How to Start an LLC in Vermont
Vermont is a small state built on small businesses. If you are looking to join the 99% of businesses in The Green Mountain State that are classified as small, an LLC may be the right business structure for you. An LLC offers liability protection, which can safeguard your personal assets. In addition, it’s easy to set up and isn’t subject to double taxation, like corporations are. If you’re forming an LLC in Vermont, follow this step-by-step guide to get your startup running quickly.
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To form your LLC, you’ll need to file the appropriate paperwork with the Vermont Secretary of State. While this is a simple process, to prevent being rejected, it’s important to take all the necessary steps in preparation for your business being formed. Once the LLC is approved, you will have your own business in The Green Mountain State!
Name your LLC
Have a name in mind? See if it’s already listed in the state’s business directory. If the name comes up in a search, it’s taken. If it doesn’t, it’s yours to claim.
Any paperwork you encounter regarding your LLC will ask for the same basic piece of information: the name of the business. And while this is a common ask, choosing your business name can be a daunting step. Not only are there requirements the name has to meet, but you also want the name to be appealing and memorable for clients.
No matter how perfect a name is, though, it must adhere to Vermont’s guidelines for naming an LLC. These rules include:
- No two business entities in Vermont can share the same name or be so close that they can’t be distinguished. All business names are public record, so you can use the state’s name search tool to check on name availability.
- Each name must include a designator like “limited liability company” or an abbreviation. It also cannot contain incorrect designators, like “corporation” or anything that implies it is a corporation.
- Names cannot include words that could confuse the business for a government agency or imply it has an unlawful purpose.
- Some words may be restricted based upon additional licenses and paperwork. For example, the word “attorney” cannot be used unless there is a lawyer listed on your LLC’s formation documents.
If you find a name that meets these criteria, forming your LLC is one the best way to ensure no one else can use it. But if you aren’t ready to move forward yet, you can also pay a $20 fee and file a name reservation to hold the name for a period of 120 days.
Research your LLC name
Before you commit to a name, it can also be wise to do some internet research in advance. Seeing what comes up when you search the name can be illuminating and help you understand what your customers will see – especially if there is a business in another state with the same name.
Along with your official name, you’ll also want to think through what you will use as a website domain name and your username on popular social media platforms. Finding out if these are available can help you decide if a name is the best choice for your business.
You can reserve a business name in Vermont for one year.
Select a registered agent
Because your LLC is considered a separate legal entity from you, Vermont’s state government needs to be sure that there is an accountable party for receiving correspondence. This way, if your business is sent legal documents, like service of process, there is no question that they were received. The way this is done is through the appointment of a registered agent.
Your registered agent can be any individual who is over 18 and has a physical address in Vermont (not a P.O. box), regardless of whether they are affiliated with your LLC or not. You can even act as your own registered agent. However, many people hesitate to do this because a registered agent is expected to be onsite and available during all normal business hours.
If a registered agent isn’t available to receive documents, it can lead to serious legal consequences or even your LLC is dissolved. To avoid this, some business owners will choose a registered agent service to take on the role. These services, which must have a physical address in Vermont, ensure that no correspondence is ever missed.
File Articles of Organization
When you are ready to move forward with registering your LLC, the Vermont Articles of Organization are the mechanism you will use. The Articles of Organization contain all necessary information about your business so that the Secretary of State can approve the LLC and keep information on file. You can submit the completed form by mail, in person, or online.
You will need to provide the following information in the Articles of Organization:
- Name and return address for the person filing
- LLC name
- Optional elections, such as a professional LLC designator
- Fiscal year end month
- Description of the business
- Principal office address
- Registered agent name and mailing address
- Management style (member-managed or manager-managed)
- Names and addresses for all members
- Effective date
- Signature and address of the organizer
This information should all reflect your LLC at the time of formation. If anything changes in the future, you can submit amendments or update the state via the annual report.
You can fill out and submit your LLC formation documents here.
There is a $125 fee associated with submitting a Vermont Articles of Organization form. This fee is not refundable for any reason.
Vermont processing time
Articles of Organization forms submitted by mail have a processing time of 7 to 10 business days. When submitted online, this time is 1 to 2 business days.
Create an LLC operating agreement
Some business structures, like corporations, are required to have governing documents in place as a part of their formation. While this is not true for LLCs in Vermont, it is wise to have a simple operating agreement in place before your business is operating. These documents are meant to outline the daily operations of your business, as well as address items that could cause conflict later on. Having an operating agreement in place not only prevents this conflict, it also helps to establish your business as its own entity.
Some very complex businesses require an attorney to help draft these kinds of documents, but most LLCs will be able to draft their own. You can find many free templates online. However you create your operating agreement, some common topics it should cover include:
- Ownership percentages among members.
- Specify the management structure: Manager-managed, member-managed, or single-member LLC.
- How new owners can be added and how a member can leave the business.
- What the process for dissolving the business will look like if that happens.
- How profits and losses will be allocated for tax purposes.
- Voting procedures, such as whether a majority is sufficient or a unanimous vote is needed for certain decisions.
The operating agreement will remain an internal document and can be amended as your business grows and changes.
While forming your LLC is the first and most important step in opening your Vermont business, it is not the end of the process. Owning a business requires adhering to a number of rules and standards, both from Vermont and the United States government.
