Forming an LLC in Vermont
A Limited Liability Company (LLC) is a business entity that many small businesses choose as a way to organize themselves when they are just getting started. An LLC has a few advantages for small businesses but may not be appropriate for larger ventures or startups that are seeking investors. In addition, LLCs have a unique business structure that can get very technical.
You should look closely at other business entities like partnerships and S Corporations before you start an LLC.
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Advantages of LLCs:
- Limited personal liability for members for business debts and lawsuits.
- Fewer reporting and recordkeeping requirements than other kinds of entities, including corporations.
- Avoiding the double taxation—business and personal—of corporations if taxed as a pass-through entity.
Disadvantages of LLCs:
- An LLC is not a good investment vehicle for outside investors.
- LLCs and corporations pay commercial activity taxes, unlike sole proprietorships and partnerships.
- LLC owners may pay self-employment taxes.
Any LLC that wants to do business in Vermont must obtain a Certificate of Authority from the Secretary of State. There is a $125 filing fee.
A foreign LLC must appoint a registered agent (with a physical Vermont address) for service of process purposes.
Low-Profit Limited Liability Company
Vermont recognizes the low-profit LLC (L3C) which is a variation on the LLC. This version is a type of business that is only available to for-profit entities whose main purpose is to achieve a socially beneficial objective if it satisfies Vermont's legal requirements.
Professional LLCs (PLCs), are structured for professional offices like lawyers, doctors, accountants, etc. Every member of the PLC, and no fewer than half of any managers appointed, must be licensed in the company's profession under Vermont law.
Step-By-Step: Forming a Vermont Limited Liability Company
With all of that, you have decided to form an LLC in Vermont. You have your members, your business plan, and a little startup capital, and you are on your way.
Here is a step-by-step guide for how to create a fully operational Vermont LLC.
Step I: Name Your LLC
Creating a legally proper LLC name and then protecting it is one of the first actions in LLC formation. This is a process that can be complex and time-consuming. Finding the right name is necessary to the LLC can legally operate as a Vermont business.
Your LLC has to have a name. Vermont law requires that the business name be unique and different from any other company's name.
So your first task will be to search the Secretary of State Corporations Division business search page to make sure that your chosen name isn't already used for an existing business
The name you decide on must contain the one of suffixes “limited liability company": L.L.C."; “LLC"; or "L3C" if the entity is organized as a low-profit limited liability company. The name cannot contain any other business entity indication, like “Co.", “Corp.", or any variation of “cooperative."
Step II: Appoint a Registered Agent
The State of Vermont requires an LLC to appoint a registered agent for service of process before formally filing with the state. A registered agent is designated to receive process (legal documents) on behalf of the LLC. A Vermont registered agent can be an individual or a company (domestic or foreign), but it must have a physical Vermont street address. A forming LLC will often choose a professional registered agent service or may choose the company lawyer.
Step III: Legally Protect Your Business Name
Next, make sure that no one else can use it in business or on the internet. This means that you have to make sure that no one else is using that name. You do this by doing a name search to make sure that the Internet Domain Name is available. If it is available, grab it immediately (that will only cost a few dollars).
If you want to do business nationally, or you want to operate in several other states, you should trademark the nonprofit's name with the United States Patent and Trademark Office (USPTO). This process takes some time and money. The name is still protected as a common law trademark while that application is pending.
Once you receive your federal trademark, apply to the Vermont Secretary of State to register it as a Vermont Trademark or service mark. You may also trademark the name with just the state, without a federal trademark.
Now that Vermont LLC name is yours, you can keep anyone else from using it, and it conforms to Vermont law.
Step IV: Structure the Business
An LLC has a particular, unique business structure.
To begin with, the stakeholders of an LLC are called “members." There is no stock issued, so they cannot be “stockholders." This is the primary reason that an LLC is not a good investment vehicle for either the founders or potential investors.
There is no number of members required. You can have a single-member LLC.
Secondly, an LLC should be governed by an “Operating Agreement." This is similar to but different from “bylaws," “charters," or other forms of corporate organization. Vermont does not require an Operating Agreement, but most LLCs will have one.
The LLC operating agreement is a private business formation contract among the members/business owners. It is not filed with the state, but it is an important part of forming an LLC. It should include the following points, according to the Small Business Administration:
- Percentage of members' ownership
- Voting rights and responsibilities
- Powers and duties of members and managers
- Distribution of profits and loses
- Holding meetings
- Buyout and buy-sell rules (procedures for transferring interest or in the event of a death)
An LLC may be managed by the members, or it may hire an outside manager. You will indicate which you have chosen on your registration application.
Step V: Write and File Your Articles of Organization With the State
First, before you file your organizational papers with the state, you must create a user account with the Vermont Secretary of State, Corporations Division.
You are now ready to compose and register your LLC as your business registration with the Vermont Secretary of State Business Services Division.
Foreign LLCs cannot use this form. They must register separately, as noted above.
Your LLC Articles of Organization documents must contain the following information:
- The name and physical address of the LLC;
- The name and address of the LLC's registered agent;
- The purpose of the LLC;
- Statement regarding the duration of the LLC;
- The structure of the LLC: (manager-managed or member-managed);
- Names/addresses of the initial managers or initial members; and
- $125 filing fee.
After You File Your Articles of Organization
You will have numerous state and federal requirements for your new LLC after you file with the state.
State Business Licenses
Certain kinds of businesses (professionals, liquor businesses, etc.) must be licensed with the State of Vermont. In addition, there may be local business licensing requirements.
State Employer Filing Requirements
Your LLC will be subject to state rules if it has employees—even if the employees are also members. All new employees must be registered with the Vermont Department of Labor within 10 days of starting the job. That page will also link to your requirements for Workers' Compensation Insurance and Unemployment Insurance.
Register for Your Business Tax Account
After you have registered your new LLC, you will have the option to register for a business tax account with the Vermont Department of Taxes. This process also generates your Vermont tax identification number. Most businesses will need to do this. All Vermont tax activities for your business will be handled through this account, including income tax, sales tax, use taxes, etc.
You will be subject to both state taxes and federal income taxes. This is a job for your accountant, but here is a brief outline of your tax obligations.
LLC tax can be determined in one of two ways, and the choice will be up to you. The LLC can be a pass-through organization, in which case each member is taxed individually. Or it can be taxed as a corporation.
Taxes and Employees
You will be subject to both federal withholding tax if you have employees and, of course, to business income taxation.
You must file to receive an IRS Federal tax Employer Identification Number (FEIN) on the Internal Revenue Service website if you will have employees. You must also apply for your FEIN if the LLC has more than one member. You will be subject to all withholding rules.
In addition, because of the structure of an LLC (versus a corporation), you will be paying federal self-employment income taxes, unless you choose to be taxed as a corporation. LLCs also have very specific requirements for filing taxes. If you choose to be taxed as a pass-through organization, then the individual members file individual taxes.
Annual Reporting Requirement
After you have formed your Vermont LLC, you must file an annual report as part of the maintenance of the LLC. The report must be filed each year on the anniversary month of the LLC's formation.
Want Help Forming a Vermont LLC?
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