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Despite its small size, the State of Vermont boasts a vibrant climate for entrepreneurs. A number of dynamic companies call the Green Mountain State home: Orvis, Ben & Jerry’s, and Burton, to name a few. Your business could very well be counted among them—and if you choose to start a business in Vermont, you may choose to establish a limited liability company, or LLC. This article will guide you through the steps of setting up your LLC in Vermont.
How to start an LLC in Vermont
- Name your Vermont LLC
- Create a business plan
- Get a federal employer identification number (EIN)
- Choose a registered agent in Vermont
- File for your Vermont LLC Articles of Organization
- Obtain business licenses and permits
- Understand Vermont tax requirements
- Prepare an LLC operating agreement
- Examine business insurance options in Vermont
- Understand financial considerations
- Market your New York LLC
What is an LLC?
A limited liability company (LLC) is a common choice of business entity for entrepreneurs in the United States. The main benefits of running an LLC are the legal protections and tax treatment that come with it. Owners of LLCS, known as “members,” are generally not personally responsible for the LLC’s business debts—instead, liability for those debts lies solely with the LLC itself. Members are similarly insulated from damages arising from most legal claims against the LLC. Limited liability companies (LLCs) with two or more members accounted for the majority (71.5%) of all partnership returns.
The secondary benefit of running an LLC is its tax status. LLCs usually enjoy “pass-through” tax status—which means they are taxed one time at members’ personal income tax rates. LLCs also usually avoid corporate taxes on business income (unless members elect for the business to be taxed as an S corporation, but this is rare).
Is an LLC right for you?
LLC isn’t the only business structure to choose from for small business owners in Vermont. You might decide to form your business as a sole proprietorship or corporation instead. To figure out if the LLC entity type is right for you, consider the following:
- Do you have personal assets in need of protection? By forming an LLC, you can shield most or all of your personal assets from creditors or people trying to sue you.
- Are you looking to limit your tax liability? LLCs, by default, do not pay corporate taxes. They are generally classified as pass-through entities—meaning they are subject to one round of taxation at members’ personal income level. Traditional corporations are usually subject to “double taxation”—both corporate and income tax.
If you’re ready to set up your Vermont LLC, here are the steps to do so.
1. Name your Vermont LLC
Choosing a name for your Vermont LLC is one of the most important business decisions you’ll make. It’s the first step toward building enduring brand equity. A solid LLC name will communicate your business’s function and mission in a way that is distinctive, pithy, and memorable. There are also specific rules you must follow when naming an LLC in Vermont:
- The name must be unique. The name you choose for your LLC may not be in use by any other business in the State of Vermont. You can check to see if your preferred name is available by running a search through the state government’s website.
- The name must contain certain words. All Vermont LLCs must contain the words “Limited Liability Company,” “L.L.C.,” or “LLC” in their names.
- The name must exclude “bad words.” Vermont’s business naming rules stipulate that the government will not accept names that contain discriminatory, indecent, or obscene language.
2. Create a business plan
Crafting a business plan is a significant step when developing a small business, in Vermont and elsewhere. A plan can help you estimate startup costs and capacity for overhead. It can also reveal whether you might need to make adjustments to your goals or profit expectations. Lastly, business plans can also help investors evaluate the potential profitability of your business before they decide to put money into it.
A workable business plan should include your LLC’s name and a brief description of what you sell: a product, a service, or both. It should also have a market analysis, an outline of the management structure, profiles of target customers, and marketing, logistic, and financial plans.
3. Get a federal employer identification Number (EIN)
A federal employer identification number (EIN) is a federal tax ID. It’s a nine-digit number assigned to businesses by the US Internal Revenue Service (IRS) to track a business’s tax obligations. Think of it like a Social Security number for your company. You’ll need an EIN to register your LLC with Vermont authorities, and you can obtain one online through the IRS website.
4. Choose a registered agent in Vermont
All LLCs in Vermont are required by law to appoint a registered agent. A registered agent is an individual or service that is authorized to accept legal documents and other official correspondence on your LLC’s behalf.
You can appoint a member or employee of your LLC to this role, or hire a third-party individual or service. Registered agents in Vermont must have a physical office address (not a PO box) in the state. If you appoint an individual, they must be a Vermont resident. Registered agents must be available in person to sign for any correspondence during normal business hours.
5. File for your Vermont LLC Articles of Organization
Articles of Organization are the filings you must submit to state authorities in Vermont in order to formally launch your LLC. To do so, you can create an account with the state Corporations Division website, and request an Articles of Organization form, which will then be either emailed to you or sent through US Mail.
To complete the form, you will need to know:
- Your LLC’s name
- A description of the business
- Your LLC’s physical and email addresses
- The name of your registered agent and contact information
To file your completed Articles of Organization, you will need to pay a $125 filing fee.
6. Obtain business licenses and permits
Although Vermont does not require all business owners to obtain a statewide general business license, some may need to register with various state departments for the purposes of tracking tax obligations (sales tax, payroll tax, etc.) or for obtaining certain permits. You may also need to acquire licenses from local authorities, such as the City of Montpelier. Check with the Vermont Office of Professional Regulation to determine which licenses and permits apply to your particular line of business and business location.
