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. You must select a name that is appropriate for your business. A good name will help your LLC to have brand value in the market.
It will also help the customers quickly identify your business from among the competition. Make sure you have a unique name that will help you attract your customer base.
While naming your LLC, you must follow all the naming guidelines the State of Vermont has laid down.
The name of your business should have the words “limited liability company” or one of its abbreviations (LLC or L.L.C.).
The name of the LLC should be unique and must not resemble the name of any existing entity that has been permitted to conduct business in the State of Vermont.
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.
To understand all the naming guidelines, you can read Vermont’s Business Name Rules.
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 referred to as an ‘assumed business name’ in Vermont.
An assumed name is best used for branding purposes. But remember that a DBA name alone does not protect your personal assets. To avail of the protection of limited liability, you need to form an LLC.
Over time, you may wish to diversify your business. For example, you may enter new market areas or decide to sell new products. Your LLC’s existing name may not suit this new product or business area.
In such cases, it would be better for you to operate under a new name that is more apt for your new product line or business area. An assumed name allows you to run the business of your LLC under a different name.
In Vermont, you must apply with the Secretary of State’s office to get an assumed name registered for your business. Once allotted, you have to renew it every five years.
Doing a Name Search and Name Reservation
Before finalizing a name for your LLC, you must ensure that the name you selected is not similar to an existing business. You can use the business entity search to see if the name you want for your LLC is available. You should properly check the name selected for your LLC to avoid rejection later on.
If you are not ready to incorporate your LLC immediately, you can reserve your chosen name. You can apply with the Secretary of the State in Vermont 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. This can be renewed a maximum of two times.
Registering Your Business Domain
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 to avoid any last-minute surprises.
Choose a Registered Agent in Vermont
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.
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 or
- A business entity that has obtained authorization to conduct business in the State.
- Above the age of 18 years
- Have a physical street address in the State.
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 Registered Agent v. Commercial Registered Agent
While you can appoint yourself as the registered agent, it may not be advisable for all businesses. It is recommended that you hire a professional registered agent service as it has many advantages.
A professional registered agent service ensures that you don’t fail to duly respond to any notice or other communication that may be sent to your LLC. They remind you when your returns and other filings are due and help ensure you don’t miss any deadlines.
The registered agent’s address is available for the public to access on the concerned websites. So if you work out of your home or a private office, having a professional registered agent service will help you maintain privacy.
Professional help lets you focus your energy and time on core business areas.
If you are your own agent, you risk receiving sensitive documents like notice of a lawsuit in front of your employees or clients. Having a professional registered agent service helps you handle the situation discreetly. They receive such sensitive documents at their address and deliver them separately.
File the Articles of Organization with Vermont
Articles of Organization is a legal document needed to form and legally incorporate your LLC officially. It is to be filed with the office of the Secretary of State. Once this is completed, your LLC is registered and is recognized in the eyes of the law.
You can complete this procedure by following three simple steps. The first step is for you to acquire a copy of the document. You may do this by creating an account on the Secretary of State’s online service portal or manually obtaining the form.
The next step is for you to fill out the Articles of Organization form. You should duly complete the form by filling out details related to the following:
- Business Name: Your LLC’s Name
- Business Information
- Your LLC’s Type
- Fiscal Year End Month (optional: December by default)
- Business Description
- Business email (optional)
- Initial Designated Office
- Your LLC’s Physical Address
- Mailing Address
- Initial Registered Agent
- Physical Address
- Mailing Address
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 either online or by submitting a copy of the duly filled form by mail.
As of now, the State does not have any provisions pertaining to expedient processing of your Certificate of Organization.
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. It lays down the rules of your LLC’s internal operation and functioning. It also provides a framework concerning the duties of members of the LLC and its managers.
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. You will need an operating agreement for opening an account with the bank.
More importantly, it helps protect the LLC’s limited liability status by reinforcing it. Thus, it is recommended that even a single-member LLC have a well-drafted operating agreement.
There are no prescribed templates for an operating agreement in Vermont, and you may draft one according to the needs of your business. 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, and you may include other provisions as you deem fit.
Writing The Operating Agreement Yourself v. Hiring a Service
You can create your operating agreement, or you can purchase templates that you can customize to draft the operating agreement of your LLC.
It is, however, recommended that you seek the help of an attorney or a professional in preparing your operating agreement. Experts in the laws of Vermont, these attorneys or professionals will help you draft an operating agreement that suits the needs specific to your business model.
Limits of Operating Agreement
There is no fixed format for this agreement. You have all the freedom to include the terms of the agreement you feel are necessary for your LLC. However, the terms are limited to the law.
You cannot include something prohibited by the laws of Vermont. To know about the provisions which cannot be waived as per the State law, you can read Section 4003 of Sub Chapter 001, Chapter 25 of the Vermont Statues.
Obtain an EIN
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.
It will also be necessary to open a bank account, file tax returns, and hire employees. The IRS issues an EIN, and you can apply for it online or through the mail.
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 a $35.
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
You must pay Federal self-employment tax (presently 15.3%) on the profits you take from your LLC. You are eligible for certain deductions in the nature of business expenses. You are also liable to pay Federal Income Tax. The income tax you have to pay will vary depending on your income, filing status, deductions, etc. However, if you treat your LLC as a corporation for tax purposes, federal corporate taxes must be paid.
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 K-1 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. 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
An LLC operating in Vermont must comply with State and Federal regulations. Accordingly, your business will be subject to three licensing jurisdictions: Federal, State and Local.
Federal Licensing requirements will depend on the business activity carried on by your LLC. 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
It is always prudent to open a separate Bank Account for your LLC and have an individual designated phone number. Having a different account helps you to avoid mix-ups and helps ensure that your personal assets are not affected in case of insolvency or lawsuits.
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!