How to Form a LLC in Vermont?

A limited liability company (“LLC”) is a specific type of business structure that a business owner may form. According to United States business law, if an individual files a lawsuit against a corporation and the lawsuit is successful, only the corporation will be liable to pay money out of the corporation’s assets.

This means that individual members and owners’ assets will not be accessed when determining liability or paying corporate debts. As such, this is one of the main attractions for prospective business owners when choosing how to structure their business. Members and owners of an LLC are also not responsible for any damages awarded against the corporation in a lawsuit.

One of the main disadvantages of forming an LLC could be double taxation. Double taxation means that corporate profits are first taxed to the corporation as earned, and then the profits are taxed to shareholders as capital gains income when the shareholders receive their respective dividends. Another example of a disadvantage associated with an LLC is that the liability of LLC structures is such that owners can still be sued for their negligent actions.

Similar to partnerships, LLCs are not taxed at the entity level. This means that, unlike corporations, they do not pay taxes as an LLC. The only taxes paid are paid by individual members who have earned profit.

To reiterate, limited liability companies differ from corporations in ownership structure. LLCs are owned by their members or individuals, while shareholders own corporations. Additionally, LLC owners generally are not personally liable for the liabilities or debts incurred by the LLC. This allows LLC owners to manage the business without being concerned with losing their assets.

Who Should Form an LLC?

In terms of who should consider forming an LLC, prospective business owners who want to own a small business should always consider forming an LLC. As mentioned above, forming an LLC protects an individual’s assets by limiting liability to the LLC’s resources. As such, if the LLC is sued, the small business owner will not have to pay the lawsuit damages out of their assets.

Business owners interested in forming a business with minimal paperwork and costs should also consider forming an LLC. This is because LLC formation only requires filing simple documents, such as articles of organization with the state. A small filing fee must also be paid. This small fee is generally less expensive than required for forming a traditional corporation.

Additionally, keeping track of LLC income and expenses is considerably simple. This is because under an LLC business structure, a separate tax return filing is not required. Instead, members and managers will report all their respective income and expenses on their tax returns.

The management of an LLC is also often simple. An LLC with two or more individuals can develop an operating agreement. In an operating agreement, the members will provide details regarding how the LLC is governed, how profits will be allocated to each member, and what members’ votes are needed for specific actions the LLC takes.

An operating agreement may also address how the LLC may be dissolved or shut down. The operating agreement will also commonly provide rules as to how disputes among LLC members are to be resolved and address what happens if a managing LLC member dies or becomes incapacitated.

How Do I Form an LLC in Vermont?

To form an LLC in Vermont, business owners must complete all of the state requirements. The following is a list of state requirements necessary to form an LLC in Vermont:

• Choose a Name for the LLC: The first step in forming a valid LLC in Vermont is to choose a name that is different from all other business names on record with the Vermont Secretary of State.
  • One way to ensure that the chosen name doesn’t conflict with an existing business is to conduct a precursory search of the name in the Vermont Secretary of State’s database;
  • Additionally, the chosen name must also include the label “Limited Liability Company,” “LLC,” “Ltd Co.,” “LC,” or “Limited Company”;
• Obtain and Identify a Registered Agent: Vermont also requires that every business entity have a registered agent to ensure that any important information or legal issues are properly delivered to the LLC.
  • Important the registered agent may be any individual or business, so long as the individual or business has a physical address in Vermont;
• File a Certificate of Formation: The next requirement is to file a certificate of formation with the Vermont Secretary of State office.
  • Importantly, the Vermont Secretary of State office provides online fillable Certificates of Formation for creating many business entities, including LLCs.
  • A certificate of formation requires the name of the LLC, the physical address of the LLC, the name and address of the registered agent, as well as the names of the officers or directors of the LLC; and
• File Annual Reports: After an LLC has been properly formed, all Vermont LLCs must file an annual report within the first 3 months following the end of the LLC’s fiscal year.
  • Annual reports can be filed online or mailed to the Secretary of State.

What Are the Advantages of Forming an LLC in Vermont?

As noted above, forming an LLC in Vermont has many advantages. First, owners of an LLC in Vermont will have limited liability protection similar to that of a traditional corporation. This means that owners’ assets will be protected from lawsuits or other legal liabilities in most cases.

Additionally, having an LLC offers a lot more flexibility for profit distribution and does not require a 50-50 profit split like partnerships. Further, all of an LLC’s business losses, profits, and expenses in Vermont will flow through the company to the LLC’s members and owners. Because of this, LLC members and owners in Vermont can avoid the double taxation of paying both a corporate tax and individual tax. Vermont laws allow owners to choose any desired method for distributing profits of the LLC, so long as the distribution scheme is included in the operational agreement.

What Are the Disadvantages of Forming an LLC in Vermont?

Although the limited liability and the tax flexibility of an LLC are appealing, there are a few disadvantages to forming an LLC in Vermont. For example, the following are common disadvantages of forming an LLC in Vermont:

• Filing and Fees: Unlike a general partnership or sole proprietorship in Vermont, LLCs require filing formation forms and the payment of administrative fees, which can cost upwards of $150;
• Dissolution: An LLC in Vermont is also easily able to be dissolved if a member or owner passes away or based on the terms of the operating agreement; and
• Limited Legal Precedent: As a newer form of business organization, LLCs have less case law regarding its protections and limitations.

Do I Need a Lawyer for Help With Forming an LLC in Vermont?

If you want to form an LLC in Vermont, you should contact an experienced Vermont corporate lawyer. An experienced corporation attorney can help you navigate through the LLC formation process. Additionally, an experienced business attorney will also be able to ensure that you choose the most appropriate business structure suited to the needs of your business.

Additionally, an attorney will also be able to educate you regarding the upkeep of the LLC, along with explaining the local tax laws. Finally, an attorney will also be able to represent you in court, as needed, should any legal issues arise regarding the LLC.