How to Incorporate in Vermont vs. How to Start a Vermont LLC

There are basic characteristics true of all corporations and LLCs that you can base your decision on:

• Maintenance
  An LLC has the advantage of easy maintenance and a user-friendly structure. LLCs will need only minimal paperwork, have flexibility when a decision is needed, and have low annual upkeep. An LLC is your best bet if you have a small to medium-sized business and can only handle a low amount of maintenance. Conversely, a corporation needs a high level of maintenance, both on a day-to-day and annual basis. Corporations have more legal formalities than an LLC, like electing a board of directors, holding shareholder meetings, and maintaining internal records such as meeting minutes and stock issuance.
• Tax Structure
  An LLC is a pass-through entity, since it’s not a separate taxable entity apart from its owners. Income and losses pass through the business and onto the members to report on their individual income tax return. LLCs are the overall simpler and less expensive option in terms of time and paperwork for business owners during tax season. Corporations are more advanced for a business owner to take care of during tax season. A standard corporation defaults to a tax structure called a C corporation, and is known for what’s called double taxation, where a business’s net income is taxed initially by a corporate tax, and then taxed again on personal income, after shareholders receive their profits (dividends) and losses. C corporations are typically taxed at a lower rate on profits, and have opportunities for tax deductions such as health care and travel, and can retain its earnings to be reinvested into the company’s growth. A corporation can potentially elect an S corporation tax status if it’s more beneficial. When you elect an S corporation tax status, your corporation becomes a pass-through entity, and is allowed tax advantages such as dividends not subject to self-employment tax.
• Prospective Investors
  Investors are more likely to put their time and funds in a familiar and reputable business structure like a corporation. Entrepreneurs looking to expand their company in the future will most likely need investor funds, making the corporate entity the suitable choice. Investors are more comfortable investing their time and money in a traditional business structure that offers stock, like a corporation. Investors don’t have to worry about complicating their personal taxes when they invest in a corporation, and only get taxed on profits actually distributed to them, unlike an LLC. Investors view corporations as a dependable business structure that will provide them with a return on their investment. Having a corporate structure will profoundly impact the ability to raise investment money. Investors can still invest in an LLC by owning a percentage of that LLC. Owners of LLCs will have to pay taxes on their distributive shares, even if they haven’t received a distribution on those profits, and can’t issue stock, which is a turn-off for many investors. A corporation should be considered if you are serious about gaining investors.
• Business Prestige
  A business starts with its appearance, and having the “LLC” or “Inc” title in your business name will provide your company with certain a level of prestige. These endings convey permanence and encourage trust from likely investors or clients, and show that you are serious about your business. While both entities provide a level of prestige, incorporating provides a higher level of prestige for your business, since the corporation is the oldest and most traditional entity type. It’s important to remember that LLC’s have surpassed corporations in popularity in most states, and an LLC’s prestige is continually growing.

Note that whether you form an LLC or a corporation, you’ll need to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN) once your company is officially formed with the state of Vermont. This report provides the federal government with identifying information about your company and those with the most control over profits and business operations. However, unlike state filings, the information shared in your report does not go on the public record and there is no filing fee. (Though if you don’t want to file this on your own, we offer BOI filing service for just $9.)

Now that we’ve covered the basic characteristics that apply to all corporations and LLCs, next is to explore more specific characteristics of what makes a Vermont LLC or Vermont corporation different from other states, bringing us to the final answer on which entity you should choose for your business. Each state has its own unique statutes and tax laws that govern the way its businesses operate, and these unique details must be considered when choosing your business entity. This section will provide specifics for the Vermont LLC and the Vermont corporation.

• Vermont Corporate Income Tax
  The Vermont corporate income tax is imposed on the net income of C corporations by the state. This tax is set at marginal rates and has a varying minimum amount. Vermont’s corporate income tax can get fairly expensive, and it’s important to see a tax professional and learn how this tax will affect you if you’re considering a corporation.The rates and base taxes are as follows:

  Bracket Base	Tax Plus
  $0 – 10,000	6.00%
  $10,001 – 25,000	$600 7.00%
  $25,001 +	$1,650  8.50%

  The minimum rates are based on Vermont gross receipts, and are as follows:
  

  Gross Receipts	Minimum Tax
  $2,000,000 or less	$300
  $2,000,001 – $5,000,000	$400
  $5,000,001 +	$750

• Vermont Business Entity Income Tax
  The Vermont business entity income tax applies to S corporations, LLCs, and partnerships who engage in business activity in Vermont. This tax is a flat tax of $250 that must be paid annually. Although this is not a make-or-break situation, it’s important to take this tax into consideration if you plan to form an LLC.
• Vermont Personal Income Tax
  The Vermont individual income tax rate is a point of interest for LLCs, since the businesses income passes through the LLC and onto the members to report on their individual income taxes. Vermont has a tax on individual income at marginal rates. The current brackets are as follows:

  Bracket Tax Base	Tax Amount
  $0-$38,700	3.35%
  $38,700 75,000	1,296.00 + 6.60%
  $75,000 93,700	3,692.00 + 6.60%
  $93,700 195,450	4,926.00 + 7.60%
  $195,450+	12,659.00  + 8.75%

• Vermont LLC Foreclosure Vulnerability
  LLCs in Vermont do not have the same level of protection as most states, and creditors (a person who is owed funds or assets by a debtor) in Vermont have an extra remedy against LLCs that owe them by having the courts order a foreclosure on an LLC. In most states, creditors have one remedy against the debtor of an LLC, which is a charging order that puts a lien on a debtor’s interest (funds and assets) and creditors then have a right to receive any distributions made to the debtor from the LLC, if the LLC makes a distribution. Often times, this leads to the creditor ending up with nothing, since creditors can’t order the LLC to make distributions. For Vermont LLCs, this same charging order and same lien can be placed, except if a creditor can prove to a court that those distributions under the charging order will not pay off the debt in reasonable time, “the court may foreclose the lien and order the sale of the distributional interest (11 V.S.A. § 4074).”

