Articles of Organization

The formation of a Vermont LLC means that you have to file articles of organization (along with the $75 filing fee) with the Corporations Division of the Vermont Secretary of State’s office. The articles—which must be signed by at least one of the LLC’s managers, members, or organizers—must include:

• The LLC’s name
• The LLC’s duration; if for a specified time period (“term”) or of perpetual duration (“at-will”)
• The street address of the LLC’s registered office
• The name of the LLC’s registered agent there
• Names and addresses of all organizers
• A statement that the company will be managed by one or more managers, if applicable
• If the company will be managed by managers, their names and addresses
• Whether the LLC members will be personally liable for the LLC’s debts and obligations
• The title of the manager(s), member(s), or organizer(s) who signed the articles

Your new LLC is considered officially “organized” once an original and a copy of the articles of organization are delivered to the Secretary of State and are found to comply with state requirements. The Secretary of State endorses both copies but retains the signed original and returns the copy to the LLC or its representative.

Registered Agent and Office

Vermont LLCs are required to maintain an in-state registered agent—the person or office designated to receive official state legal and administrative correspondence. An LLC’s registered agent may be an individual who resides in Vermont or a business entity authorized to do business there. The registered office may be—but doesn’t have to be—the LLC’s place of business, or one of them.

Operating Agreement

Another very important document for your new LLC is its operating agreement. Having an operating agreement is not an official requirement, but it’s a critical internal document that explains how the LLC will actually run. The operating agreement should list the LLC’s members, how much each one has invested, how profits will be distributed, and how much relative weight each member has when voting. It can be amended or repealed as specified in the agreement itself or by state law.

The operating agreement can also include requirements for meetings (notice, quorum, voting rules, etc.) and similar functions, but it doesn’t have to. Often, however, it does include operating constraints and allowances that are already contained in state law and regulations. It also may contain constraints on the members’ authority to amend or repeal the operating agreement or any of its provisions.

Membership in the LLC

A Vermont LLC must have at least one member; all members must be individual persons (as opposed to business entities). Members may acquire an interest in the LLC with the consent of the majority of the members, by making a contribution to the LLC, or in some other manner laid out in the articles or organization or operating agreement.

Member contributions to the LLC may consist of cash, property, services rendered, or a binding obligation (such as a promissory note) to make these kinds of contributions in the future.

Members may resign from the LLC, but only in accordance with procedures specified in the articles of organization or operating agreement. A member is not allowed to resign before the completion of the minimum time set for membership specified in the articles of organization or the operating agreement. If a member resigns wrongfully, the LLC may pursue remedies for any damages suffered by the LLC as a result of the resignation.

Ongoing Requirements

All Vermont LLCs must submit an annual report to the secretary of state that includes:

• The LLC’s name and the state where it was originally formed
• The address of the registered office
• The name of the LLC’s registered element of state
• The address of the LLC’s principal office
• The names and addresses of the managers, if applicable

Dissolution

A Vermont LLC is dissolved when any one of the following events occurs:

• An event specified in the articles of organization or operating agreement as requiring dissolution
• When the time for expiration arrives that is specified in the articles of organization
• When a member leaves the LLC, unless:
• The remaining members agree within 90 days to continue the business
• The company continues under a right laid out in the operating agreement
• Written consent to dissolve by the number or percentage of members specified in the operating agreement
• An event that makes it illegal for the LLC to continue
• A court order mandating dissolution

Taxes

An LLC by its nature offers some specific advantages over a corporation’s organizational structure, including access to more deductions, since the LLC is not required to be a separate tax entity like a corporation. Instead, it is considered a “pass-through” entity for tax purposes, meaning that LLC owners report business profits and losses on their individual tax returns.

Unless you choose to tax the LLC as a corporation, the IRS treats single-member LLCs as sole proprietorships for tax purposes. This means that the LLC itself does not pay taxes on its own behalf and does not have to file a tax return as such.

Additionally, the IRS treats multi-owned LLCs as partnerships for tax purposes. This means that LLC owners (not the LLC itself) each pay taxes on their share of the LLC’s profits on their personal income tax returns.

