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Editorial 12 MIN READ

Vermont at the end of March 2020: a $125 certificate, two exotic subchapters, and a state filing office under lockdown

A $125 filing fee, a $35 annual report, and the jurisdiction that invented both the L3C and the blockchain-based LLC

The Editors
Staff, Incorporator.org
12 min read Updated
Contents 9 sections
  1. The mechanics
  2. The statute behind the form
  3. The blockchain-based LLC, honestly
  4. The L3C, what is left of it
  5. Maintenance is cheap and on a rolling calendar
  6. Tax treatment, briefly
  7. Who this state actually makes sense for
  8. A note on timing, this particular week
  9. Sources

Vermont LLC costs $125 to form and $35 a year to keep. Those numbers are small, and they describe a state that has spent the last dozen years using its LLC statute as a policy laboratory: first with the L3C in 2008, then with the blockchain-based LLC in 2018. Both experiments are still on the books at the end of March 2020, and both mostly miss the owner we are writing for.

This is a guide for someone forming a Vermont LLC in the last week of March 2020. The Secretary of State's corporations division is operating under Governor Phil Scott's stay-home order, the federal CARES Act was signed four days ago, and the PPP and EIDL loan windows are opening at the SBA this week. The mechanics below still work; the timing around them is unusual, and we will say where.

The mechanics

You form a Vermont LLC by filing Articles of Organization with the Vermont Secretary of State's Corporations Division. The filing is done through the state's Online Business Service Center at bizfilings.vermont.gov, which Vermont built out in 2017 and which, in March 2020, is the only channel actually moving while the Montpelier office runs on a skeleton roster. Paper filings are still accepted by mail, but the queue for paper is longer than the queue for online, and longer still this week than it was last month.

The Articles ask for the name of the LLC (which must contain "Limited Liability Company," "Limited Company," "L.L.C.," "LLC," "L.C.," or "LC"), the principal office address, the name and address of the registered agent (who must have a Vermont street address), whether the LLC is member-managed or manager-managed, the fiscal-year end, a designation of whether the LLC is for profit or a low-profit LLC under 11 V.S.A. § 3001(27), and the organizer's signature. The form is short. The online workflow takes fifteen to twenty minutes if your name clears the availability check on the first try.

The fee is $125, payable by credit card through the portal or by check if you mail. Vermont does not sell an expedited tier the way Delaware does; the online filings post the same business day during normal operations, and under the current lockdown arrangement they are posting within one to three business days depending on staffing. If you need a filed-and-stamped certificate for a closing this week, call the division before you submit rather than after.

Every Vermont LLC needs a registered agent with a Vermont street address. Commercial registered agents price between roughly $50 and $150 a year in Vermont, a narrower range than you see in Delaware or Wyoming because the Vermont market is smaller and the commodity end is less developed. If you live in Vermont and will be at a known address during business hours, acting as your own agent is defensible; if you are forming from out of state, pay for a commercial agent and do not try to save the $75.

After the Articles are accepted, you will need an EIN from the IRS via Form SS-4 (online, a few minutes), an operating agreement (Vermont does not require you to file one, but 11 V.S.A. § 4003 contemplates that you have one and treats it as the primary governance document between members), and a bank account. Vermont does not impose a publication requirement. It does not impose an initial-report obligation. The Articles plus the EIN plus a one-page operating agreement is a complete first pass.

The statute behind the form

Vermont's Revised Uniform Limited Liability Company Act lives at 11 V.S.A. Chapter 25. The current Act took effect in 2015, when the legislature replaced the 1996-era statute with a version built on the Uniform Law Commission's 2013 Revised Uniform Limited Liability Company Act (RULLCA). The change mattered: the 1996 statute was a pure gap-filler, and the 2015 Act imports a more detailed default governance framework, tighter fiduciary-duty language, and clearer rules on charging orders and dissociation. Sections worth knowing for a founder:

Section 4021 sets the formation mechanics and provides that the LLC exists when the Articles are filed. Section 4025 governs the operating agreement's scope and the items that cannot be varied by agreement: Vermont, unlike Delaware, treats the duty of good faith and fair dealing as mandatory and limits the extent to which fiduciary duties can be eliminated. If you are porting a Delaware-style operating agreement into a Vermont LLC, read § 4025 before you copy the exculpation clauses. Section 4054 establishes the registered-agent duty. Sections 4091 through 4105 cover dissociation and dissolution. Section 4134 sets the charging-order remedy as the exclusive remedy available to a judgment creditor of a member, which is the asset-protection mechanic that Vermont shares with every serious LLC state.