7. Understand Vermont tax requirements
All LLCs in the state must register with the Vermont Department of Taxes to obtain a business tax account. Registration is free and allows you to access tools for calculating and paying the appropriate taxes. Taxes your Vermont LLC may be liable for include:
- Income tax. Members of LLCs must pay a 3.35% to 8.75% annual tax on income received from the LLC.
- Employment taxes. If you plan to hire employees, you will need to pay monthly payroll and unemployment taxes, which can be paid through the Department of Taxes website.
- Sales tax. If you sell products or services at retail, you will need to pay a 6% sales tax, usually on a monthly basis.
- Restricted product taxes. Special taxes are applied to certain products sold on a restricted basis, including liquor and cigarettes.
Every Vermont LLC is also required to file an annual report with the Vermont Secretary of State’s office and pay a filing fee of $45. Annual reports typically cover the LLC’s financial performance over the course of the year, and may include a balance sheet, income statements, and cash flow statements.
8. Prepare an LLC operating agreement
An operating agreement is a legal document that outlines how your LLC will conduct business. Though operating agreements are not required by state or federal law, they can provide helpful guidance for your business’s internal operations, accountability, and goal setting. An operating agreement typically includes:
- Your LLC’s business name and primary address
- How long you plan to run the LLC (perhaps indefinitely)
- Information on the LLC’s registered agent
- Information about the Articles of Organization)
- The business’s purpose and mission statement
- An organizational chart listing members and their respective investments
- How profits and losses are divided between LLC owners
- The process for admitting new members and offboarding outgoing ones
- An overall management plan
- Various indemnification and liability provisions
9. Examine business insurance options in Vermont
Unexpected losses can be devastating for any small business, and those in Vermont are no exception. While LLCs offer a degree of limited liability protection in the event of debts or legal claims, you may still want to purchase insurance to protect your business’s non-covered assets. Standard policies available in Vermont include:
- Workers’ compensation. Vermont state law requires that all businesses with employees purchase workers’ comp—an insurance package covering injuries or illnesses workers may suffer on the job.
- General liability insurance. General liability insurance provides broad, generalized coverage for your business, covering losses due to lawsuits from, for example, accidents, injuries, or negligence connected to the company, or occurring on company property.
- Commercial property insurance. Commercial property insurance covers some or all of the costs associated with repairing or replacing lost or damaged company property. It can cover costs associated with fire, weather damage, or theft.
- Professional liability insurance. Professional liability insurance protects businesses that provide certain professional services, usually in fields with a high bar for competence, like law, accounting, or real estate. This is sometimes known as malpractice insurance.
- Cyber liability insurance. Data breaches and ransomware can harm your customers and tarnish your LLC’s reputation. Cyber liability insurance covers instances in which you may have losses resulting from telling customers about an attack, compensating them in case of a claim, and paying for credit monitoring for those impacted by a breach.
The Small Business Administration maintains a list of forms of insurance your Vermont LLC may need.
10. Understand financial considerations
Insurance is just one part of a startup's financial picture. Other costs at this stage of launching your LLC might include renting an office, storage, or retail space, commissioning a professionally designed website, or paying for advertising, equipment, and/or software. You may also want to hire contractors, like lawyers, accountants, or other professionals, to support the business. Because these costs can add up, you may be interested in accessible funding options, like Shopify Capital, which lets you repay funding as a percent of your Vermont LLC’s daily sales. This allows payments to be tailored to how much money you’re making. You may also consider opening a business bank account to handle cash flow and overhead.
11. Market your LLC
Once your new Vermont business is launched, it’s time to market it. Marketing your LLC allows you to reach new customers and turn them into lifelong customers. A good marketing plan for your Vermont LLC might include elements like:
- Market research. Understanding your LLC’s target customer profile is key. You can accomplish this by thoroughly researching customer profiles, competitor products, or services, and industry trends.
- Advertising and promotion. You can design and place ads by yourself, or hire an advertising agency to do it for you. Traditional paid advertising may seem a little dated, but it’s still a highly effective tool for generating new business.
- Social media. Successful businesses today must maintain a robust online presence across multiple social media platforms—Facebook, Instagram, TikTok, YouTube, and more. Consistently publishing content that aligns with your brand identity can garner more visibility and customer engagement.
- Public relations. Developing strong relationships with the press in Vermont and even with national and foreign outlets may bring attention organically to your LLC.
- Customer retention. Building genuine relationships with customers is one way to turn them into repeat customers. You might do this by leveraging your marketing materials, digital tools, and social media presence to forge authentic connections with consumers.
Starting an LLC in Vermont FAQ
How much does it cost to form an LLC in Vermont?
Starting an LLC in Vermont costs, at a minimum, $1,245 to file Articles of Organization with the Secretary of State’s office. You will also need to pay $45 every year to file a Vermont LLC annual report.
Do you need a Vermont registered agent for your LLC?
Yes, all LLCs in Vermont must appoint a registered agent or registered agent service to receive legal documents and other official correspondence. Whether you appoint an individual (such as an employee) or a service, they must be available during normal business hours at an in-state, physical address (no PO boxes).
How do LLC state taxes work in Vermont?
LLC members must pay between a 3.35% and 8.75% personal income tax on money they receive from the LLC. LLCs themselves must pay other taxes, such as employment taxes, sales taxes, or special taxes applied to the sale of certain restricted goods, depending on the nature of the business.