registered agent reduces your energy input and considerably protects your information. Appointing a professional registered agent service ensures that you receive and are informed of any mail and service of process accepted on your behalf by the registered agent service. The sole disadvantage of using a registered agent service is that they charge between $99 and $299 for their business services each year.
Given the dangers associated with serving as your own registered agent in Vermont, the cost of hiring a registered agent service is fair. To save money, I often suggest that newly formed LLCs use a registered agent service rather than attempting to fulfill the registered agent function alone.
If you're interested in learning more about registered agent services, you can read my post about the best Vermont registered agent.
4. Choose Your LLC Address
Your Vermont LLC's business address is essential and must be included in your Vermont LLC's Articles of Organization. Vermont's Secretary of State requires that all LLCs and businesses register a primary business address, which is subsequently made public.
If you do not use a registered agent or an LLC formation service, your LLC must register their physical street address. If your company does not have an office or a physical address, you must register your home street address as your LLC's business address.
If you have retained the services of a registered agent, you are not required to give an address on the Vermont Articles of Organization. When you employ a registered agent, they will provide their address on the form, guaranteeing that no one else uses your personal information.
5. Sign and File Your Articles of Organization
Once you've gathered your LLC's formation papers and completed your Vermont Articles of Organization, it's time to submit them with the Vermont Secretary of State to establish your Vermont Limited Liability Company. Your LLC's Articles of Organization must include the following information:
- LLC name
- Type of LLC—regular LLC, professional LLC, or low-profit LLC
- LLC fiscal year end month (usually December)
- LLC purpose
- LLC street and mailing address
- Name, address, and email of the LLC's registered agent
- Whether the LLC has members at the time of filing
- Whether the LLC will be member-managed or manager-managed
- Names and addresses of the principal members or managers
- Name and address of the LLC's organizer
- Signature of the organizer
Your Vermont Articles of Organization may be filed by mail or online. Both options carry a filing fee of $125.
To file the Vermont LLC Articles of Organization by mail, select the mail filing option at the end of the online registration and then send the Articles to the address below:
Vermont Secretary of State
128 State Street
Montpelier, VT 05633-1104
Filing online is the preferred method and typically takes less than one business day. Mail-in filings can take 7–10 business days.
Other LLC Activities
Following the filing of your Vermont LLC formation papers, there are a few more steps to complete to ensure your Vermont LLC gets off to a good start.
Vermont Law requires that all domestic LLCs and any LLC authorized to operate within the state file an annual report with the Secretary of State. Your Vermont LLC annual report is due within three months of the end of your LLC's fiscal year. For example, if your LLC’s fiscal year follows the calendar year, your annual report is due between January 1st and March 31st. You may file an annual report online via the Vermont Secretary of State Corporations Division website. The Vermont annual report filing fee is $35 for domestic LLCs or $140 for a foreign LLC.
Your Vermont LLC may require specialized business licenses based on the location of your LLC and the kind of company you want to run. Prior to starting the process, contact the municipal or county clerk or other relevant government agency in the region where your LLC will operate to see whether any local business licenses are needed. To learn more about Vermont's business license requirements for Limited Liability Companies, please visit the Vermont Business Start-up Guide.
If your Vermont LLC will provide professional services, such as legal or accounting, you must follow the Professional Limited Liability Company or Professional LLC formation procedures. A Vermont PLLC is restricted to one professional service and all members must have the necessary business licenses and permits, or be registered with the state, in order to provide the licensed professional service for which the LLC was formed. As part of the LLC creation procedure, you may be asked to submit a copy of each LLC member's current business license or state registration.
If your Vermont LLC will be selling products, collecting sales tax, or employing people, you must register with the Vermont Department of Taxes (DOT). Even if your LLC will not be collecting sales taxes or employing anybody, you must register with the DOT for tax purposes. Online registration is accessible via the DOT's website at this link. Additionally, the Vermont Department of Taxation imposes a Business Entity Tax on LLCs. Generally, an LLC must pay a minimum of $250 under this particular tax. Depending on your preferred tax treatment, other Vermont state taxes may apply.
If your LLC is not based in Vermont and you want to expand into the state or if you are not a Vermont resident, you must complete the foreign LLC formation process. This procedure is similar to that for forming a domestic Limited Liability Company. The key distinction is that a foreign LLC must submit an Application for Certificate of Authority. Additionally, while filing the foreign LLC registration documents, you must provide a current Certificate of Good Standing or Legal Existence that is no more than 60 days old from your home state. Additionally, you must choose a registered agent with a physical address in the state of Vermont. You may file online or by mail; each option has a $300 filing fee.
If this is your first time filing an annual report or submitting an application for a business license, assistance is available from an expert. A Vermont professional employer organization (PEO) service may be able to help you submit your annual reports and other documents, and online legal services may also be available to assist you with further paperwork.
Vermont LLC Fee Summary
How much does it cost to form an LLC in Vermont? Whether or not you employ a service to form an LLC, you will pay certain fees and taxes. The following is a list of some of the costs associated with forming an LLC in Vermont:
Articles of Organization: $125
Name Reservation: $20
Registered Agent Fee: $99–$299
Annual Report: $35 domestic/$140 foreign
State Personal Income Tax: 3.35%–8.75%
State Corporate Income Tax: 6%–8.5%
After Starting Your Vermont LLC
Congratulations! You have established your LLC in Vermont by filing the Vermont LLC Articles of Organization! This is a big step so treat yourself to a beverage or glass of champagne, a long walk, or a stroll along a nearby beach, but refrain from being too relaxed. There is more work to be done before your LLC may begin operations.
