How To Form A Corporation In Vermont

A corporation is a business structure that provides personal liability protection by separating the owner’s personal assets from the business’s assets. Thus, a corporation is liable for the business’s actions and finances, while the owners (known as shareholders) are not.

Corporation Pros

• Corporations provide liability protection for the shareholders
• A corporation can raise non-debt financing by selling shares of the business
• Taxation may be lower than a sole proprietorship or partnership

Corporation Cons

• Corporations are more complex and expensive to set up than sole proprietorships, partnerships, and Limited Liability Companies (LLCs)
• At a minimum, corporations are required to hold an annual board of directors meeting and shareholders meeting, take minutes at the meetings, issue shares, etc., to maintain the entity’s liability protection.

Generally, Corporations are chosen over Limited Liability Companies when a significant amount of funding is being raised from investors. However, due to the cost and complexity of a Corporation, most small businesses are better off forming an LLC.

Related: How To Form An LLC In Vermont

The following steps are to create a domestic Corporation, which is the most common type for businesses. The other types of Corporations in Vermont include a foreign Corporation (an out-of-state Corporation wanting approval to physically operate in the state), a professional Corporation (designated for Corporations offering professional services), or a non-profit Corporation.

Related: Vermont Business Checklist

Steps to Forming a Corporation in Vermont

Step 1: Choose a Name

The first step in forming a Corporation in Vermont is selecting a name.

The name of the corporation has to be different from other entity names in the state of Vermont.  Check available corporation names in Vermont.

The name of the Corporation must include one of the following designators at the end of the business name:

• Corporation
• Incorporated
• Company
• Limited
• Or an abbreviation for one of those words: Corp., Inc., Co., or Ltd.

A comma may be used after the business name and before the designator.  For example, “Common Grounds Coffee Inc.” and “Common Grounds Coffee, Inc.” are both acceptable.

If there is a name you want but are not ready to register the Corporation, you can file a Name Reservation with the Vermont Secretary of State. The name reservation will hold a name for up to 120 days.

While a Corporation has to select a unique name that another Vermont Corporation isn’t using, that doesn’t guarantee that the name isn’t currently used by someone else.  Before registering a Corporation name, be sure to do a trademark search to verify it is available for you to use.

Step 2: Choose a Registered Agent

To have a Corporation in Vermont, a Vermont Registered Agent must be identified to act as service of process. This is essentially a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the Corporation. The agent can either be a resident of Vermont or a commercial registered agent service.

You can act as the Corporation’s Registered Agent in Vermont, and you are not required to pay for a registered agent. The requirements to be a Registered Agent include someone generally being present at a registered address in the state during normal business hours.  A PO Box is not allowed.

Related: Do I Need To Hire A Registered Agent In Vermont?

Step 3: File the Vermont Articles of Incorporation

Next, you can start filing the Articles of Incorporation with the Secretary of State. The Articles of Incorporation can be filed on the Secretary of State’s website or with Form Corp 1(G).

The information requested includes:

• The name of the Corporation must contain the words “Corporation,” “Incorporated,” “Company,” “Limited,” or an abbreviation.
• Corporation Type – Professional Corporation, Workers’ Cooperative Corporation, or Benefit Corporation.
• Fiscal year end month
• Business Description. It is preferred to enter the NAICS Code; however, a brief statement of the primary goods or services provided by the business can be entered.
• Initial principal business office
• Initial Registered Agent’s name and physical address
• Information on the total number of shares the Corporation is authorized to issue, par value of the stocks, and types of shares (common shares or preferred shares)
• Name and address of the incorporator.   This can be one of the owners of the Corporation or someone helping with the formation of the entity.
• Name and address of the initial directors
• The effective date of the articles. If you want to finalize the corporation’s paperwork but not have it start until 90 days in the future, enter the future date. Otherwise, leave it blank.

The Vermont Articles of Incorporation can be filed online or submitted by mail.  The mailing address is:

Vermont Secretary of State
Corporations Division
128 State Street
Montpelier, VT 05633-1104

Step 4: Create Corporate Bylaws

Bylaws are the general guiding principles and procedures for a business’s operations. For example, the bylaws may include the name of the corporation’s officers, the responsibilities of the board members, terms of office, procedures for removing or adding a new director or shareholder, policies for authorizing new shares, when shareholder and director meetings will be held, and more.

Step 5: Hold the Initial Board of Directors Meeting

During the first board meeting, the board of directors will, at minimum, elect the corporation’s officers (the President, Vice President, Treasurer, and Secretary). They will also typically review and approve corporate bylaws, choose a bank, issue shares of stock, and decide whether the Corporation will be taxed as a C corporation or S corporation.

Taking meeting minutes at all meetings is necessary to protect the shareholders from lawsuits and court actions. The minutes provide a written record of all decisions and actions taken during the meeting. Minutes aren’t filed with the state but should stored along with other corporate documents.

Step 6: Issue Shares of Stock

The corporation can exchange shares of stock in exchange for money or services. The number of shares of stock issued cannot be more than the number of authorized shares listed in the Articles of Incorporation.

Step 7: Obtain an EIN

The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to an individual’s social security number, the EIN identifies the corporation for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file tax returns, and more.

The EIN is free 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.

Step 8: Elect the Corporation’s Form of Federal Income Taxation

By default, a new corporation will be taxed by the Internal Revenue Service (IRS) like a C-Corporation.  C-Corporations pay corporate taxes on their profits, and the owners pay personal income taxes on their dividends.

A Corporation can elect to be taxed as an S-Corporation. S-Corporations are taxed as “pass-through entities,” meaning the Corporation does not file corporate taxes. Instead, the profits (or losses) “pass through” to the shareholders, who then report this income on their individual taxes.

For most small businesses, the S-Corporation tax election is the most beneficial because it eliminates the double taxation of the C-Corporation. This tax election can be changed; however, it is highly recommended to talk with an accountant before making this decision.

Step 9: Open a Bank Account

Opening a bank account for your Corporation is important for liability protection as the bank 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 Articles of Incorporation showing the creation of the Corporation in addition to the bylaws.
• Driver’s licenses of the members.
• Depending on the age of the Corporation, a Vermont Certificate of Good Standing may be needed to prove the business entity is active and in good standing with the state.

Step 10: Apply for Business Licenses and Permits

Depending on what your business does and its location, various business licenses and permits will likely be needed before starting your business. Some common registrations include:

Business Licenses: The state of Vermont doesn’t have a general business license; however, many cities require a business license to operate.

Business Tax Registration: Most businesses will register for a Vermont Business Tax Account with the Vermont Department of Taxes. This allows for the registration of several accounts with the state, such as the Sales and Use Tax for businesses selling products and certain services and the Employer Withholding Tax for businesses with Vermont employees.

Professional Licensing – Some professions and occupations, such as barbers, athletic trainers, and tattoo artists, require licensing and will register with the Vermont Office of Professional Regulation. While this isn’t a license on the business, licensing is required to operate.

Related: How To Register A Business In Vermont

Step 11: File Annual Reports

Corporations are required to file an annual report with the Vermont Secretary of State.  The due date is based on their fiscal year. Most Corporations choose their fiscal year as the calendar year, which means their tax period runs from Jan 1 – Dec 31.  The annual report in Vermont is due within two and a half months following the end of the fiscal year, so Corporations that use the calendar year as their fiscal year would have their reports due by February 15^th.