If you are looking to start a business in Vermont, you may be wondering about the process of forming a Limited Liability Company (LLC). An LLC is a type of business structure that is created with the state of Vermont and is legally separate from its owners.
Related: How to start a business in Vermont
Why choose an LLC?
The Limited Liability Company (LLC) is a popular business entity choice structure for many businesses starting in the state of Vermont. The LLC provides its owners with personal asset protection and has the potential to save money on taxes.
Unlike a sole proprietorship or partnership, where the small business owner can be personally liable for lawsuits against the business, the LLC is a separate legal structure that protects the business owner’s personal assets.
Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.
Related: How to start a business in Vermont
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Steps to Form a Vermont LLC
This guide will provide the information you need to start an LLC in Vermont. The process is relatively simple, and with a little guidance, you can have your LLC up and running quickly. I will walk you through the steps in setting up your LLC and answer some common questions.
Step 1: Choose a Name for the LLC
The first step in forming a Vermont Limited Liability Company is to make sure the name you want is available.
It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of Vermont. The Vermont Secretary of State makes it easy to search and verify if your LLC name is available. Here is more information on how to do a Vermont LLC name search.
In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:
– Limited Liability Company
– Limited Liability Co.
– Ltd. Liability Company
– Ltd. Liability Co.
A comma may be used after the business name and before the designator. “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.
Before settling on an LLC name, you may want to do a domain name search to try and match a URL to your business name.
Step 2: Appoint a Vermont Registered Agent
Every LLC in Vermont is required to have a registered agent. A registered agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.
The basic requirements to be a Registered Agent in Vermont include:
– The agent must be a Vermont resident at least 18 years of age or a commercial registered agent service with a registered office in the state.
– The agent must have a physical address in the state (PO Boxes aren’t allowed).
– The agent must generally be available during normal business hours at the address provided to receive service of process.
Learn more about the requirements for a registered agent in Vermont.
An individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed. Hiring a commercial registered agent service like Northwest Registered Agent will help protect the owner’s privacy.
Step 3: File the Vermont Articles of Organization
The paperwork to officially create an LLC in Vermont is called the Articles of Organization. Either file online through the Vermont Secretary of State’s website. If you prefer to fill out and mail the application, download the Articles of Organization Form LLC-3(D) to submit the paperwork.
When filling out the Articles of Organization, a few sections, and terms can be confusing. Let’s go over a few of these sections to help get your LLC started right.
Business Description – This section asks for information regarding the activities of the business. To answer, there is a number called NAICS (North American Industrial Classification System). The NAICS is a six-digit number that classifies and categorizes the different business industries. This information is used in reporting statistical data for each of the industries in the U.S. Remember this number as you will need it when filing annual tax returns. You can do a more in-depth search for your NAICS number here.
Domestic Jurisdiction – Vermont is automatically chosen as the domestic jurisdiction and can’t be changed in this section.
Physical Address – In this section, enter the street address, city, state, and zip code of the initial principal office. This address can be the LLC’s physical address or the address where the business records are stored. You may not use a PO Box for the designated office.
Mailing Address – A mailing address is required, and it can be the same as the Principal Address. If the LLC records should be sent to a different address, enter that information in the Mailing Address Section. If the address is the same as the principal office, click on the “Use this address as the Mailing Address also” box to copy the Principal Address address.
Any address is acceptable regardless of location or PO Box.
Fiscal Year End (Month) – Select the preferred ending month for the LLC’s fiscal year. Single-Member LLCs and LLCs taxed as a partnership should choose December.
The default end month is December by the state.
Manager/Member Information – This section asks about the management choice of the LLC.
– Member-Managed LLCs have an active involvement in the management and have the authority to act on behalf of the LLC.
– Manager-Managed LLCs are hired by the members to run the LLC, similar to a CEO of a corporation. This is generally used when there are passive members in the LLC, and the LLC members do not actively manage or operate in the affairs of the business.
Most LLCs are member-managed.
What To Do After Forming A Vermont LLC
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare a Vermont LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.
Vermont Statute 11 V.S.A. § 4003 states that every Vermont LLC may adopt an operating agreement, but it isn’t required by the Vermont Secretary of State, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Related: Vermont operating agreement template
Obtain an EIN
If the LLC will hire employees or is owned by more than one member, an EIN is required.
The EIN or Employer Identification Number (also referred to as a Federal Employer Identification Number, FEIN, or Federal Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, build business credit, register for business licenses and permits, file federal and state taxes, and more.
There is no cost for the EIN 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.
If an Employer Identification Number isn’t required, the LLC can use either the owner’s social security number or register for an EIN.
Related: How to Apply for an EIN
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the 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 LLC formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- Occasionally, the bank will request a Vermont Certificate of Good Standing to prove the LLC is active and in good standing with the state.
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting the business. Some common registrations include:
- Business License – Some cities require businesses to obtain licensing before starting.
- Professional License – Certain services, such as barbershops, accountants, salons, and others, must be licensed.
- Sales Tax Permit – To sell products and certain services, registration with the Vermont Department of Taxes will be necessary.
File the Vermont LLC Annual Report
LLCs are required to file an annual report with the Vermont Secretary of State. The annual report filing fee is $35 each year, and the due date is based on the LLC’s fiscal year. Most LLCs choose their fiscal year as the calendar year, which means their tax period runs from January 1st – December 31st. The annual report in Vermont is due within 3 months following the end of the fiscal year, so LLCs that use the fiscal year would have their reports due by March 31st.
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Vermont LLC FAQs
How much does it cost to start an LLC in Vermont?
The cost to file the Articles of Organization with the Vermont Secretary of State and form an LLC in Vermont is $125.
How long does it take for an LLC to be approved in Vermont?
The paperwork to start a Vermont LLC will vary depending on how the Articles of Organization are filed. LLCs formed online are typically processed in one business day, while the mailed-in form can take 7-10 business days.
How much does it cost to file an annual report in Vermont?
Each year, an annual report and the filing fee of $35 must be submitted to the Vermont Secretary of State.
Where do you check if your Vermont LLC name is available?
You can check if your LLC name is available by searching the business name database on the Vermont Secretary of State’s website.
If your proposed LLC name is already in use, you will need to choose a different name for your company.
Do I have to pay to hire a registered agent?
No. Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state, and are generally available to receive documents during normal business hours.
Related: What is a registered agent?
If you have an LLC, is a business license required?
It’s sometimes thought that the LLC and business license are the same in Vermont, but they aren’t. An LLC is referred to as a business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to operate legally.
Most businesses in Vermont will need to register with a variety of government agencies. Vermont business license requirements are based on what the business does or where it is located in the state, not on the type of entity.
What is a Foreign Limited Liability Company?
A foreign LLC isn’t a special type of LLC. Instead, it’s an LLC that was formed in another state that wants to operate physically in Vermont. Physically operating means having a presence, such as having an office or hiring an employee.
What is a Professional Limited Liability Company?
Businesses that require occupational licensing in Vermont, such as accountants, architects, veterinarians, etc., will want to file for a Professional Limited Liability Company (PLLC) instead of an LLC. Filing for a PLLC is very similar to that of the LLC.