Before you can consider the LLC formation process finished, you must complete three more procedures to guarantee the good standing of your LLC.
Step 1. Create an Operating Agreement
While Vermont LLCs are not required by law to create or adopt an LLC Operating Agreement, doing so is in your company's best interests.
Without an Operating Agreement, your LLC in Vermont will be governed exclusively by Vermont business law and LLC regulations, which may or may not be ideal for your business operations. By establishing an Operating Agreement, you may establish ownership and operating procedures that exceed what is required by state legislation, which often covers just the bare minimum.
*IMPORTANT* Before you begin writing your LLC’s Operating Agreement, you must first establish your LLC's management structure. A multimember LLC by default has a member-managed voting mechanism, while single-member LLCs often vest full authority in the owner. If you or any of your LLC members lack management expertise, a manager-managed structure is the best option. Under this structure, your LLC delegates authority to make high-level decisions to managers rather than making them yourself. If this management style is selected, it is essential to guarantee the competence and trustworthiness of each manager.
Operating Agreements provide rules and processes for the interaction of members, managers, and departments within your LLC, as well as their respective duties and obligations. Without an Operating Agreement, an LLC’s ability to operate is severely restricted.
Additionally, Operating Agreements serve as a contract between members, clearly outlining their respective roles and levels of authority. Poorly drafted Operating Agreements often include ambiguous or misleading language, resulting in disputes amongst LLC members and departments. A badly drafted Operating Agreement may also exclude processes for onboarding new members and allocating shares and duties in the event of a member's departure, thus restricting the development of your company.
To prevent these scenarios, ensure that your LLC Operating Agreement contains as many clear and comprehensive regulations as possible. A well-written LLC Operating Agreement should detail each LLC member, their profit and loss share, their duties and authority level, and how they should interact with your LLC's various divisions. If your LLC employs managers, the Operating Agreement should include standards and procedures outlining their power and duties. A well-written Operating Agreement with clear instructions and comprehensive operating procedures may help simplify your firm's everyday operations, allowing you to rest easy as your business develops.
If you are unfamiliar with the process of writing a Vermont LLC Operating Agreement, many LLC formation services provide help with the process as part of their service package. Consider subscribing to an online legal advice service if you need help with the wording. Additionally, Northwest Registered Agent provides a free Operating Agreement template on their website, which may be accessed by clicking here.
Step 2. Apply For an Employer Identification Number
To conduct some business operations, your Vermont LLC may be required to get a Federal Employer Identification Number (EIN) from the Internal Revenue Service (IRS). You’ll need an EIN if your LLC will collect sales tax or hire employees. However, you do not need to hire employees or collect sales tax in order to get an Employer Identification Number (EIN). You will need an EIN if you want to apply for further licenses and permissions for your company. Additionally, the EIN serves as your Vermont LLC's Federal Tax Identification Number.
Moreover, obtaining and using an EIN instead of your Social Security Number may assist with avoiding future identity theft. The Internal Revenue Service (IRS) may provide you with an EIN, and the process is simpler than you may believe.
If you employ a service to form an LLC, they will apply for an EIN on your behalf as part of their services. If you are starting your own business, you may apply for an EIN by visiting the IRS website between the hours of 10 a.m. and 7 p.m. and completing and submitting the application.
Step 3. Open a Business Bank Account
To establish your Vermont LLC successfully, you must establish a dedicated LLC bank account.
Many Vermont business owners overlook this step out of inexperience, but it is essential and you will be happy you did.
For many LLC and small business owners, having a single bank account for their personal and business activities simplifies and saves time. There are many reasons why opening a business bank account for your company may ensure smoother operations.
To begin with, it simplifies the federal and state tax filing processes. A common misconception among company owners who use their personal accounts for both personal and professional purposes is that they will be able to differentiate between personal and business expenses when filing their taxes. Federal tax returns are often submitted months after these transactions take place, significantly complicating the recall process. It is much simpler to open a business bank account than it is to keep a detailed ledger of every financial transaction.
If you conduct business activities for your Vermont LLC via your personal bank account, you run the risk of having your personal information and bank account funds used against you in court. By using your personal bank account to handle your LLC's money, you essentially negate the limited liability and asset protection provided by an LLC by blurring the line between your personal and company assets.
To summarize, opening a bank account for your LLC may streamline tax preparation while protecting your assets and personal information.
To open a bank account for your LLC in Vermont, you'll need a “bank kit.” A bank kit is a collection of paperwork that should include, but is not not limited to, your Vermont LLC's Articles of Organization, Operating Agreement, and EIN. Numerous LLC creation services include bank kits in their services, removing the need for you to gather this information on your own.
Congratulations on taking an important step for your business by establishing an LLC in Vermont!
If you’re interested in establishing your Vermont LLC without the help of LLC formation services, you should complete the following steps:
- Obtain the Articles of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
Creating a Vermont LLC takes hard work and may be daunting at times. There will be many forms to fill out, papers and applications to collect, prepare, and submit, an endless list of filing fees to pay, and a frightening ocean of red tape to traverse. If you take on this task, you will be astounded by the sense of accomplishment when it is completed.
Once again, congrats on establishing a Vermont LLC today and best wishes for your future business endeavors!