Get your EIN
Even if your LLC does not need to pay income taxes, there are other federal taxes you may be responsible for paying, like excise taxes and employer taxes. If a business has any federal tax obligations, the Internal Revenue Service will issue a nine-digit unique identifier called an EIN, or Employer Identification Number. There is no cost to get a number assigned to your business and it can be done online in minutes.
An LLC with no federal tax obligations does not legally need to have an EIN in place, but there are benefits to doing so. Some reasons you may choose to obtain an EIN include:
- Banks typically require an EIN before they will authorize a business bank account.
- Providing an EIN is much safer than providing your personal Social Security Number as a tax ID, which could leave you vulnerable to identity theft.
- An EIN may make your business more credible in the eyes of vendors or lenders.
- If you do hire employees in the future, the process will be simpler as you already have the necessary tax ID.
Vermont also issues a state tax ID number for its own tracking.
You can get your EIN by visiting the IRS website.
Get Vermont business licenses
Having an LLC within the state of Vermont does not authorize you to do business in the same way a license may. If additional licensing is needed, operating without it can violate your good standing and put your business at risk. The exact licenses and permits needed can vary based on a number of factors, but it is important to explore all areas and be sure you are fully covered to operate.
Factors to consider when identifying the right business licenses for your LLC include:
- Federal regulations: Most business activity is managed at the state and local level, but a handful of activities are regulated by the United States itself. If your business is engaged in any of these activities, like agriculture or alcohol, you will need to apply for the proper federal permits.
- Professional standards: Certain industries and professions are licensed through Vermont’s Office of Professional Regulation. If you are engaged in one of these areas, like accounting, you will need to be licensed by the appropriate process.
- Local government: Each town and county in Vermont can set its own rules for business licensing, which means your LLC’s location may dictate what you need to obtain.
The one license that nearly every business needs to consider is the sales tax license, or what is commonly called a seller’s permit. This license allows your business to collect sales tax on behalf of Vermont and acts as a registration to pay state taxes. Any LLC engaged in business in Vermont that intends to sell or lease taxable goods and services must have a sales tax license in place. There is no fee for this license and once you have it, it does not need to be renewed.
Open business bank accounts
If you are a freelancer or sole proprietor, your personal bank account is an acceptable venue for business income and expenses. Since you are considered a single legal entity, your business can operate under the same financial umbrella as you. In an LLC, though, this isn’t true – the personal asset protection the structure offers is because it is a separate entity from its owners.
As an LLC owner, you need to be able to demonstrate that you are operating separately from your business finances. Failure to do so can mean you become liable for business obligations. This is why it’s critical to have a business checking account specifically for your LLC.
Many banks offer these checking accounts, so you will need to choose the one that makes the most sense for you. Considerations may include if it has physical or online services, what is required to open the account, and associated fees. You may also consider if you could expand to savings accounts or even credit cards as your business grows.
As an added benefit, having a separate checking account will make it much easier to perform accounting tasks like filing taxes when the time comes.
Review LLC tax rules in Vermont
If a business is formed as a corporation, all net income is subject to the Vermont corporate tax rate. One benefit of LLCs is that they can opt to not pay these taxes, instead having individual members claim the income on their personal tax returns each year. This is what makes LLCs a pass-through entity, and is true in Vermont as well as all other states.
However, Vermont does impose one additional tax on LLCs, known as a business entity tax or BET. The BET has a minimum of $250 but can be higher in some cases.
File an annual report
Each LLC must also file an annual report as part of Vermont’s tax reporting requirements. This can be completed online and paid either by credit card or by mailing in a physical check for the $35 filing fee. You will confirm basic information about your business during this time. Annual reports are due within two and a half months of the end of your LLC’s fiscal year as you recorded it.
Get insurance for your LLC
If you have any employees (not counting owners) at your LLC, you will be required by the state of Vermont to have workers’ compensation insurance in place. These policies are designed to cover employees in the case of injury, illness, or even death caused by their job with your company.
Workers’ compensation is the only insurance required, but most LLCs in Vermont will choose to have additional policies in place to protect the new business and its assets. Most commonly, a small business will have general liability insurance in place to protect it from lawsuits, especially those surrounding personal injuries or property damage. Certain professions may also have professional liability insurance to address claims of malpractice or business error.
When you choose an insurance provider, you can often combine policies to save costs.
Additional resources to help you set up a business in Vermont
Vermont’s Secretary of State has a dedicated Business Services Division dedicated to helping entrepreneurs start their businesses and manage them. Within that division is a range of resources on the state website, including:
- Information on LLC filing and election types.
- The Online Business Service Center, which acts as a portal for management of your business.
- The Small Business Development Center.
What is a Vermont Business Entity Tax?
Regardless of how the LLC’s profits are taxed (as a corporation or a pass-through entity), Vermont charges all LLCs a business entity tax or BET. The minimum for this tax is $250 for LLCs owned only by Vermont residents.
When are annual reports due in Vermont?
Doing business as an LLC means you need to file an annual report, or Statement of Information, as it’s called in other states. Annual reports are due within three months of your chosen date. For example, if you choose December 31st, annual reports are due between January 1st and March 31st.
Does Vermont require LLCs to have a license?
The main state-level permit in Vermont is a sales tax license, which most types of businesses will need to obtain. Some professions may also need statewide licenses or permits to operate. Additionally, each town and county in the state can require its own licenses and permits.
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