The LLC tax rate for Vermont is variable, based on net Vermont taxable income. Vermont's personal income tax system is made up of five brackets with a top rate of 9.5 percent that takes effect at $357,700. Among states with individual income taxes, Vermont's top rate ranks fourth highest nationally.

Articles of Incorporation

Before it can legitimately begin operations in the state, a new Vermont corporation must file articles of incorporation with the Vermont Corporations Division of the Secretary of State’s office. The articles must be executed (signed) and delivered by at least one incorporator—who must be a natural person (not a business entity) of legal age—and accompanied by the $75 filing fee. The following information must be included in the articles:

• The number of shares the corporation is authorized to issue
• The classes of shares, if any, and the number of shares in each class that the corporation is authorized to issue
• A statement as to any classes of shares that together have unlimited voting rights
• One or more classes of shares (which may be the same class or classes as those with voting rights) that together are entitled to receive the net assets of the corporation upon dissolution

Vermont also permits optional provisions to be included in the articles, such as:

• The names and addresses of the initial directors
• The corporate purpose(s)
• Provisions for regulating the powers of the corporation, its board of directors, and shareholders
• A par value for authorized shares or classes of shares
• Provisions establishing the preferences, designations, limitations, and relative rights of share classes
• Any situations requiring shareholder personal liability for corporate debts

Registered Agent and Office

Every Vermont corporation must have a registered agent in the state—the person or office designated to receive official state administrative and legal correspondence.

The registered agent must be either a Vermont resident whose business office is the same as the registered office, or a corporation authorized to conduct business in Vermont that has a business office identical to the registered office.

Bylaws

Bylaws lay out the corporation’s basic managerial and legal operating principles that manage their internal affairs. Vermont corporations must keep a copy of their bylaws at their principal executive office, but are not required to file them with the state.

At its initial meeting, the incorporators or the board of directors should adopt corporate bylaws, and then keep them updated as time goes on. If no directors have been elected the incorporators may adopt initial bylaws for the corporation. If neither the incorporators nor the board of directors have adopted initial bylaws, the shareholders may do so.

The board of directors of a corporation may adopt, amend, or repeal bylaws, unless the articles reserve this right to the shareholders. Bylaws normally address:

• Shareholders and directors meetings
• The authority, number, and tenure of directors
• Voting procedures
• The duties, responsibilities, and tenure of officers
• How stock is issued
• How and when annual financial information is provided to shareholders

Directors and Officers

A corporation’s board of directors must consist of three or more individuals, with the number specified in the corporation’s bylaws or articles of incorporation. If the number of shareholders in any corporation is less than three, the number of directors may be as few as the number of shareholders.

Officers are listed in the initial bylaws or elected by the board of directors, and may appoint other officers in accordance with the bylaws. There must be at least a president and a secretary. Officers may appoint other officers in compliance with the bylaws and board of directors. At least one officer has the responsibility of preparing minutes of director and shareholder meetings, and for maintaining and authenticating corporate records.

An officer may hold more than one office in the corporation unless the corporation is a professional corporation.

Required Reports

Your new Vermont corporation must file an annual report with the state Secretary of State within two and a half months following the end of each fiscal year. This report must indicate:

• The corporation's name and its place of incorporation
• The address of the corporation’s registered office
• The name of its registered agent there
• The address of the corporation’s principal office
• The names and addresses of the corporation’s directors, president, secretary, treasurer, and all others with policy-making authority

The corporation must mail annual financial statements to its shareholders within 120 days after the close of its fiscal year. These statements must include (as a minimum) a balance sheet, income statement, and a statement of changes in shareholders' equity.

Taxes

Vermont’s corporate tax system has three brackets with an annual minimum payment of $250 and a top rate of 8.5 percent on corporate income of over $25,000.

The Green Mountain State recognizes “S corporation” status. A “subchapter S” corporation (frequently referred to as an “S corp”) is treated as a pass-through entity for tax purposes in the same way as a sole proprietorship or partnership. The S corp does not file a tax return on its own behalf. Instead, all tax-related data for the S corp is filed as part of the owner’s individual income tax.