How to Start a Business in Vermont

With its vibrant communities, supportive environment for entrepreneurs, and high quality of life, Vermont is an ideal place to turn your business aspirations into reality. Businesses have a strong chance of success in Vermont, since reports say that it has a relatively low five-year closure rate of 9.9%.

So, if you’re planning on starting your own venture, this comprehensive guide will walk you through every step of starting a small business. From selecting the right business structure to navigating licenses and taxes, we've got you covered!

Choose a business structure

Picking the right business structure is a crucial first step since it affects your legal responsibilities, taxes, and personal liability.

Explore your options

In Vermont, you have several business structures to consider:

• Sole Proprietorship: Owned and operated by one person.
• Partnership: Shared ownership between two or more individuals.
• Limited Liability Company (LLC): Combines liability protection with flexibility.
• Corporation: A more complex structure offering strong liability protection and the ability to issue stock.
• Nonprofit Corporation: For organizations operating for charitable, educational, or religious purposes.
• Professional Limited Liability Company (PLLC): Designed for licensed professionals like doctors, lawyers, and accountants.

Consider the pros and cons

Each business structure has its own advantages and disadvantages. Here’s a quick breakdown of each so you can choose the best option for your business:

Sole Proprietorship

• Pros: Easy to set up and operate.
• Cons: No personal liability protection; you're responsible for all business debts and obligations.

Partnership

• Pros: Simple to establish; shared resources and decision-making.
• Cons: Personal liability extends to all partners; potential for disagreements.

Limited Liability Company (LLC)

• Pros: Shields your personal assets; offers tax flexibility; less paperwork than a corporation.
• Cons: Higher setup costs than a sole proprietorship or partnership; must maintain formalities to keep liability protection.

Corporation

• Pros: Strong liability protection; can issue stock to raise funds; perpetual existence.
• Cons: More complex and costly to set up; increased regulations and ongoing requirements; possible double taxation.

Nonprofit Corporation

• Pros: Eligible for tax-exempt status; can receive grants and tax-deductible donations.
• Cons: Strict compliance requirements; profits cannot be distributed to owners or shareholders.

Professional Limited Liability Company (PLLC)

• Pros: Liability protection for professional practices; flexible management structure.
• Cons: Restricted to licensed professionals; may have additional regulatory oversight.

Choose What Fits Your Business Best

Consider what's most important for your business—liability protection, taxation options, or ease of setup. Many small businesses in Vermont choose an LLC because it offers a good balance between protection and simplicity. If you're a licensed professional, consider a PLLC.

Remember, the best structure aligns with your goals and facilitates running your business. You can also consult with a legal or tax professional to help you make an informed decision. Understanding the implications of your chosen structure on paying yourself as a business owner is also important.

Register your business with the Vermont Secretary of State

Once you’ve decided on your business structure, register your business with the Vermont Secretary of State. Here’s a quick rundown of how to do this:

Follow steps to register your business in Vermont

1. Choose your business structure. Decide on the legal structure that fits your business needs.
2. Pick a unique business name. Aside from choosing a unique business name, make sure it complies with Vermont's naming regulations. You can use the Business Name Search tool to check its availability.
3. Appoint a registered agent. Designate someone with a physical Vermont address to receive legal documents on your behalf. This can be yourself, someone else, or a professional service.
4. Create an account with the Online Business Service Center. Visit the Vermont Secretary of State's Online Business Service Center and create a user account.
5. Complete the registration process: Log in to your account and follow the prompts to register your business.
6. File formation documents. Submit the necessary documents based on your business structure. For example, you have to submit Articles of Organization for an LLC or Articles of Incorporation for a corporation. After registration, you may need to obtain a Certificate of Good Standing to verify your business's compliance status.
7. Pay the filing fees. Pay the required fees and you’re done!

Gather required documents and information

Before going through the process of registering your business, make sure you have these information ready:

• Business name. A unique name that meets state guidelines.
• Registered agent details. Name and Vermont physical address.
• Business address. Principal place of business.
• Owner or officer information. Names and addresses.
• Formation documents. Completed Articles of Organization or Incorporation.
• Payment method. Credit card or other accepted payment for fees.

To ensure you've covered all the necessary business licensing requirements, review this comprehensive guide.