Two subchapters sit off to the side and do the work that makes Vermont interesting. Subchapter 13 (11 V.S.A. §§ 4171 through 4176) is the blockchain-based LLC provision, added in 2018 by S.269 (Act 205). Subchapter 12, carried over from the predecessor statute into the current codification, is where the low-profit LLC lives in Vermont practice, with the defining section at 11 V.S.A. § 3001(27). Both are exotic. Both are real. Most founders will touch neither.

The blockchain-based LLC, honestly

Vermont was the first state to statutorily recognize a blockchain-based LLC. The 2018 legislation, S.269, ran through the General Assembly as Act 205 and added Subchapter 13 to the LLC Act. A BBLLC, as the statute names it, is a regular Vermont LLC that has opted in to additional provisions governing its use of blockchain technology for recordkeeping and governance. The operating agreement must specify the blockchain platform in use, the rights of participants, the procedures for updating records, and the voting and decision-making structure. The Secretary of State does not run a separate registry; you opt in through the operating agreement and by filing the standard Articles with the BBLLC designation.

Two years in, the practical adoption is narrow. A handful of protocol-layer projects have formed BBLLCs to ground on-chain governance in a recognized legal entity. Dapix formed one in 2019. A few DAO-adjacent teams have used the form to sign contracts, pay vendors, and open bank accounts on behalf of what would otherwise be an unincorporated association. The appeal is legal-wrapper clarity: counterparties can sign with an LLC rather than a multisig, courts have an entity to look at, and members can allocate governance rights on-chain without losing the liability shield.

The limits are larger than the appeal, for now. Every non-Vermont jurisdiction treats a BBLLC as a plain LLC when it qualifies to do business there, which means the blockchain-specific provisions are enforceable only where Vermont law governs. The banking experience is choppy, because bank compliance desks outside Vermont read the BBLLC designation and pause. And the federal tax treatment is just LLC tax treatment; the blockchain subchapter does not change how the IRS classifies the entity. For a DAO tooling team, an on-chain-governance research project, or a protocol foundation, a BBLLC is a serious option. For a contractor or a rental-property holder, it is a conversation piece, not a vehicle.

The L3C, what is left of it

Vermont invented the L3C in 2008 via Act 106 of the 2007 to 2008 biennium, and the designation has not been repealed. The defining provision at 11 V.S.A. § 3001(27) still requires that an L3C significantly further one or more charitable or educational purposes within the meaning of IRC § 170(c)(2)(B), that no significant purpose be the production of income or the appreciation of property, and that no purpose be political or legislative. The operational wrapper, in theory, was meant to satisfy the program-related-investment rules for private foundations under IRC § 4944, so foundation capital could flow into mission-driven LLCs without a private-letter-ruling exercise.

In practice, the IRS never issued the safe-harbor guidance the L3C's advocates expected, North Carolina repealed its L3C statute in 2014, and new L3C formations have fallen off sharply since 2013. The designation persists in Vermont, Michigan, Illinois, Louisiana, Maine, Rhode Island, Wyoming, Utah, North Dakota, and Kansas, plus Puerto Rico. If you are forming for mission-plus-profit reasons in Vermont in 2020, the cleaner vehicle is usually a plain LLC with a mission clause in the operating agreement, or a benefit corporation under Vermont's benefit-corporation statute if you want the stakeholder-governance scaffolding. Our L3C revisited walks the full post-mortem.

Maintenance is cheap and on a rolling calendar

Vermont requires an annual report from every LLC on file. The fee is $35. The timing is the unusual part: the report is due within three months after the end of the fiscal year the LLC reported in its Articles. For an LLC that selected a December 31 fiscal-year end, the report is due by March 31. For a June 30 fiscal-year end, September 30. For an LLC formed without a stated fiscal year, Vermont treats the calendar year as the default.

This "anniversary quarter" structure spreads the filing load evenly across the year for the state and gives owners a deadline tied to their own books rather than to June 1 for everyone. It also catches owners off guard when they carry Delaware assumptions into Vermont. Vermont does not send a postcard six weeks in advance the way Maine does; it sends an email to the address on file, which is the one that stops working when the organizer leaves the business. Set the calendar reminder yourself.

