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2022 Guide to Starting an LLC in Vermont

Vermont LLC Quick Facts

Vermont LLC Costs

Initial Cost:
– State LLC Filing Fee: $125

 

Recurring Cost:
– Annual Report Filing Fee: $35

Vermont LLC Processing Time

– Filing Online: 1 business day

– Filing by Mail: 7-10 business days

Not sure about filing an LLC yourself?

Want an LLC, but not sure about filing the paperwork yourself? Let Zenbusiness, IncFile, or IncAuthority help guide you through the LLC formation process, so you know everything was done right.

IncFile and IncAuthority are both currently running a special where you only pay state fees for your LLC formation!

Overview

Guide to Starting an LLC in Vermont

If you are looking to start a business in Vermont, you may be wondering about the process of forming a Limited Liability Company (LLC). An LLC is a type of business structure that provides limited liability protection for its owners. This means that if the business is sued, the owners’ personal assets are protected.

Why choose an LLC?

The Limited Liability Company (LLC) is a popular business entity choice structure for many businesses starting in the state of Vermont.  The LLC provides its owners personal asset protection and has the potential to save money on taxes.

Unlike a sole proprietorship or partnership where the small business owner can be personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting the business owner’s personal assets.

Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.

Related: How to start a business in Vermont

Steps to Form a Vermont LLC

This guide will provide you with all of the information you need to start an LLC in Vermont. The process is relatively simple, and with a little guidance, you can have your LLC up and running in no time. We will walk you through the steps involved in setting up your LLC, from initial filing to ongoing maintenance. So, let’s get started!

Total Time: 10 minutes

Step 1: Choose a Name for the LLC

The first step in forming a Vermont Limited Liability Company is to make sure the name you want is available.  

It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of Vermont. The Vermont Secretary of State makes it easy to search and verify if your LLC name is available.  Here is more information on how to do a Vermont LLC name search.

In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:
– Limited Liability Company
– Limited Liability Co.
– Ltd. Liability Company
– Ltd. Liability Co.
– LLC
– L.L.C.
– LC
– L.C.

A comma may be used after the business name and before the designator.  “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.

Before settling on an LLC name, you may want to do a domain name search to try and match a URL to your business name.

Step 2: Appoint a Vermont Registered Agent

Every LLC in Vermont is required to have a Registered Agent. A Registered Agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.

The basic requirements to be a Registered Agent in Vermont include:
– The agent must be a Vermont resident at least 18 years of age or a commercial Registered Agent service with a registered office in the state.
– The agent must have a physical address in the state (PO Boxes aren’t allowed).
– The agent must generally be available during normal business hours at the address provided to receive service of process.

Learn more about the requirements for a Registered Agent in Vermont

Any individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed.  Hiring a commercial Registered Agent service like Northwest Registered Agent will help keep the owner’s names from being listed on the state’s website.

Step 3: File the Vermont Articles of Organization

The paperwork to officially create an LLC in Vermont is called the Articles of Organization. Either file online through the  Vermont Secretary of State’s website. If you prefer to fill out and mail the application, download the Articles of Organization Form LLC-3(D) to submit the paperwork.

Related: How to fill out the Vermont LLC Articles of Organization

When filling out the Articles of Organization, a few sections and terms can be confusing. Let’s go over a few of these sections to help get your LLC started right.

Business Description – This section asks for information regarding the activities of the business.  To answer, there is a number called NAICS (North American Industrial Classification System).  The NAICS is a six-digit number that classifies and categorizes the different business industries.  This information is used in reporting statistical data for each of the industries in the U.S.  Remember this number as you will need it when filing annual tax returns.  You can do a more in-depth search for your NAICS number here.

Domestic Jurisdiction – Vermont is automatically chosen as the domestic jurisdiction and can’t be changed in this section.

Physical Address – In this section, enter the street address, city, state, and zip code of the initial principal office.  This address can be the LLC’s physical address or the address where the business records are stored.  You may not use a PO Box for the designated office.

Mailing Address – A mailing address is required, and it can be the same as the Principal Address.  If the LLC records should be sent to a different address, enter that information in the Mailing Address Section.  If the address is the same as the principal office, click on the “Use this address as the Mailing Address also” box to copy the Principal Address address.

Any address is acceptable regardless of location or PO Box.

Fiscal Year End (Month) – Select the preferred ending month for the LLC’s fiscal year.  Single-Member LLCs and LLCs taxed as a partnership should choose December.

The default end month is December by the state.

Manager/Member Information – This section asks about the management choice of the LLC.

