There are several business structure options available for business owners when setting up their company. These can include:
- Sole proprietorships. A sole proprietorship is the easiest to form – a single person operating a business. The operator receives all of the company’s earnings but is personally on the hook for all its debts. There are no paperwork requirements – nothing needs to be filed with the state to form one.
- General partnership. A general partnership is almost as easy to create as a sole partnership. The only significant difference is that the business has more than one owner. The partners share both profits and losses equally and are personally responsible for the company’s debts. There is no need to file anything with the state.
- Corporations. Corporations were invented to protect against the possibility of needing to sell their homes to pay company liabilities. The worst you can do is lose your investment in the company’s stock. Corporations are complex and expensive to run, however. For example, they must have a board of directors and, by law, must meet at specific times. Corporations are not practical for small businesses.
- Limited partnership (LPs). Limited partnerships include many of the benefits of both sole proprietorships and corporations. They are easy to form, like sole proprietorships, and are not bogged down with a corporation’s paperwork responsibilities. Limited partners’ personal assets are protected because, like with a corporation, the most they can lose is their investment.
- On the downside, limited partners may not be involved in the operation of the business, or they lose their protected status as a limited partner. Essentially they must be silent partners. An LP must have two kinds of partners: limited and general. The general partners run the company, are on the hook for its debts and liabilities, and (usually) reap the bulk of its rewards.
What are the Requirements for Forming an LP in Vermont?
Companies must meet several requirements to become an LP. For example, the company’s name must include “L.P.” or “Limited Partnership.” The LP must be registered with the state of Vermont. As mentioned, the organization must have at least one general partner and one limited partner.
The LP must have an office in the state of Vermont. It also has to appoint an agent for service of process who is either a resident of Vermont or authorized to do business in Vermont. (This agent is the person who will receive and process any paperwork for the LP related to lawsuits or legal issues.)
What are the Requirements for Forming an LP in Vermont?
Companies must meet several requirements to become an LP. For example, the company’s name must include “L.P.” or “Limited Partnership.” The organization must also have at least one general partner and one limited partner.
The LP must have an office in the state of Vermont. It also has to appoint an agent for service of process who is either a resident of Vermont or authorized to do business in Vermont. This agent is the person who will receive and process any paperwork for the LP related to lawsuits or legal issues.
What Paperwork Do I Need to Form a Vermont LP?
To register a domestic LP, you must complete a Certificate of Limited Partnership. This form will require you to state the name and principal place of business of the LP, a general description of the business, the names and addresses of the general partner(s) (but not the limited partners), the name and address of the registered agent, and the effective date of the start of the partnership and its termination date.
All general partners have to sign the Certificate and the person filling out the paperwork. You can include the purpose of the LP, although you are not required to do this.
You may register your business online or by sending the application to the Office of the Vermont Secretary of State via mail.
Partnership Agreement
While not legally required by the state of Vermont, a limited partnership agreement outlines some of the key operating principles of the business. Even though you don’t have to submit it to the state to form your LP, it’s still a vital document describing the exact nature of the agreement between the general and limited partners. This document clarifies that the limited partners do not participate in the operation of the business and thus preserve the status as only an investor.
The information included in a limited partnership agreement does vary depending on the nature of your business, the size of your company, and some other variables. In general, it’s good to get the following information down in writing:
- Identities and roles of general and limited partners
- Allocation of profits/losses
- Voting rights and meeting plans
- The term (in years) of your partnership
- Conditions for transfer of a limited partner’s share
- The anticipated process of dissolution
What Benefits Does Vermont Provide for Limited Partnerships?
Vermont does provide some incentives and benefits that apply to businesses, including LPs. The Vermont Employment Growth Incentive (VEGI) program provides funds for businesses that need money to provide economic growth that would not be possible without the program. The state also has tax credits for businesses conducting research and development in Vermont and for businesses that invest in energy, coal, or gas projects.
One main benefit of LPs, in general, is that they are less subject to immediate dissolution than a normal partnership is. When one partner leaves the business, the partnership is immediately dissolved into a general partnership. This can be problematic regarding the company’s contracts with clients and suppliers.
Under the rules governing limited partnerships, the limited partners can withdraw from their role without the partnership dissolving as a result. This type of feature can allow long-term changes to be made in the business without causing a delay in business operations.
What Disadvantages Do Vermont LPs Face?
Vermont has one of the highest personal income tax rates at 8.95%. This may affect LPs negatively because their profits are taxed through the partners’ personal income tax. Vermont also enforces a business entity tax that requires LPs to pay a minimum of $250 per year. Finally, an LP must file an amendment to its paperwork with a new termination date if it wants to continue beyond its original stated termination date.
While LPs will not automatically dissolve if a limited partner retires or withdraws, these types of incidents can still result in partnership disputes or other business challenges. These situations can depend on what the partnership agreement or contract says, so it may be best to have an attorney review any agreements.
Should I Hire a Business Lawyer for Help Forming an LP in Vermont?
Contact a Vermont corporate lawyer if you are considering forming an LP in Vermont. They can help you register your LP and fill out all of the required paperwork to make it legal. Your attorney can also provide representation if you face legal disputes or conflicts.