Understand fees and processing times

Be aware that there are certain fees and processing times for registering your business. Below are general guidelines so you can avoid delays or unexpected costs:

• Filing fees:
• LLC Articles of Organization: $125
• Corporation Articles of Incorporation: $125
• Processing time:
• Online filings: Usually processed within one business day, so you can get your business up and running quickly!
• Paper filings: May take longer due to mailing and manual processing, it can sometimes take up to several weeks.
• Expedited processing:
• While Vermont offers efficient online processing, if you need immediate processing, check if expedited services are available for an additional fee.
• Annual reports:
• LLC Annual Report fee: $35
• Corporation Annual Report fee: Varies; check the Secretary of State website.
• Due date: Annually, based on your fiscal year-end.

Take note that missing deadlines or failing to pay required fees can result in penalties or administrative dissolution of your business entity. So, make sure to mark your calendar with important dates and set reminders to stay compliant!

Obtain necessary licenses and permits

Before you start operations, make sure you have all the licenses and permits required to operate legally in Vermont.

Identify Common Licenses and Permits in Vermont

Depending on your business type and location, you may need:

• Local business licenses. Check with your city or county government to determine if you need a local business license or permit.
• Professional and Occupational licenses. Certain professions require state licensing to practice legally. You can visit Vermont's Professional Regulation for more information.
• Industry-specific permits. Some industries, such as food service, agriculture, construction, or environmental services, may require special permits or approvals from state agencies like the Vermont Agency of Agriculture, Food & Markets or the Department of Environmental Conservation.
• Health Department permits. Required for businesses that are handling food, childcare, or health services.
• Liquor licenses. If you plan to sell alcoholic beverages, you'll need to obtain the proper liquor licenses from the Vermont Department of Liquor Control.

Apply for licenses and permits

Here's what to do:

1. Identify what's required. Contact local authorities and review Vermont's state regulations to determine which licenses and permits apply to your business.
2. Gather necessary documentation. Have your business registration information and any required supporting documents ready.
3. Submit applications. Apply to the relevant local or state agencies for your licenses and permits.
4. Pay applicable fees. Be prepared to pay any fees associated with your license or permit applications.
5. Await approval. Processing times can vary, so submit your applications well before you plan to start operating.
6. Maintain compliance. Keep track of renewal dates and any ongoing requirements to ensure your licenses and permits remain in good standing.

Meet industry-specific requirements

Different industries have unique licensing and permitting needs:

• Food and beverage services. May need health department permits and must comply with food safety regulations.
• Agricultural businesses. May need specific permits from the Vermont Agency of Agriculture, Food & Markets.
• Professional services. Require state licensing to operate legally.
• Environmental and construction services. May need permits related to land use, zoning, or environmental impact.
• Childcare services. Must comply with regulations from the Vermont Department for Children and Families.

Operating without the proper licenses and permits can lead to fines or even closure. Ensure you are fully compliant so you can focus on running your business.

Comply with tax obligations

Every business in Vermont has tax obligations, so make sure to understand the implications so you can stay compliant.

Understand types of taxes for Vermont businesses

Depending on the nature of your business, you may be subject to several types of taxes:

• Sales and use tax. Applies if you sell tangible personal property.
• Meals and rooms tax. For businesses that sell meals or provide lodging.
• Alcoholic beverage tax. If you sell alcoholic drinks.
• Local option tax. An additional 1% tax in some municipalities.
• Corporate and business income tax. For businesses earning income in Vermont.
• Withholding tax. Required if you have employees.
• Property tax. If you own property in Vermont.

You can also visit the Vermont Department of Taxes for detailed information.

Register for state and federal taxes

To meet tax obligations, you'll need to register at both the federal and state levels:

• Obtain a Federal Employer Identification Number (FEIN). Apply online through the IRS website.
• Register with the Vermont Department of Taxes. Create a myVTax account online and register for each applicable tax type separately.

You'll need information like your business type, FEIN, contact details, and the date you started doing business in Vermont. Understanding your obligations regarding payroll taxes is important, especially if you plan to hire employees.

Follow tips for tax compliance

Mastering tax compliance is essential for avoiding penalties and maintaining your business's good standing. Consider exploring resources on mastering tax compliance to help you stay informed.

