Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.
If you are a prospective business owner in Vermont, you might be considering whether or not you should form an LLC, or limited liability company. Thankfully, forming an LLC is not as difficult as you might think. Whether you’re a first-time business owner or experienced, you can complete this process independently. An LLC is a popular business structure for many small business owners due to its tax flexibility and financial protection.
In this article, you will find a complete guide on how to form an LLC in Vermont, as well as any other additional information that is relevant and helpful.
Step 1: Choose a Name for Your LLC
Before forming an LLC, you must first choose a name for the business. When deciding what name to choose, it is important to keep in mind the naming guidelines provided by the Vermont Secretary of State.
Vermont naming guidelines:
- The chosen name must be unique from other businesses already registered with the state. To check if your desired name is still available, you can complete a search on the Vermont Secretary of State Business Name Database.
- The chosen name should include the phrase “Limited Liability Company” or one of its abbreviations.
- The name should not include any words that can be confused with government or military institutions. Examples of these words are FBI, CIA, or State Department.
- Names for licensed businesses like doctors, financial services, or lawyers will need additional permits to legally use their chosen name.
To read through the complete list of Vermont naming rules, click here.
Once you have decided on a name, you have two options; the first is to carry on with the application process by following the next steps below. Or, if you’re concerned about the name being taken by someone else, you can reserve the name for up to 120 days for a fee of $20. This can be done online or by mail.
There is also an option of doing business under a completely different name than what was reserved or submitted in the Articles of Organization. This is known as a DBA, Doing Business As, or an assumed name. To use this additional name, you will need to register a different name online or by mail for $50.
Step 2: Appoint a Registered Agent
Every LLC in Vermont is legally required to appoint an authorized registered agent to the business. They can either be an individual, a company, or even yourself.
A registered agent is someone who will be your direct point of contact with the state. They will be the person who accepts any legal mail, documents, legal disputes, court summons, and general correspondence from the government.
A registered agent must:
- Have a physical street address in Vermont
- Be registered to do business in Vermont; if they are a corporation
- Be available every day and all day during business hours
Step 3: File the Articles of Organization
After deciding on or reserving a name and appointing a registered agent, you will now need to file the Articles of Organization. This is done by completing Form LLC – 1D and submitting it to the Vermont Secretary of State, and paying a non-refundable fee of $125. You can submit this form online, by mail, or in person.
The Articles of Organization will include the following information:
- The name and address of the LLC
- The type of LLC
- The LLC’s fiscal year-end month
- A general purpose statement of the LLC
- The registered agent information
- The names and addresses of the members of the LLC
- The management structure of the LLC
- The name, address, and signature of the organizer
After processing your documents, the Vermont Secretary of State will approve or reject your application. Once approved, your LLC is officially formed and authorized to do business in the state of Vermont!
Cost to Start an LLC in Vermont
When starting an LLC in Vermont, some costs will be taken into account. The first costs are reserving a name for $20 and registering an assumed name for another $50, if applicable. The actual cost of starting an LLC is the Articles of Organization fee of $125. And finally, if you choose to hire a registered agent service, you will also need to pay an annual fee for that. Keep in mind that these are only the start-up costs. You will incur more costs later on to run your business.
What To Do After Forming Your LLC in Vermont
Now that you have successfully formed your LLC in Vermont, you still need to sort out some things before doing business.
Create an Operating Agreement
While creating an operating agreement is not a legal requirement in Vermont, it is just good business sense. An operating agreement is like a manual or a guide to your LLC. This internal document can be drawn up by a lawyer or by all members of the LLC. Having a good operating agreement can come in handy during legal disputes, as judges will lean on what was outlined in the agreement when making their decisions.
While there are no rules on what needs to be included, a good operating agreement should include the following:
- The name and address of the LLC
- The name and contact details of the registered agent
- A summary of the information provided in the Articles of Organization
- A short statement about the purpose of the business
- How all profits and losses will be divided amongst members
- All the names and contact details of the LLC members
- The roles of the different members
- The general day-to-day procedure of business
- The procedure for hiring new staff and letting staff go
- Any other important clauses you feel are relevant
All members of the LLC should read and agree on all the points listed in the operating agreement.
Obtain an EIN
An EIN or Employer Identification Number is a nine-digit number issued by the IRS (Internal Revenue Service) free of charge. The IRS uses this number to identify the business as a taxable entity. Having an EIN will allow you to hire more employees, open a business bank account, and manage all state and federal taxes.
