Forming a Limited Liability Company (LLC) offers you many benefits. It provides flexibility in terms of operations and also opens the door for tax savings.
Vermont is an excellent place for your to start your business. The State has a booming economy with a business-friendly environment. However, Vermont imposes severe penalties on your LLC if you miss any of the State filing deadlines.
Additionally, the procedure to set up your LLC in the State may seem confusing and cumbersome. We are here to break it down and guide you through each step involved in the process.
Name Your Vermont LLC
The first step in setting up your LLC is to name your business. It is crucial that you select a name that best represents your business. A good name can help you establish not only a brand but also attract customers. Ensure that your LLC has a name that is easy to remember and catchy.
While naming your LLC, you must follow all the naming guidelines the State of Vermont has laid down.
The official name of your company, as stated in the incorporation documents, should have the words “limited liability company,” “limited company,” or any of the abbreviated versions of it such as “L.L.C.,” “LLC,” “L.C.,” or “LC.”
If you are a low-profit limited liability company (meaning companies mainly set up for charitable purposes), your name must contain the abbreviation L3C.
The name of the LLC should be unique and must not be identical to the name of any existing entity that has been permitted to conduct business in the State of Vermont.
Additionally, your name shall not be similar to the names of other entities. For example, if a company is already registered with the name “Green Constructions LLC,” you cannot name your business “Constructions Green LLC.” Similarly, minor variations will not make your name distinguishable. For example, “ABC Corp.”, “A.B.C. Corp.” and “A-B-C Corp.
The name you select for your LLC should not give the impression that your entity is a government agency. Therefore, you cannot use terms like “F.B.I.” or “Treasury.”
Similarly, usage of certain words, like “Bank” or “University,” is restricted and involves obtaining the written consent of concerned authorities and additional paperwork and compliance requirements.
Additionally, your name should not contain any words that are discriminatory, indecent or obscene.
Does Your Business Require a DBA?
A DBA (doing business as) enables you to operate your LLC under a different name. A DBA is more popularly called an ‘assumed name’ in Vermont.
An assumed name is best used for branding purposes. Over time, you may wish to diversify your business, for which you may find your existing name unsuitable. Or, you may wish to operate under a different name. An assumed name allows you to run the business of your LLC under a different name.
While selecting an assumed name, you must follow some guidelines, such as not using any business entity identifiers (such as Co., Limited, Ltd., etc.), not using words that imply affiliation with any government agency, etc. To understand all the naming guidelines, you can read Vermont’s Business Name Rules.
In Vermont, you must apply with the Secretary of State’s office to get an assumed name registered for your business. You can apply for the DBA online. If you wish to file it via mail using a paper check for payment, you must first register online and then select the mail option at the end as a payment method. Once allotted, you have to renew it every five years. You must include the following details in your application:
- The details of your LLC
- The details of the applicant
- The assumed name sought to be registered.
Doing a Name Search and Name Reservation
You can use the business entity search provided by the State to see if the name you want for your LLC is unique. You should properly check the name selected for your LLC to avoid rejection later.
You can reserve your chosen name if you are not ready to incorporate your LLC immediately. You can apply with Vermont’s Secretary of the State for this purpose.
Once the Secretary of State has reviewed the application, the name shall be reserved, for 120 days, in the name of and for the applicant’s exclusive use. If you still need more time, there is an option to renew it for another 120 days further. You must, however, file the renewal request within 45 days immediately before the reservation’s expiration date.
You have to file your application online. If you wish to file it via mail using a paper check for payment, you must first register online and then select the mail option at the end as a payment method.
Registering Your Business Domain
Its hard for a business today to survive without having any online presence. Customers prefer to know a company before they choose it. They read about the company online and also check out the reviews left by previous customers before they make up their minds. So, even if you don’t have immediate plans to start a website, you must plan for it when registering your company.
Your business’s website address needs to match your LLC’s name. Your customers will find your business online by searching the name.
So before you select a name for your LLC, it is recommended that you ensure that the domain name you need is also available. Please check the currently available domain names.
Choose a Registered Agent in Vermont
An LLC in Vermont seeking authorization to do business in Vermont must designate a registered agent and a street address (in the State) for the agent.
A registered agent is a person, or a legal entity, that serves as a point of contact for all official correspondence your LLC receives. The registered agent shall also receive any process service concerning a lawsuit against your company.
Laws in Vermont mandate that your company has a registered agent. You must select a registered agent before your company can start functioning. A registered agent is called an “agent for service of process” in Vermont.
You can choose to change the registered agent at any time after incorporation by filing a statement of change with the State. It must contain details such as:
- Name of the LLC
- Address (both street address and mailing address if different)
- Name and address of the current registered agent
- The name and details of the new agent
Who Can Be A Registered Agent?