• Keep accurate records. Maintain detailed financial records so it’s easier to file taxes.
• Display your business tax license. Place it where customers can easily see it!
• Manage collected taxes carefully. Hold collected taxes in trust and remit them to the state by the due date.
• Stay informed. Keep tabs for any changes in tax laws that might affect your business.
• Consult professionals. Seek advice from legal and financial experts to ensure full compliance.
• File and Pay Taxes on Time: Keep track of filing deadlines to avoid penalties.

Additionally, being aware of potential tax deductions for businesses can help you save money and optimize your tax strategy.

Obtain a Federal Employer Identification Number (FEIN)

Obtaining a Federal Employer Identification Number (FEIN) is essential for various business activities, even if you don't plan to hire employees immediately.

Understand the purpose of an FEIN

An FEIN, or Federal Employer Identification Number, is a unique nine-digit number assigned by the IRS to identify your business for tax purposes. It's essential for several critical business functions:

• Filing federal and state taxes. The FEIN is used when filing your business's tax returns, reporting income, and paying taxes. It ensures that your business is recognized by tax authorities, and your tax payments are accurately recorded.
• Opening business bank accounts: Most financial institutions require an FEIN to open a business bank account. This separates your personal and business finances, which is crucial for legal liability protection and financial management.
• Applying for business licenses and permits: Many licensing authorities require an FEIN on applications. It verifies your business's legitimacy and allows agencies to track compliance with regulations.
• Hiring employees: If you plan to hire employees, you'll need an FEIN to report employment taxes, income tax withholding, and issue W-2 forms to employees.
• Establishing credit: An FEIN helps in establishing business credit profiles with credit bureaus and suppliers, which is important for securing loans or credit lines.

If you're purchasing an existing business, you must apply for a new FEIN rather than using the previous owner's number, as the FEIN is unique to each business entity.

Apply for an FEIN

Applying for an FEIN is straightforward, free, and can be done online, by fax, or mail. Here’s a breakdown of the steps:

1. Determine your eligibility:

• You must have a valid Taxpayer Identification Number (SSN, ITIN, or another FEIN).
• You must be the responsible party for the business.

1. Gather required information:

• Legal name of the business: As registered with the state.
• Business address: Physical location of the business.
• Responsible party information: Name, SSN, or ITIN of the individual or entity responsible for controlling the business.
• Business structure details: Type of entity, date started or acquired, and the principal activity.

1. Visit the IRS Website:

• Access the IRS EIN Assistant to apply.

1. Complete the application:

• Follow the prompts to fill in the required information accurately. The application must be completed in one session.

1. Submit the application:

• Once completed, submit the application online. If applying online, you'll receive your FEIN immediately upon verification.

1. Receive your FEIN:

• Print or save the confirmation notice with your assigned FEIN for your records.

1. Keep your FEIN safe:

• Store your FEIN in a secure location. You'll need it for various legal and financial documents and transactions.

If you prefer, you can also apply by fax or mail, but these methods will take longer to process. Having an FEIN ensures your business complies with federal regulations and allows you to operate smoothly.

Open a business bank account

Separating your personal and business finances is crucial for managing your company's finances effectively.

Benefits of a Business Bank Account

• Professionalism: Clients can pay your business directly.
• Simplified accounting: You can track income and expenses easier.
• Legal protection: Helps maintain your liability protection by keeping finances separate.

How to open an account

1. Choose a bank. Consider local banks, credit unions, or national banks that offer business accounts.
2. Prepare necessary documents. You'll typically need your FEIN, business formation documents, and identification.
3. Set up the account. Visit the bank to open the account and discuss features like online banking, merchant services, and fees.

Get business insurance

Safeguard your assets and minimize risks by protecting your business with insurance. Consider reviewing a business insurance checklist to help you identify the type of coverage you need.

Types of business insurance

• General Liability Insurance. Covers legal issues due to accidents, injuries, or claims of negligence.
• Professional Liability Insurance. Protects against malpractice, errors, and negligence in services provided.
• Property Insurance. Covers your business property in case of fire, theft, or other disasters.
• Workers' Compensation Insurance. Required if you have employees; covers medical expenses and lost wages for work-related injuries.
• Commercial Auto Insurance. If you use vehicles for business purposes.