You can apply for an EIN online or by mail.
Separate Personal Assets from Business
Using your EIN, you can open a business bank account and acquire a business credit card. This is a great way to keep track of business expenses and separate assets, which will make things a lot easier when it comes time to managing and paying taxes.
Apply for Relevant Permits
If you are selling physical objects in Vermont, you must apply for a Sellers Permit to collect Sales Tax. You can apply for this permit online using your EIN.
Depending on your business type, you may also need to apply for other licenses and permits. Check out Vermont’s business start up guide for more information.
Invest in Business Insurance
Any business owner will tell you to get business insurance before operating. A good insurance policy can offer protection from all sorts of problems that may arise. At the very least, you should consider getting general liability insurance. But if you want to shop around, consult a business attorney or broker who will be able to find the best insurance for your business needs.
Get Legal Advice
It is highly advisable that you hire a good lawyer and accountant to assist with the legal aspects of running a business. Having a lawyer can keep you from making expensive blunders that could land you in a courtroom. Tax season can be tricky, so having an accountant handling your taxes is highly recommended.
Any additional information about what to do after forming an LLC in Vermont can be found on the Vermont Secretary of State’s website.
File Annual Reports
In Vermont, all LLCs are legally required to complete and file their annual reports for a fee of $35. This report must be submitted within three months before the LLCs fiscal year-end. This report typically includes the same information found in the Articles of Organization and serves to keep your LLC’s information up-to-date with the State.
How to Keep Your LLC Compliant in Vermont
After forming your LLC in Vermont, there are several steps that you will need to take to ensure that the business remains compliant with the state. By not keeping your business compliant, you run the risk of losing the business.
Here are some ways to keep your LLC compliant in Vermont:
- File the annual report and pay the fee before the deadline
- Ensure all permits are up to date
- Ensure that you maintain your registered agent
- Remain knowledgeable of legislation and any changes
- Manage and pay all taxes on time
- Conduct business as described in the Articles of Organization
Tax Filing Requirements for LLCs in Vermont
Businesses in Vermont are required to file business entity income tax with the Vermont Department of Taxes, regardless of their chosen tax structure. This tax report is due on the 15th day of the third month after the closing of the tax year. The minimum amount Vermont business owners can expect to pay is $250. The actual amount is based on several complex calculations. To file this tax, use Form BI-471.
There are two other types of state tax LLCs may need to pay in Vermont. The first is Sales and Use Tax, which is paid only by businesses with a Sellers Permit. The second type of state tax you may be required to pay is Employer Taxes. If you have employees, you will need to register for Unemployment Insurance Tax through the Department of Labor, as well as register for Employee Withholding Tax.
On the federal level, as most LLCs are treated as pass-through entities, the business itself will not pay any federal taxes. Instead, the individual members of the LLC will pay taxes on their personal income tax returns to the IRS.
While all members of the LLC are responsible for managing and paying taxes, hiring a good accountant to assist you with the process is a smart idea.
Frequently Asked Questions
How long does it take to register an LLC in Vermont?
Applying online is the fastest way to register your LLC in Vermont. The entire process takes 1 to 2 business days and the documents can be downloaded instantly after approval. Registering by mail does take much longer, around 7 – 10 business days, not including mail time.
There is no expedited service available as online filings only take 1 business day.
What tax structure should I choose for an LLC in Vermont?
In Vermont, all single and multi-member LLCs are automatically assigned the pass-through entity tax structure. Being taxed as a pass-through entity means that the business itself does not pay federal taxes; rather, the members include the profits earned in their personal income tax return each year.
This tax structure is the most commonly used for its simplicity and because you can easily avoid being double-taxed in this manner.
That being said, if you would prefer the LLC to be taxed as a corporation, it is certainly a possibility. In fact, for some LLCs, being taxed as a corporation could be an advantage. To understand if your LLC should be taxed as a corporation instead, consult an accountant.
Should you hire an LLC formation service in Vermont?
Hiring an LLC formation service is not necessary. Forming an LLC on your own is not overly complicated; it just requires a lot of paperwork and documents to complete. However, hiring an LLC formation service could be a great idea if you prefer to focus on other aspects of the business instead of filing paperwork.