Miss the deadline and the state charges a $25 late fee on top of the $35. Miss it long enough and administrative dissolution follows under 11 V.S.A. § 4102, after which reinstatement costs the back reports, the late fees, and a $25 reinstatement fee. The arithmetic on maintenance, if you file on time, is $35 a year. If you slip once and catch it, $60. If you let the entity go administratively dissolved, several hundred to unwind. For a holding LLC on a Vermont cabin, this is among the lowest ongoing costs in the country.

Tax treatment, briefly

Vermont does not impose an entity-level tax on an LLC taxed as a disregarded entity or partnership. The state taxes the members. Pass-through income flows to Vermont Form IN-111 and is taxed at graduated individual rates from 3.35% to 8.75% for tax year 2019, under 32 V.S.A. Chapter 151. The 8.75% top rate kicks in at roughly $204,000 of taxable income for a single filer in 2019, with the bracket thresholds indexed. Vermont's top rate is among the highest in New England and a meaningful consideration for a member with significant non-Vermont income who moves their LLC to Vermont and picks up state residency at the same time.

If the LLC has elected C-corp treatment, or is formed as a corporation, Vermont's corporate income tax applies at graduated rates from 6.0% to 8.5%, under 32 V.S.A. Chapter 151. Vermont does not impose a franchise or privilege tax at the LLC level the way California imposes the $800 floor or Texas imposes the margin tax, so a no-activity Vermont LLC owes only the $35 annual report and no state income tax. For comparison with the state that founders actually consider against Vermont, our Delaware LLC formation 2016 guide walks the $90 plus $300 model; the Vermont math is cheaper on both sides.

Sales tax in Vermont runs at 6% on most tangible personal property and selected services, under 32 V.S.A. Chapter 233. After Wayfair, Vermont's economic-nexus threshold for remote sellers sits at $100,000 in gross sales or 200 separate transactions into the state in the prior or current calendar year, which applies to every out-of-state LLC selling into Vermont.

Who this state actually makes sense for

Three kinds of owner belong in a Vermont LLC at the end of March 2020.

The first is a Vermont resident running a Vermont-operating business. The $125 formation fee is modest, the $35 annual report is the lowest-burden upkeep in the northeast, and everything downstream (licensing, workers' comp, property tax, payroll) is a Vermont conversation whether the LLC is organized here or somewhere else. Forming in Delaware and foreign-qualifying back into Vermont costs more in the first year and more every year thereafter, and the Chancery option is not doing anything for a cheese maker in Cabot or an inn-keeper in Stowe.

The second is the holder of a Vermont real asset. Second homes, ski condos, maple operations, farm parcels, small forestry tracts: if the asset sits in Vermont, the LLC should sit in Vermont. The asset protection works at the charging-order level under § 4134 and the foreign-qualification line item goes away.

The third is the team that actually has a reason to use one of Vermont's exotic subchapters. A protocol-layer project that wants the BBLLC legal wrapper to ground an on-chain governance regime. A mission-plus-capital vehicle that needs the L3C designation for a specific foundation-investor conversation. These are real, narrow use cases, and Vermont is the right answer to each. Outside them, the exotic subchapters are marketing copy.

Who Vermont does not make sense for in March 2020: the venture-backed SaaS startup that will need Delaware on its cap table by the next priced round, the operating business with no Vermont nexus other than one founder's second home, the asset-protection LLC where Wyoming or Nevada is already the answer. For those the Delaware or Wyoming premium is small and the Vermont story does not add anything the founder will actually use.

A note on timing, this particular week

The federal CARES Act was signed on March 27. The Paycheck Protection Program under Section 1102 of the Act and the expanded Economic Injury Disaster Loan advance under Section 1110 are standing up at the SBA this week, with the PPP application window expected to open on April 3 for small businesses and self-employed individuals. Both programs require an entity (or a sole proprietorship) that existed on February 15, 2020, which means a Vermont LLC formed in the next few days cannot use its own formation as the basis for a CARES-era application. If you are forming an LLC this week specifically to apply for PPP or EIDL, stop and read the SBA guidance before you file the Articles; the eligibility rules run to the business's existence on February 15, not to the paperwork's existence on April 3. The Vermont filing will work. It will not backdate the business.

If you are forming this quarter for ordinary reasons and the business is Vermont-operating, file the Articles online at bizfilings.vermont.gov with a $125 fee this week and move on. Plan on $35 a year within three months of each fiscal-year end, and note the calendar somewhere your future-self will read. If you are forming because Vermont's blockchain-based LLC subchapter is actually the thing your team needs, have the operating agreement drafted before you file, not after; Subchapter 13 does the work of recognizing what the operating agreement contains, and an empty operating agreement is an empty designation.

Sources

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