Find the right coverage

If you need help deciding on the right insurance for your business, consider these tips:

• Assess your risks. Identify what risks are associated with your business.
• Consult an insurance agent. An experienced agent can help you choose appropriate coverage.
• Compare quotes. Obtain multiple quotes to ensure competitive pricing.

Hire employees and comply with employment regulations

If you plan to hire employees, it's essential to understand and comply with Vermont's employment laws. Familiarize Vermont labor laws to ensure compliance.

Follow hiring process and legal requirements

When you decide to bring on employees, you must:

• Register with the Vermont Department of Labor. Obtain necessary employer accounts for unemployment insurance and more.
• Report new hires. Report all new hires within 10 days of employment.
• Obtain mandatory insurance:
• Workers' compensation insurance. Protects employees in case of work-related injuries or illnesses.
• Unemployment insurance. Provides temporary assistance to employees who lose their jobs through no fault of their own.
• Comply with labor laws. Adhere to minimum wage laws, overtime rules, and workplace safety regulations. Ensuring labor law compliance will help you avoid penalties and maintain a healthy work environment.

Set up payroll and employee benefits

Setting up an efficient payroll system is essential. Here’s a few tips to set up an efficient system:

• Register for payroll taxes. With the Vermont Department of Taxes.
• Implement a payroll system. Use software or hire a payroll service to manage employee compensation and tax withholdings.
• Offer competitive benefits. Consider providing health insurance, retirement plans, and paid time off to attract and retain quality employees.

Create an employee handbook

Developing an employee handbook helps communicate workplace policies and expectations:

• Outline policies. Include attendance, conduct, dress code, and safety procedures.
• Legal compliance. Ensure policies comply with state and federal laws.
• Distribute to employees. Provide copies during the onboarding process.

Consider exploring the HR Pro benefits offered by Homebase for professional guidance and support.

Market your business

Marketing is essential to the success of your new business. No matter how great your product or service is, potential customers need to know about it!

Effective marketing helps you reach your target audience, build brand awareness, and generate sales. By investing time and resources into marketing, you increase the chances of your business thriving in a competitive marketplace.

Develop a marketing plan

• Identify your target audience. Understand who your customers are, what they need, and how your business can meet those needs. This allows you to tailor your marketing efforts effectively.
• Create a brand identity. Develop a memorable logo, business cards, and marketing materials that reflect your business values and appeal to your target audience.
• Build an online presence. In today's digital age, having a website and active social media profiles is crucial. This not only makes your business more accessible but also builds credibility. Consider leveraging free marketing tools to enhance your online efforts without breaking the bank.
• Utilize local advertising. Engage with your local community through newspapers, radio, or sponsoring community events. This can help establish your business as a local staple.
• Implement Search Engine Optimization (SEO). Optimize your website to rank higher in search engine results, making it easier for customers to find you. Adopting smart marketing strategies can further boost your business's visibility and attract more customers.

Network and build relationships

• Join local business organizations. Such as the Vermont Chamber of Commerce, to connect with other business owners and stay informed about local business trends.
• Attend networking events. Participate in industry conferences, trade shows, and workshops to meet potential partners and customers.
• Offer promotions and discounts. Encourage first-time customers to try your products or services through special offers, which can lead to repeat business and referrals.

By prioritizing marketing, you create opportunities to grow your customer base, increase sales, and establish a strong presence in the market. It's an investment in the future success of your business.

Start your Vermont business journey today

Starting a business is an exciting endeavor filled with opportunities and challenges. With proper preparation and the right resources, you can successfully launch your business in Vermont and turn your entrepreneurial dreams into reality.

Remember, staying organized and compliant is key to your success. As you start hiring and building your team, managing scheduling, time tracking, and communication can become complex!

Effective workforce management is crucial to running your business smoothly. That's where Homebase comes in. Homebase offers free tools to help small businesses like yours manage their teams more efficiently.

From simplifying employee scheduling to streamlining payroll, Homebase saves you time and allows you to focus on growing your business. Ready to take the next step? Get started today with Homebase and make managing your new business easier than ever!

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