1. Steps to Form a Vermont LLC
2. Advantages of a Vermont LLC
3. Virtual Limited Liability Companies
4. What to Include in a Vermont LLC Operating Agreement

Updated November 26, 2020:

The Vermont Limited Liability Company Act governs businesses that want to be an LLC in the state. It spells out the duties of an LLC and how to form a new business in Vermont.

Steps to Form a Vermont LLC

  1. Choose your LLC name, which must be distinguishable from other businesses already on file. It must contain some version of “LLC,” “Limited Liability Company,” “L.L.C.,” “Ltd.”
  2. File articles of organization, which is what creates your LLC. These can be filed online or sent via mail. It will ask for specific information like address, purpose, what your fiscal year will be, whether the LLC is member-managed or manager-managed, etc.
  3. Appoint a registered agent, which is required under the Vermont Limited Liability Company Act.
  4. Create your operating agreement, which sets forth the LLC's guidelines, duties, responsibilities, etc.
  5. Verify you comply with regulatory and tax requirements.
  6. Obtain a Federal EIN number, which is required if the LLC has more than one member, even if there are no employees. Single-member LLCs must get an EIN only if it will have employees or you opt to be taxed as a corporation.
  7. Obtain any other required business licenses as required in the state and/or your local jurisdiction.
  8. Check with the Department of Taxes to verify whether you need to register your business.
  9. File your annual report. This is due within three months from the end of your LLC's fiscal year. There is a fee of $35 for Vermont LLCs and $140 for LLCs registered in a foreign state.

Advantages of a Vermont LLC

There are several advantages to forming an LLC in Vermont thanks to the Vermont LLC Act:

  • Members have contractual freedom to create both voting and non-voting classes of members, as well as customizing shares of profits, losses, and capital contributions.
  • There is no requirement to file members' names, as the Act allows for a business or legal entity to be the “person” who forms the LLC.
  • LLCs have unlimited life in Vermont, unless there is a section in the articles of organization that limits the LLC's duration.
  • You can customize each party's duties to other parties.
  • You can prohibit members from transferring their interest in the LLC agreement.
  • Creditors only have passive rights rather than a right of control if a creditor obtains a charging order

Virtual Limited Liability Companies

Virtual LLCs are ones that do not have a physical address and don't require a physical presence of its founders. Vermont first legalized these in 2008. You would have minimal reporting requirements in Vermont with a VLLC, but there would still be some tax exposure. If you intend to live and operate your business in whatever state you reside, you are still required to pay tax in your home state, regardless of what state your LLC is formed in.

What to Include in a Vermont LLC Operating Agreement

You want to draft a comprehensive LLC operating agreement, and some basic items should be included:

  • Basic Identifying Information
    • Effective date of the agreement and names of the parties
    • The name under which the LLC will be conducting business
    • Purpose of the LLC
    • Principal business office location
    • Registered agent
    • When the LLC starts and details regarding termination date, if applicable
    • How additional members are added
  • Capital Contributions
    • Initial contributions
    • No interest allowed on capital contributions unless expressly provided in the operating agreement
  • Allocation of Profits and Losses
    • How profits and losses are determined on an annual basis
    • Time intervals for distributions
    • No right for members to demand the return of their capital unless expressly noted in the agreement
  • Indemnification
    • An indemnification clause is important to include in your operating agreement
  • Manager Duties and Powers
    • What authority members have regarding decision making
    • How management decisions are handled (majority interest of members)
    • Whether a member has the right to withdraw from the company
  • Salaries and Reimbursement
    • No salary paid to members unless approved by a majority of members
    • How business expenses are handled
    • Procedures for legal and accounting services
  • Taxes and Accounting
    • What the planned method of accounting is
    • What is the fiscal year
    • Capital accounts
    • Banking accounts
  • Membership Interest Transfer
    • Unless expressly permitted, sale or encumbrance is prohibited
    • How membership interest transfers are handled
    • Member's right of first refusal
    • Requirement to provide written notice if a member wants to transfer interest

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