– Member-Managed LLCs have an active involvement in the management and have the authority to act on behalf of the LLC.
– Manager-Managed LLCs are hired by the members to run the LLC, similar to a CEO of a corporation.  This is generally used when there are passive members in the LLC, and the LLC members do not actively manage or operate in the affairs of the business.

Most LLCs are member-managed.

Estimated Cost: 125 USD

Consider using an LLC formation service like Zenbusiness, IncAuthority, Northwest, or IncFile to guide you through the LLC formation process, so you know everything was done right.

IncAuthority and IncFile are currently running a special where you only pay state fees for your LLC formation and they do the rest!

You have a Vermont LLC! Now what??

Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.

Prepare a Vermont LLC Operating Agreement

The operating agreement is a document that governs the framework of an LLC.  This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.

Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:

  • The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
  • Member’s personal liability protection may be diminished.
  • Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.

Related: Vermont operating agreement template

Obtain an EIN

The EIN or Employer Identification Number (also called a Federal Employer Identification Number or FEIN) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, build business credit, register for business licenses and permits, file federal and state taxes, and more.

There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.

Related: How to Apply for an EIN

Elect the LLC’s Form of Federal Income Taxation

One of the significant benefits of the Limited Liability Company is the tax flexibility it provides.  When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:

  • Sole proprietorship
  • Partnership
  • C-corporation
  • S-corporation

While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.

Related: How can an LLC be taxed?

By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.

Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.

Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.

In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership is that the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership.  As a result, the owner will pay self-employment taxes on all business profits.  As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes.  Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.

Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you. Some tax elections, such as the C corporation, may be detrimental for some people due to double taxation.

Open an LLC Bank Account

Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.

Several documents will be needed to open a business bank account, such as:

  • A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
  • Copies of the original LLC formation paperwork from the state showing the creation of the LLC.
  • Driver’s licenses of the members.
  • Occasionally, the bank will request a Vermont Certificate of Good Standing to prove the LLC is active and in good standing with the state.

Related: How to Open a Business Bank Account for your LLC

Apply for Business Licenses and Permits

Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting the business. Some common registrations include:

  • Business License – Some cities require businesses to obtain licensing before starting.
  • Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
  • Sales Tax Permit – To sell products and certain services, registration with the Vermont Department of Taxes will be necessary.

Related: What Business Licenses are Needed in Vermont?

File the Annual Report

LLCs are required to file an annual report with the Vermont Secretary of State.  The annual report filing fee is $35 each year, and the due date is based on the LLC’s fiscal year. Most LLCs choose their fiscal year as the calendar year, which means their tax period runs from January 1st – December 31st.  The annual report in Vermont is due within 3 months following the end of the fiscal year, so LLCs that use the fiscal year would have their reports due by March 31st.

Related: How to File a Vermont LLC Annual Report

Common Questions To Starting An LLC In Vermont

How much does it cost to start an LLC in Vermont?

The cost to file the Articles of Organization with the Vermont Secretary of State and form an LLC in Vermont is $125.

How long does it take for an LLC to be approved in Vermont?

The paperwork to start a Vermont LLC will vary depending on how the Articles of Organization are filed. LLCs formed online are typically processed in one business day, while the mailed-in form can take 7-10 business days.

How much does it cost to file an annual report in Vermont?

Each year, an annual report and the filing fee of $35 must be submitted to the Vermont Secretary of State.

Where do you check if your Vermont LLC name is available?

You can check if your LLC name is available by searching the business name database on the Vermont Secretary of State’s website.

If your proposed LLC name is already in use, you will need to choose a different name for your company.

Do I have to pay to hire a registered agent?

No. Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state, and are generally available to receive documents during normal business hours.

If you have an LLC, is a business license required?

It’s sometimes thought that the LLC and business license are the same, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.

What is a Foreign Limited Liability Company?

A foreign LLC isn’t a special type of LLC. Instead, it’s an LLC that was formed in another state that wants to physically operate in Vermont. Physically operating means having a presence, such as having an office or hiring an employee.

Related: What is the difference between a domestic Vermont LLC and a foreign LLC?

What is a Professional Limited Liability Company?

Businesses that require occupational licensing in Vermont, such as accountants, architects, veterinarians, etc., will want to file for a Professional Limited Liability Company (PLLC) instead of an LLC. Filing for a PLLC is very similar to that of the LLC.

Learn more about a professional LLC.

Is an LLC the same as a corporation?

The LLC is one of four main types of business entities. You can learn more about each here:
What is a sole proprietorship?
What is a general partnership?
How to form a Vermont corporation

Should I use an LLC formation service or do it myself?

Following our guide, most people will be able to form an LLC on their own, however, LLC formation services like IncFile and IncAuthority will guide you through the process and guarantee it’s done right – and it doesn’t cost any extra to do so!

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