The State of Vermont provides specific requirements that your registered agent must comply with. The agent you select for your LLC must be:
- An individual State resident (above 18 years) or
- A business entity (such as a domestic corporation, another limited liability company, or a foreign corporation or foreign limited liability company) that has obtained authorization to conduct business in the State.
A registered agent must have a street address in Vermont. It cannot be a PO box address or a mailbox rental service. The registered agent should be available during business hours on all working days.
You can appoint yourself or any of your friends or family as the registered agent of your LLC. Alternatively, you can also hire a professional service.
Individual v. Registered Agent Service
Based on the specific requirements of your LLC, you can appoint an individual (including yourself) or hire a professional service. While hiring a registered agent service will be more expensive than appointing yourself or a friend, it has many advantages.
Firstly, a commercial agent service brings professionalism and expertise to the work required. They ensure that you don’t miss any vital communication or that you don’t miss any deadlines.
A registered agent service eases your schedule as you don’t have to worry about being available at the address during business hours. Instead, you can focus on growing your business and travel when needed.
Additionally, suppose you appoint yourself or any other person from the LLC as the registered agent. In that case, you risk receiving sensitive documents such as a court subpoena in front of your clients and employees.
Hiring a registered agent service is also beneficial for your future expansion plans. This is because these services have a presence in most states and can help you do the needful to establish your business outside Vermont.
File the Articles of Organization with Vermont
Articles of Organization is a legal document that needs to be filed with the office of the Secretary of State. Once this is completed, your L.L.C. is registered and recognized in the law’s eyes. You may present the application for incorporating the L.L.C along with any other person. The persons so making the application shall be called organizers of the L.L.C.
An article of organization should contain details such as:
- The L.L.C.’s name
- The name and address of the initial agent for service of the process
- The details of every organizer
For more information regarding the provisions of an article of organization, read 11 V.S.A. § 4023 of the Vermont Statues.
The final step is for you to file your Articles of Organization with the office of Vermont’s Secretary of State. You can do the same online or submit a copy of the duly filled form by mail. If you wish to submit your application by mail, you will have to request the form, after which it will be emailed to you by the office of the Secretary of State.
The State does not have any provisions for expedient processing of the Article of Organization. However, online filings are processed within one day, while applications sent by mail take between seven to ten working days.
Publish Notice of Formation
As of now, the State does not have any provisions pertaining to a mandatory public notice of formation for your LLC.
Create an Operating Agreement for Your Vermont LLC
An operating agreement is a legal document. The provisions contained in the document govern the affairs of the LLC. It regulates the relationship between the LLC, its members and other stakeholders.
Suppose Andy, Carroll and Stephen have formed a multi-member LLC. Who will make specific decisions within the LLC? How are profits distributed? If these aspects are not laid down, there are high chances of future disputes affecting the LLC. An operating agreement acts as a guiding force in matters of the day-to-day functioning of the LLC.
Even though an operating agreement is not mandatory in Vermont, you should have one. It offers credibility to your enterprise and helps minimize the chances of any disputes in the future.
Since Vermont does not make an operating agreement mandatory, this document has no fixed formats. However, irrespective of the nature of your business, it shall be advisable for your operating agreement to cover the following matters:
- Organization Details
- Duties of Members and Managers
- Management and Voting
- Capital Contributions
- Division of Profit and Losses
- Bookkeeping Procedures
- Procedure for adding new members
- Requirements concerning Meetings and Procedures thereof
These are just a few examples; you may include other provisions as you deem fit.
Writing The Operating Agreement Yourself v. Hiring a Service
You have three options so far as drafting an operating agreement is concerned. Firstly you may draft it yourself in consultation with the other stakeholders of the LLC. Or, you may purchase a readily available template online and modify it to suit your business.
If you do not feel comfortable handling the drafting of an operating agreement, you may hire an attorney. Make sure you approach an attorney who is an expert in State laws. Additionally, most commercial registered agent services also provide drafting services.
You may choose from any of the above options based on your budget and personal preference.
Limits of Operating Agreement
Vermont State Statue lists items you cannot include as provisions in your operating agreement. For example, you cannot have any clause in the agreement whereby you vary your LLC right to sue and be sued. You also should not unreasonably restrict the duties and rights of various stakeholders, including members, concerning books, records, information, etc.
The basic idea is that you cannot enforce that which is not allowed under the law through an operating agreement. To know about the provisions which cannot be included in your operating agreement, you can read Section 4003 of Sub Chapter 001, Chapter 25 of the Vermont Statues.
