A LLC or Limited Liability Company is a way of structuring a business that provides limited liability to its members (owners) like a corporation, but also the structural and tax flexibility of a partnership. The limited liability aspect of the LLC protects the personal assets of its members from creditors and lawsuits that may come from the business. The incorporators can also choose whether the business should be taxed as a corporation or as a pass-through entity such as a partnership.
A LLC can only be formed under state law. As a result, the requirements and protections for LLCs can vary widely from state to state. While there is a lot of flexibility in creating and structuring LLCs in Vermont, there are a few mandatory requirements:
- Choose a name for the LLC. This name must be different from all other business names on record at the Vermont Secretary of State and must include the label “Limited Liability Company” (“LLC” or Ltd Co”) or “Limited Company” (“LC” or “Ltd Co”).
- Obtain a registered agent. Vermont requires that every business entity have a registered agent to make sure that any important information or any legal issues will make it to the LLC. The registered agent can be any individual or business with a physical address in Vermont.
- Certificate of Formation. The Secretary of State provides PDF fillable Certificates of Formation for creating all types of business entities. This document requires the name of the LLC, the physical address of the LLC, name and address of the registered agent, names of officers or directors
- Annual Report. All Vermont LLCs are required to file an annual report within the first 3 months following the end of its fiscal year. Annual reports can be filed online or mailed to the Secretary of State.
The forms required to form your business as a LLC can be found at the Secretary of State website. The Certificate of Formation along with a processing fee can be filed online or mailed to the Secretary of State.
There are several reasons why you might want to structure your business as a LLC:
- Limited Liability: Like a corporation, LLCs shields the personal assets of its members from the debts and legal liability of the company.
- Tax Flexibility: LLCs can choose either to be taxed as a pass-through entity or as a corporation. Most LLCs choose to be taxed as a pass-through entity to avoid the double tax associated with corporations. If the LLC chooses to be taxed as a pass-through entity, then company revenues are only taxed when received by the LLC’s members and taxed according to their personal income bracket.
- Organizational Flexibility: Through writing an Operational Agreement, LLC’s can choose whether they will be run by members (owners) or other managers and provides the LLC flexibility to operate as needed.
- Money Distributed by Agreement Not Ownership: Members of the LLC can choose any desired method for distributing profits and are not bound by traditional partnership agreements. The only limitation is that it must be included in the Operational Agreement.
While the limited liability and the tax flexibility of a LLC can be appealing, there are a few disadvantages to structuring your business as a LLC:
- Filing and Fees: Unlike a general partnership or sole proprietorship; LLCs require filing formation forms and payment of some administrative fees which can cost upwards of $150 and may require a lawyer.
- Limited Legal Precedent: LLCs are a newer form of business organization and have less case law covering its protections and limitations.
If you are looking for an attorney to help you with structuring your business, then contact a local Vermont corporate lawyer today to get the help you need.