The Limited Liability Company (LLC) is a popular business entity choice structure for many businesses starting in the state of Vermont. The LLC provides personal liability protection and has the potential to save money on taxes. With our guide, you can learn how to form an LLC in Vermont without an attorney.
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
Let’s break down the steps to complete the Vermont LLC formation process.
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.
– Limited Company
– Limited Co.
– Ltd. Company
– Ltd. Co.
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 company like Northwest Registered Agent to be the Registered Agent will reduce unwanted phone calls and mailings.
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.
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 will 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
Turnaround Time: It normally takes one business day when filing online or 7-10 business days when filing by mail for the state to process the LLC paperwork.
You don't have to form your LLC by yourself or pay an attorney!Forming an LLC is a little intimidating, especially when it’s your first time. Professional entity formation services help guide you to make sure it’s done right. Check out our reviews of popular LLC formation services to learn more.
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
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.
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.
Get Business Insurance
Even with the liability protection of the LLC, business insurance is important to protect the business. The most common types of insurance include:
General Liability Insurance – covers damages owed and medical expenses for accidents that happen at your place of business.
Business Property Insurance – replaces damaged, stolen, or lost business property. This includes your physical business location, equipment, supplies, and anything else you used to run your business.
Business Vehicle Insurance – covers company vehicles and may also include coverage for personal vehicles used for business-related activities. Many personal policies won’t cover your vehicle if there is an accident while being used for business purposes.
Workers Compensation Insurance – mandatory in most states if you have employees, this insurance covers medical expenses that occur because of an accident or injury that happens to one of your employees while they’re at work.
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 their fiscal year. Most LLCs choose their fiscal year as the calendar year, which means their tax period runs 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.
Common Questions To Starting An LLC In Vermont
How much does it cost to start an LLC in Vermont?
The Secretary of State filing fee to start an LLC in Vermont is $125.
Is there a yearly fee for an LLC in Vermont?
Each year, an annual report and filing fee of $35 must be filed.
How long does it take to start an LLC in Vermont?
LLCs formed online are typically processed in one business day, while mailed in forms can take 7-10 business days.
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 I 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 approval from a government entity to legally operate.
What is a Foreign Limited Liability Company?
A foreign LLC refers to an LLC that is physically operating in states outside of the state where it was formed. Physically operating means having a presence, such as having an office or employee in the state. The LLC will need to register as a foreign LLC in each state that the LLC plans to operate.
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.