Incorporator The Journal of U.S. Formation
Start Free Quiz
Editorial 7 MIN READ

Vermont in May 2024: the $125 LLC, the $300 corporate floor, and the L3C nobody copied

What it costs to form and maintain a Vermont entity this year, and the quirks the statute books hide

The Editors
Staff, Incorporator.org
7 min read Updated
Contents 6 sections
  1. What it costs to form an LLC in Vermont in 2024
  2. The annual report, and the deadline that trips people up
  3. The corporate tax floor nobody told you about
  4. The L3C, and why Vermont's footnote in corporate history is bigger than it looks
  5. Who Vermont actually makes sense for in 2024
  6. Sources

Vermont LLC costs $125 to file with the Secretary of State and $45 a year to keep in good standing. Those two numbers sit at the center of this guide, and the Vermont filing fees you see quoted elsewhere (including anywhere claiming $35 for formation) are either historical or wrong.

What makes Vermont interesting is not the fees. It is the graduated corporate income tax, the $300 minimum that catches every dormant C-corp, and a low-profit limited liability statute that Vermont wrote first and almost nobody else copied.

What it costs to form an LLC in Vermont in 2024

You form a Vermont LLC by filing Articles of Organization with the Secretary of State's Corporations Division through the state's online portal. The filing fee is $125 for a domestic LLC. Foreign LLCs pay the same $125 to register for authority to transact business in the state. There is no expedited-processing menu the way Delaware sells one; online filings are processed in ordinary course, typically within one business day.

The Articles are short. The statute (11 V.S.A. Chapter 25, the Vermont Limited Liability Company Act) requires a name that includes "limited liability company" or an accepted abbreviation, the address of the designated office, the name and address of a registered agent with a Vermont street address, the name and address of each organizer, and whether the LLC will be member-managed or manager-managed. You can file a benefit LLC election at formation under the same chapter if you want the statutory benefit purposes to bind the managers.

Operating agreements are not filed with the state. Vermont expects you to have one; the statute fills the gaps when you do not, and the gaps it fills are rarely the ones founders would have chosen.

You will also need an EIN from the IRS (Form SS-4, issued the same session online for a domestic responsible party with a valid SSN or ITIN) and a decision on federal tax classification. Default treatment is disregarded for a single-member LLC and partnership for a multi-member LLC. An S-corp election requires Form 2553, and a C-corp election requires Form 8832; Vermont follows the federal classification for state income tax.

The annual report, and the deadline that trips people up

Vermont does not charge the flat June 1 tax Delaware charges. It does require an annual report, and the filing fee is $45 for a domestic LLC and $140 for a foreign LLC. The wrinkle is the deadline.

Most states pick a month. Vermont picks a quarter. The annual report is due within three months after the close of the fiscal year end the LLC designated at formation, and for an LLC that defaulted to a calendar year, that means by March 31. Miss the window and the state will eventually administratively terminate the LLC, at which point reinstatement carries its own filing and an additional fee.

The tell in the statute is worth reading if you are the person running compliance: a Vermont LLC can pick a fiscal year that is not January to December, and if it does, the annual report clock runs off that fiscal year's close, not the anniversary of formation. LLCs held inside estate plans or family offices sometimes use this deliberately. Most founders forget the fiscal year is a choice, leave it at calendar, and then wonder why Vermont is pinging them about an overdue report in April.

Corporations file the same annual report on the same cadence, at different prices. A Vermont nonprofit pays $20. A benefit corporation files on the same schedule as an ordinary corporation plus a separate benefit report under the benefit-corporation chapter.

The corporate tax floor nobody told you about

The filing fees are the easy part. Vermont's corporate income tax is where the numbers start to matter for any entity actually earning money in the state.

Vermont taxes C-corps on a graduated scale under 32 V.S.A. § 5832. The brackets in effect for the 2024 tax year are 6.0% on the first $10,000 of Vermont net income, 7.0% on the next $15,000 (the band from $10,000 to $25,000), and 8.5% on everything above $25,000. There is a minimum tax: every C-corp subject to Vermont's corporate income tax owes at least $300 for the taxable year, regardless of income, loss, or dormancy. A corporation that formed in Vermont, did nothing all year, and posted a net loss still owes the $300 floor.

