Forming an LLC in Vermont
A limited liability company (LLC) is a favored business entity among entrepreneurs. The LLC business structure protects personal assets like a corporation and provides tax treatment like a sole-proprietorship or partnership to avoid double taxation. Whether you use a professional service or start an LLC on your own, it's best to understand the LLC formation process and Vermont law.
Steps to Form an LLC in Vermont
Name Your LLC
Choosing the name of your LLC is a critical first step to starting your business. Your name is your brand identity. Be as creative as you want. However, your LLC business name must conform to specific Vermont requirements.
The name of a limited liability company must use one of the following designators:
- Limited liability company
- Limited company
You can abbreviate the words "limited" and "company" to "Ltd." and "Co." However, if you are forming a professional LLC or a low-profit LLC, there are different designators:
- A professional LLC must have "professional" with one of the above designators or the abbreviation "PLC."
- A low-profit LLC must end with the designator "L3C."
Your LLC business name must differ from all other business names on record in Vermont. And you can't use a name with discriminatory, indecent, or obscene language.
Search the Vermont Name Database. The Division of Corporations has a name availability search page. If the name you want is already in use or reserved, you need to choose a different name for your business.
Reserve Your Name. If you settle on an available name but are not yet ready to file your registration, you can reserve the name with the Vermont Secretary of State. File the name reservation application online and pay a fee of $20. The reservation holds the name for 120 days with the option to renew.
Avoid Infringement on a Business Name. You will also want to do a quick internet search to ensure you are not infringing on a trademark or domain name. Check the name on the United States Patent and Trademark Office (USPTO) website for prior registration. If the name isn't in use, you may want to trademark it so others can't use it.
Protect Your LLC Business Name. Your name is also your unique brand. Two ways to stop others from adopting it are registering the name as a trademark and reserving the domain name.
- Trademark – You can trademark the name with the USPTO. Once you receive your federal trademark, you can register your trademark in Vermont. If you don't want a federal trademark, you can register only in Vermont if you wish. The fee for a trademark in Vermont is $20 and you can register online with the Secretary of State.
- Domain Name – Check the internet to verify your internet domain name is available. If available, register the domain name with an approved ICANN registrar.
Get a Registered Agent
Vermont requires an LLC to appoint a registered agent for service of process before formally filing with the state. A registered agent receives service of process and legal documents on behalf of the LLC. A Vermont registered agent is an individual or a company (domestic or foreign), but it must have a physical Vermont street address.
Often, business owners use a professional registered agent service company to act as the registered agent for their LLC. They enjoy the convenience and support of a registered agent handling legal documents and serving as a contact with the Secretary of State.
File Your Articles of Organization
If you want to file your organizational papers with the state, you must create a user account with the Vermont Secretary of State, Corporations Division. You can compose and register your LLC using their online system.
Your Vermont articles of organization documents must contain the following information:
- The LLC company name with the limited liability designation or abbreviation
- A special election, if any (i.e., professional, low-profit, blockchain-based)
- The month that the LLC's fiscal year ends
- The business description or purpose of the LLC
- The LLC's address of the principal office (a physical address, not a P.O. Box)
- The registered agent's name, physical address, and email
- The structure of the LLC (whether manager-managed or member-managed)
- Number of initial members
- Names/addresses of the initial managers or initial members
- Effective date
- $125 filing fee
The LLC organizer signs the certification and files the articles of organization with the $125 filing fee.
To file by mail, send to the Vermont Secretary of State Corporations Division 128 State Street Montpelier, VT 05633-1104.
You may use a professional LLC formation company to set up your Vermont LLC, especially if you live outside the state or want to create a unique LLC, such as a low-profit LLC or blockchain-based LLC.
Draft an Operating Agreement
An operating agreement governs an LLC. An operating agreement is similar to the bylaws of a corporation. Vermont does not require an operating agreement, but most LLCs will have one.
The LLC operating agreement is a private business contract among the members/business owners. You do not file it with the state. A bank may want to see one when giving a loan or line of credit.
The U.S. Small Business Administration suggests the following topics for your Vermont LLC operating agreement.
- 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)
The members may manage an LLC, or they may hire an outside manager. You will indicate which you have chosen on your registration application.
Get an EIN
If you have employees or your LLC has more than one member, you must request an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). The EIN is a taxpayer identification number for your business, similar to a Social Security number. It is easy to apply for the EIN on the IRS website.
Set Up Business and Tax Accounts
Once you set up your LLC, 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. This tax account handles all Vermont tax activities for your business, including income tax, sales tax, use taxes, etc.
You will be subject to both state taxes and federal income taxes. There are two ways LLC can be taxed: the LLC can be a pass-through organization, in which case each member is taxed individually, or taxed as a corporation.
When establishing a business in Vermont, you may be liable for state taxes, employment taxes, and sales and use taxes. Additionally, your LLC may need licenses and permits for your business operations.
State Business Tax
The benefit of an LLC is that the profits can go on the individual member's tax returns, so they pay state income tax on their income. There is no corporate tax on LLC profits (unless the LLC elects to be treated as a corporation for tax purposes). However, the LLC pays a business entity income tax of $250 annually. You can pay the tax on the Vermont tax portal.
State Employer Tax
If you have employees when you register for a business tax account with the Vermont Department of Taxes, you will get an employer account. The Department of Labor has information about your responsibilities as an employer. For example, you must:
- Provide workers' compensation if you have one or more employees
- Register your business for unemployment insurance
- Withhold state and federal payroll taxes
Sales and Use Taxes
You may need a seller's permit in Vermont to collect sales tax if you sell products. When you register your business with Vermont, you can set up a seller's permit. Vermont sales tax is 6%.
Business Licenses and Permits
The licenses and permits necessary to operate your business depend on your type of business. Vermont has a license and permit directory to guide you to what your business needs. You apply for most permits on the city and county levels where your run your business. Check with your local governments to see what regulations apply to your business.
Registration in Other States
Your Vermont LLC allows you to operate in Vermont. Suppose you want to do business in another state. In that case, you register in the new state as a foreign LLC through the Secretary of State's office. You follow their requirements to register to do business as a foreign LLC. You may need to request your certificate of good standing issued by the Vermont Secretary of State, Division of Corporations.
After you have formed your Vermont LLC, you must renew your business registration by filing an annual report. This report is due within the first three months of your LLC's fiscal year-end, recorded on the LLC's articles of organization. When you file the annual report online, you pay a $35 fee.