Obtaining an EIN for your Vermont LLC
EIN (Employer Identification Number or Federal Identification Numbers or FEINs) is an identification number allotted by the IRS. The IRS uses the EIN to identify an operating business entity for taxation purposes.
You will need an EIN if you are a multi-membered LLC. Also, a single-member LLC should obtain an EIN if it wishes to hire employees or if it chooses to get taxed as a corporation instead of a sole proprietorship.
You will also need an EIN while opening a business bank account and filing Federal Taxes. You may apply with the IRS to obtain your EIN. There are no application costs involved.
File Annual Reports in Vermont
An annual report is a document used by the authorities to get the latest and updated information about all the business entities operating in the State. In Vermont, you can file your annual report online with the office of the Secretary of State by paying $35.If you wish to file it via mail using a paper check for payment, you must first register online and then select the mail option at the end as a payment method.
The due date for filing your annual report is three months from the end of the LLC’s fiscal year. Failure to file the document may result in your LLC getting penalized. The State charges a penalty of $25 if you miss the deadline. The State can also shut down your business by revoking your LLC’s registration.
Tax Liability for Your Vermont LLC
The way your LLC will be taxed depends upon the number of members in your LLC. There are four ways in which LLC will be taxed:
- Sole proprietorship: a business owned by a single person
- Partnership: a business owned by multiple people
- C – Corporation: income is split or segregated for taxation
- S – Corporation: tax liability is split between the business and its owners
Federal Tax Liability
Federal tax liability will depend on how you treat your LLC for taxation purposes. Federal corporate taxes will apply if you choose to be taxed as a corporation. On the other hand, if the LLC is treated as a partnership or sole proprietorship, then pass-through taxation will apply. It means the profits are passed on to the members, who pay taxes on their income from the LLC.
If you’re a single-member LLC, your default taxation type will be that of a sole proprietor or ‘disregarded entity. The LLC has to report its activities under Schedule C, Schedule E and/or Schedule F of Form 1040.
If your LLC has more than one member, it will be taxed as a ‘partnership’ by default. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information in the K-1 form of each partner.
State Tax Liability
LLCs doing business in Vermont are required to pay a business entity income tax. The tax amount is fixed at a flat rate of $250 per annum. The LLC must file the business entity tax return by the 15th of the third month following the end of the tax year. If you miss the deadline, a penalty is levied at the rate of 5% per month on unpaid tax. You may file the return online. Or you may download the form and file a duly filled tax return via mail to: The Vermont Department of Taxes 133 State Street Montpelier, VT 05633.
You can visit the Business Entity Income Tax section of the State’s Department of Taxes website to get more details regarding forms and other instructions.
If your LLC is engaged in selling certain physical products or specific services, you will be required to pay Sales Tax in Vermont. For this purpose, you must register your LLC with the Vermont Department and get a seller’s permit. This permit is required to collect sales tax.
Permits & Licenses
Licenses and Permits are integral elements of setting up and operating an LLC. If you do not possess the requisite permits, you cannot run your business. Therefore as someone who is about to start an LLC in Vermont, it is important to know the various licensing requirements applicable to your LLC.
Depending on the business area, an LLC in Vermont may be subject to three licensing jurisdictions: Federal, State and Local.
If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.
Some business activities requiring Federal Licenses and Permits are
- Alcoholic beverages
- Firearms, Ammunition and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and radio and television broadcasting
- Transportation and logistics.
At the State level, your LLC should get a seller’s permit if it sells specific physical products or services to which sales tax applies. You can apply for a seller’s permit online using Vermont’s Department of Taxes portal.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. In Burlington, businesses carrying out food services are required to have specific city permits. To know more about local licensing requirements, get in touch with the office of your local administration.
For more information regarding;
Business Bank Account & Phone Number
Once you have incorporated your LLC, you should consider opening a separate business bank account for your company. Using your own bank account is never a good idea. Should your business run into financial trouble or litigation, a shared bank account can get your personal money mixed up with the company funds.
Also, consider applying for a business credit card. It helps the LLC build up a credit score, which will be helpful when you see to raise money by way of loans.
Using your phone number for your LLC can prove to be very inconvenient. Therefore, it is best either get a separate phone number for your business or hire a phone answering service. Doing this would protect your privacy, look professional and reduce the risk of missing important calls.
Setting up your business in Vermont has a lot of benefits. Depending on the type of business, LLCs in the State may be eligible for various sales and service tax exemptions.
The State also offers various business incentives such as the Vermont Employment Growth Program, Vermont Opportunity Zone program, etc.
Get in touch with your local county or city government office to determine if your LLC is eligible for any of these incentives.
Ensure you comply with all filing requirements and retain the ‘good standing’ status with the State.
All the best!