Founders of Delaware C-corps that register to transact business in Vermont pick up the same $300 minimum, because once you are foreign qualified you are subject to the corporate income tax regardless of whether the Vermont activity threw off net income. For a startup using Vermont only because the founder lives there, the $300 minimum and the $140 foreign LLC or foreign corporation annual report fee are the effective cost of presence, and both are cheap next to the apportionment headache if Vermont activities grow.

Pass-through entities file their own returns. Unlike roughly thirty other states by mid-2024, Vermont has not enacted a pass-through entity tax election (the workaround that lets partners and S-corp shareholders dodge the $10,000 federal state-and-local-tax deduction cap by paying state tax at the entity level and taking a federal deduction for it). If you are an S-corp shareholder resident in Vermont, the SALT-cap workaround you might have used in Connecticut or New York is simply not available here.

The L3C, and why Vermont's footnote in corporate history is bigger than it looks

Vermont passed the first low-profit limited liability company statute in the country in April 2008, adding what is now 11 V.S.A. § 3005 to the LLC Act. An L3C is a Vermont LLC that must significantly further the accomplishment of one or more charitable or educational purposes within the meaning of IRC § 170(c)(2)(B), must not have the production of income or appreciation of property as a significant purpose, and must not have political or legislative purposes.

The pitch in 2008 was that foundations making program-related investments under IRC § 4944(c) would find L3Cs easier to underwrite, because the statutory purposes would match the PRI rules out of the box. The IRS never blessed that correspondence, the final PRI regulations in 2016 (26 CFR § 53.4944-3) clarified that form alone does not make an investment a PRI, and the foundation money that was supposed to flow into L3Cs mostly did not.

The form is still on the books, and a handful of states (Illinois, Michigan, Louisiana, Rhode Island, Utah, Wyoming, and a few others) followed Vermont. North Carolina repealed its L3C statute in 2014. The practical read in 2024 is that if you are starting a social enterprise and you want a legal form that signals purpose, a benefit LLC or a benefit corporation (both available in Vermont) is better supported and better understood than the L3C. The L3C remains useful in a narrow set of cases where a Vermont-based social enterprise wants a single-member pass-through wrapper that also carries statutory mission language, and that is about it.

The bigger story the L3C tells about Vermont is that the state drafts entity statutes aggressively. Vermont adopted a benefit corporation statute in 2011, was early to blockchain-based LLCs with the Blockchain Business Development Act in 2018 (adding BBLLC provisions to Title 11), and keeps the LLC Act under active maintenance. If you are a lawyer looking at where experimental entity forms get tried first, Vermont is a name on the short list alongside Delaware and Wyoming, at a very different scale and for very different reasons.

Who Vermont actually makes sense for in 2024

Vermont is the right answer for four kinds of entities, and the wrong answer for a lot of others.

If the business operates in Vermont and the owners live in Vermont, form here. The foreign-qualification gymnastics of forming in Delaware or Wyoming and then qualifying back into Vermont cost more in fees and accountant time than any benefit a Delaware charter would deliver for a local operating business.

If the business is a Vermont-connected social enterprise and the founders care about mission language in the statute, the benefit LLC or benefit corporation is well drafted and the filing fee is the same $125. The L3C is available if there is a specific PRI use case that needs it.

If the business is a family holding structure for Vermont real estate or a Vermont farm, the LLC Act's flexibility on management, voting, and transfer restrictions is adequate and the annual cost is low.

If the business is a venture-backed C-corp headed for institutional investment, form in Delaware and let Vermont be a foreign qualification when you need one. The $300 minimum and the 8.5% top bracket are not reasons to avoid Vermont, but the investor-facing part of the cap table should still sit in Delaware.

The less obvious note: Vermont's $125 LLC fee sits roughly where the national median has settled. It is cheaper than California's $70 filing plus the $800 franchise tax floor, more expensive than New Mexico's $50, and in the same neighborhood as Massachusetts at $500 (the outlier in New England). For a local-operating LLC that does not plan to raise venture capital, the decision to form in Vermont is almost always correct for the wrong reason. Founders talk themselves into it because Delaware sounds expensive, and they land in the place they should have started.

Sources

Keep reading

More from the journal.