How to Form a PLLC in Vermont

Here are the basic rules for forming professional limited liability companies (PLLC) in Vermont.

By , Contributing Author

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As a licensed professional in Vermont you can structure your business as a Vermont professional limited liability company (PLLC). This will give you protection from several important types of liability. It also may provide certain tax advantages compared to other ways of structuring your business.

What is a Vermont PLLC?

A Vermont PLLC is a limited liability company (LLC) formed specifically by people who will provide Vermont licensed professional services. LLCs in general are businesses registered with the state that consist of one or more people—called LLC members—who own the business. Like other LLCs, PLLCs protect their individual members from people with claims for many (but not all) types of financial debts or personal injuries.

What is a Professional Service in Vermont?

Under the relevant Vermont law, professional service is defined only generally as a service that may be lawfully rendered by a person licensed or otherwise authorized by a Vermont licensing authority to render the service. Other states' laws often provide lists of specific types of professional services covered by the PLLC law. These lists typically include, at a minimum, physicians, surgeons, dentists, lawyers, certified public accountants, professional engineers, architects, and veterinarians, but often include other professions, as well. If you're unsure whether your Vermont-licensed or -authorized profession is considered a professional service for the purpose of forming a PLLC, check with a local business attorney.

How Do I Form a Vermont PLLC?

To form your Vermont PLLC you'll need to:

  • have the state license for each professional who will be a member of the company
  • check with the state licensing board for your profession to see if its prior approval is required, (and, if so, obtain the necessary documentation showing that approval), and
  • file articles of organization with the Vermont Secretary of State (SOS) that include a statement of the professional service the PLLC will provide and has attached the professional licenses of all PLLC members.

Note: You may also be required to deliver a certified copy of your articles of organization to each Vermont licensing authority with jurisdiction over the professional service or services provided by your PLLC. For more information, check with the relevant licensing authorities or a local business attorney.

You can file the articles online or download a blank articles of organization form by going to the SOS website. The downloadable form covers all kinds of LLCs (not just PLLCs) and includes sections specifically for PLLCs along with helpful instructions. The form is in PDF format and you can type in the required information on your computer (you will have to print it out in order to sign it). The current filing fee is $125.

Naming Restrictions

The name of a Vermont PLLC must contain one of the following words or abbreviations: "Professional Limited Liability Company," "Professional Limited Company," "Professional LLC," "Professional LC," or "PLC." The name may not contain any language stating or implying that the business is formed for a purpose other than what is stated in your articles of organization and what is allowed under Vermont's law for professional service entities. The name also must comply with any naming rules of the state licensing authority that has jurisdiction over the professional service your PLLC will provide. Additional naming rules also apply. For important information on LLC names, check the Business Name, Location & Licenses section of the Nolo website.

Service and Membership Restrictions

A Vermont PLLC can only provide the professional service authorized in its articles of organization and, in general, may not engage in any other business. One key exception to this rule is that a Vermont PLLC can invest its funds (for example, in real estate or securities). Another general rule is that a Vermont PLLC can only provide one kind of professional service (including providing services directly related (ancillary) to that professional service). However, a Vermont PLLC can provide services in two or more professions, or any other lawful business under the appropriate business statutes, to the extent those additional services or other business are authorized by the applicable Vermont professional licensing laws. Generally speaking, all members of a Vermont PLLC must be licensed to provide the professional services offered by the PLLC. (For manager-managed PLLCs, at least half of the managers must be licensed.) Vermont PLLCs and/or their members are subject to the regulation of the relevant state professional licensing authorities.

Operating Agreement

You should make sure you have an operating agreement for your PLLC. Unlike professional licenses, articles of organization, naming restrictions, and service restrictions, this is not a state requirement. However, it is important to have an operating agreement so that other members of the PLLC (if any), as well as outside companies and businesses (for example banks), know what the internal rules are for the company. Depending on your own level of knowledge and expertise, you should consider having a lawyer assist you in preparing this document.

A PLLC Will Not Protect You From All Liability

Forming your professional service business as a PLLC will protect you personally from:

  • creditors seeking to collect unpaid debts owed solely by the PLLC
  • liability for the malpractice of other PLLC members (technically known as "vicarious liability"), and
  • people who are personally injured in connection with your PLLC because of things having nothing to do with your own professional malpractice or torts (for example, if someone slips and falls in your PLLC's offices).

Regarding protection from liability for the malpractice of fellow PLLC members, be aware that, for some professions in some states, PLLC members are required to have a minimum amount of malpractice insurance before they are eligible for such protection. Therefore, it's always a good idea to double check your state's PLLC laws, as well as your state's rules for your particular profession, regarding minimum insurance requirements.

Meanwhile, you are personally responsible if:

  • you personally guarantee repayment of a business loan
  • you engage in professional malpractice (such as completely botching a patient's treatment or egregiously mishandling a client's case), or
  • you intentionally or negligently commit a tort (such as assaulting someone).

Because you are not protected from your own malpractice, you should make sure you have professional liability insurance—and, if applicable, that your coverage meets any minimum insurance requirements.

A PLLC is Different From a Professional Corporation

A PLLC is not the same thing as a professional corporation (PC). A PLLC is a newer type of business entity than a PC. Here are some of the key differences:

  • a PLLC, like other LLCs, is comprised of members, but a PC, like other corporations, is comprised of shareholders
  • following from the previous point, PLLC ownership consists of so-called membership interests in the business, but PC ownership is based on shares of stock; and
  • a PLLC, like other LLCs, is a so-called pass-through tax entity, meaning that in most states (though not Vermont) only the individual members have income tax obligations, while a PC, like other corporations, usually has its own income tax obligations.

The tax differences between PLLCs and PCs can be complicated. Unlike most other states, Vermont directly taxes LLCs through a business entity tax (BET). (More information on this tax is available in other Nolo LLC articles.) A PC can elect a special tax status (S corporation status) that effectively makes it a pass-through tax entity like a PLLC. PCs that don't elect special status may be subject to double taxation—in other words, both the PC itself and its shareholders may have to pay taxes on business income.

Vermont's laws for PLLCs are mainly based on the state's preexisting law for PCs. Vermont allows professionals to form both PLLCs and PCs, and both PLLCs and PCs provide liability protection for, respectively, their members or shareholders. Because the protection is essentially the same for both PLLCs and PCs, but PLLCs are simpler to create and operate, many professionals prefer the PLLC structure.

Additional Information

For more information on the requirements for forming and operating an LLC in Vermont, such as those relating to annual reports and taxes, see Nolo's articles in 50-State Guide to Forming an LLC and 50-State Guide to Annual Report and Tax Filing Requirements for LLCs, along with the other articles on LLCs in the LLC section of the Nolo website.

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