Vermont Startup
Registering your Vermont startup business is an important step in the life of your
business. The type of business you select is extremely important; it will affect
your tax responsibilities, personal liability, and bottom line.
Let's look at a few of the main entity types you could form in Vermont. Remember,
it's best to consult with your lawyer or legal advisor before making any decisions.
Vermont Sole Proprietorship
A sole proprietorship is a type of
Trade Name, and it is the simplest type of business: it is made up of just
one person, and the DBA itself is still that one person doing business under a new
name.
A Vermont sole proprietorship will be registered with the Secretary of State's office
in Montpelier and will remain on file for 5 years. The information contained in
the registration will be made public information.
Vermont Corporation
Forming a Vermont
corporation creates a separate legal entity that can last perpetually, provided
it remains in good standing with the Secretary of State's office or is not dissolved.
A for-profit corporation can be either a C corporation or S corporation.
C Corporation
A
C corporation has a higher tax responsibility than an S corporation; it
experiences "double taxation," which means that the corporation is taxed on its
earnings before they are distributed to its shareholders, and then taxed again at
the individual level.
S Corporation
An
S corporation is considered a "pass-through" entity, meaning that corporate
earnings are taxed only when distributed to shareholders as individual income. It
is limited to 200 shareholders.
Vermont Foreign Corporation
If a corporation has been registered in another state and wishes to conduct business
affairs within Vermont, it must register in Vermont as a
foreign corporation. The Application for Certificate of Authority, a foreign
corporation's registration document, needs information about its corporate registration
in the initial state, as well as its Vermont registered agent.
Vermont LLC
An LLC is a similar
type of business to a corporation: it is registered by filing its formation documents
with the state, upon which it becomes a separate legal entity from its owners and
may exist perpetually.
An LLC is a relatively new entity type, now accepted in all fifty states, but it
is not an accepted tax classification for use with the IRS. LLCs should elect a
federal tax classification upon formation.
Vermont Nonprofit Corporation
A Vermont nonprofit
corporation is typically formed for charitable, educational, or religious
purposes. There are different tax classifications for nonprofit corporation at the
federal level, depending on the specific purpose and whether or not the corporation
is acting as a tax-exempt organization, and these tax classifications are elected
by applying to the IRS. Only upon acceptance of the requested tax classification
can an eligible organization operate as tax-exempt and not just as a Vermont nonprofit
corporation.