Vermont LLC or Vermont Corporation? Final Answer.
To make the decision on either an LLC or a corporation as the structure for your company, consider the size of your business, priority of investors, level of maintenance you’ll need, and the most beneficial tax structure for the future of your business.

A Vermont LLC will be the best choice if you have a small to medium-sized business. LLCs in Vermont stay true to design in terms of easy formation and maintenance, simple management, strong flexibility in decision-making, and limited liability protection. If growing your company large with investors is not your top priorities, you’re looking for the least expensive and sophisticated taxes and annual maintenance, and you’re just needing limited liability protection for your business, the LLC is your answer.

A Vermont corporation will be the best choice if you plan to grow your business big with the funds from investors, and you have the means for the amount of maintenance required. a Vermont corporation remains true to character in its substantial amount of paperwork, higher maintenance, and involved yet beneficial tax structure.

If you’re going to start a Vermont corporation, also referred to as incorporating, you must file the Articles of Incorporation with the Vermont Secretary of State. You can download the Articles of Incorporation online at the Vermont Secretary of State website. Once your Articles of Incorporation is approved, your corporation is officially formed.

You can file the Articles of Incorporation in a few ways:

• Online at the Vermont Secretary of State website
• By postal mail
• In person at the Vermont Secretary of State office

We recommend filing your Vermont Articles of Incorporation on the website since it’s the fastest, most secure, and preferred method by the Secretary of State. The fee for filing your Articles of Incorporation costs $125. The state of Vermont processes business formation documents submitted by postal mail in about 7 – 10 business days, and formation documents submitted online in about 3 – 5 business days.

To complete your Vermont Articles of Incorporation, include the following information:

If you’re going to start a Vermont LLC, you must file the Articles of Organization with the Vermont Secretary of State. You can download the Articles of Organization online at the Secretary of State website. When your Articles of Organization are approved, your LLC is officially formed.

You can file the Articles of Organization in the following ways:

• Online at the Vermont Secretary of State website (recommended)
• By postal mail
• In person at the Vermont Secretary of State office

We recommend filing your Vermont Articles of Organization on the website since it’s the fastest, most secure, and preferred method by the Secretary of State. The fee for filing your Articles of Organization costs $125. The state of Vermont processes business formation documents submitted by postal mail in about 7 – 10 business days, and formation documents submitted online in about 3 – 5 business days.

To complete the Vermont Articles of Organization, include the following information:

To keep your business in good standing with the state of Vermont every year, you must take care of a few annual maintenance tasks.

1. File your annual report
2. File your Vermont business tax returns

Below, we’ll explain the basic instructions and resources you’ll need to help you take care of your annual maintenance.

What is a Vermont annual report?
A Vermont annual report updates or confirms the records for your business, such as officer/member names and addresses. This report lets your business remain in good standing with the state. Both LLCs and corporations that do business in the state are required to file annual reports with the Vermont Secretary of State.

How do I file my annual report in Vermont?
Corporations and LLCs in Vermont need to either file their annual reports online at the Secretary of State website (recommended), or by postal mail.

How much does it cost to file an annual report in Vermont?
For LLCs, the annual report fee in Vermont is $15.
For corporations, the annual report fee in Vermont is $45.

When are Vermont annual reports due?
Your Vermont annual report is due 2.5 months after your fiscal year ends. The default fiscal year end month is December, unless otherwise mentioned in your Articles of Organization/Incorporation.

The filings can get complicated and you may need the help of a tax service or CPA to complete these requirements, but regardless of your accounting skills, we’re here to help get you started.

Check out our Vermont Business Tax FAQ below:

What is the Vermont corporate income tax?
The Vermont corporate income tax is imposed on the net income of C corporations by the state. This tax is set at marginal rates and has a varying minimum amount. Vermont’s corporate income tax can get fairly expensive, and it’s important to see a tax professional and learn how this tax will affect you if you’re considering a corporation.

The rates and base taxes are as follows:

The minimum rates are based on Vermont gross receipts, and are as follows:

What is the Vermont business entity income tax?
The Vermont business entity income tax applies to S corporations, LLCs, and partnerships who engage in business activity in Vermont. This tax is a flat tax of $250 that must be paid annually. Although this is not a make-or-break situation, it’s important to take this tax into consideration if you plan to form an LLC.

What is the Vermont personal income tax?
The Vermont individual income tax rate is a point of interest for LLCs, since the businesses income passes through the LLC and onto the members to report on their individual income taxes. Vermont has a tax on individual income at marginal rates. The current brackets are as follows:

What forms do you file for your Vermont business taxes?
State Business Taxes:
For the Vermont corporate income tax, you will need to submit Form CO-411 to the state.
For the Vermont business entity income tax, you will need to submit Form BI-471 to the state.

Federal Business Taxes:
For C corporations, submit Form 1120 federal income tax return.
For S corporations, submit Form 1120S federal income tax return for an S corporation.
For single member LLCs, submit Schedule C as part of your Form 1040 individual income tax return.
For multi-member LLCs, submit Form 1065 partnership income tax return along with Schedule K-1.

When are my Vermont business tax returns due?
Your Vermont corporate income tax return is due on the 15th day of the 4th month after the end of the fiscal year, or April 15th for calendar year filers.

Your Vermont business entity income tax is due on the 15th day of the 3rd month after the end of the fiscal year, or March 15th for calendar year filers.