How to Start a Sole Proprietorship in Vermont

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by LLC.org Team
Last updated: June 13th, 2024
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The common misconception is that starting a small business can be quite a challenge, but choosing to start a sole proprietorship is the simplest way to do it without actually needing a high capital and a lot of paperwork. And this article will be your step-by-step guide on how to start a sole proprietorship in Vermont.

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What is a sole proprietorship?

A sole proprietorship is an unincorporated business structure where an individual operates a business without forming a separate legal entity. In other words, there is no legal distinction between the owner and the business itself. The owner assumes all liability and is personally responsible for the business’s debts and obligations.

Examples of a sole proprietorship

Many small businesses operate as sole proprietorships. Examples include freelance writers, consultants, photographers, personal trainers, and home-based businesses such as online shops or local services.

What qualifies your business as a sole proprietorship? 

To qualify your business as a sole proprietorship in Vermont, you simply need to be the sole owner and operator of the business. There are no specific requirements or restrictions regarding the type of business or industry you can operate as a sole proprietorship.

Sole prop vs LLC

While a sole proprietorship is a simple and cost-effective business structure, it’s important to understand the difference between a sole proprietorship and a limited liability company (LLC). Unlike a sole proprietorship, an LLC offers personal liability protection.

Who is it best for?

A sole proprietorship is best for individuals who want to start a small business with minimal requirements and administrative duties. It is also for people who want to start a low-risk business venture and prefer to have full control and decision-making authority over a business that they started. 

Starting a sole proprietorship might be easy, but you must be comfortable with assuming unlimited personal liability for all business debt, tax payments, and obligations with no legal protections. 

How to set up a sole proprietorship in Vermont

Sole proprietorships have many advantages, and if you are convinced that you want to start one right now, it is quite easy. After preparing a business plan and securing the capital you need to start your new business, the next step is naming your business and getting all the necessary requirements to operate legally. Here is how:

Is there any formal paperwork filed to establish this type of business?

While there are no formal requirements to file paperwork to establish a sole proprietorship in Vermont, there are certain steps you need to take to ensure you comply with legal obligations and properly operate your business, such as getting a DBA and other permits.

Name your business

Naming your business can be exciting, but before naming your business, you should note that the name should be unique, catchy, and should be relevant to your business. Having a name for your business can attract potential customers, and they should have an idea of what your business offers after reading or seeing the business name. 

Naming your business is optional, but here are your two choices for naming your business:

Using your own name

Without doing any further steps, your legal name would be the default business name. However, some customers might not find it very appealing to transact with a business that has no fictitious name or trade name. 

With that said, that might not always be true. There are some occasions when using your own name is appealing, such as when you are trying to build a self or personal brand. If that is the case, then you don’t need to set up a DBA. 

Setting up a DBA

If you have come up with a good name for your business, you can only use that name if you set up a DBA for your sole proprietorship. Setting one up is easy in most states, including Vermont. But before doing anything further, you must check if the name you want for your business is available. 

To do this, you can visit the Vermont Secretary of State’s website and use the simple business name search tool. Once you determine the name is available, you can go ahead and file for your DBA with the Secretary of State. 

You can file for a DBA online here or by requesting the appropriate forms and submitting them via mail. The information you need to register is the business name you want, the name of the owner, and a short description of the business. It costs $50 to file, and you need to renew the DBA every 5 years. 

Obtain state licenses

Although some sole proprietorships can start operating without a business license, businesses like liquor stores, contracting businesses, and specific professions require specific licenses for sole proprietorships to operate legally. For example, if you want to sell liquor or tobacco, you will need a separate license for both. Other occupations and specializations also need specific permits, such as barbers, contractors, accountants, and more. 

To learn more about business permits for a sole proprietorship, you can visit the Vermont Department of Taxes website and obtain the licenses and permits you need to comply with the minimum government laws. 

Vermont taxes

One of the advantages of a sole proprietorship is that it is relatively simple when it comes to taxes. As the sole proprietor, you report your business income and expenses on your personal income tax return. You will use Schedule C, Profit or Loss from Business, to calculate your net business income or loss, which is then reported on your Form 1040. Additionally, you will need to pay self-employment taxes, which include Social Security and Medicare taxes, based on your business income.

Pros

  • The flexibility and freedom to make quick decisions and adapt to changing marketing conditions without consulting partners or shareholders
  • Tax benefits that can potentially lower tax payments due to a lower individual tax rate
  • The minimal cost of creating a startup and lower ongoing costs
  • The simplicity of setting up and operating a sole proprietorship with minimal paperwork and operation requirements

Cons

  • An entrepreneur is personally responsible for business debt and obligations, putting personal assets at risk
  • It is challenging to secure funding for sole proprietorships because lenders and investors prefer to work with separate legal entities
  • Small business owners cannot continue the sole proprietorship when they are deceased or incapable of working
  • The growth potential of a sole proprietorship is limited

FAQs

Are sole proprietorships in Vermont required to get a DBA?

No, you are not required to obtain a DBA if you own a sole proprietor in Vermont. However, having a DBA can be beneficial to your own business, especially if you want to operate under a different name and make your business more memorable for past and future clients.

Can sole proprietorships in Vermont hire employees?

Sole proprietorships don’t usually require hiring employees since most of the administrative and operative work can be executed by the owner. However, if you require a little bit of help, you can hire employees by obtaining an EIN or employer identification number from the IRS. As an employer, it is also your duty to pay for payroll taxes, worker’s comp insurance, etc. 

Can you secure funding if you want to open a sole proprietorship in Vermont?

Lenders and investors typically prefer businesses with a separate legal entity, which makes securing funding quite a challenge if you want to start a sole proprietorship. However, the good thing is that starting a sole proprietorship or small business will not cost you too much, and you can probably save enough to get started. 

How much does it cost to start a sole proprietorship in Vermont?

The cost of starting a sole proprietorship in Vermont is relatively cheaper compared to an LLC, which is a different business structure. Aside from your capital, registering for a DBA and business license would be less pricey than filing for articles of formation and incorporation. Note that the specific costs vary depending on the county and industry requirements. 

Can you open a business bank account for your sole proprietorship in Vermont?

Although sole proprietorships are unincorporated businesses with no legal distinction between the business and the owner, you can still open a business bank account when you get a DBA or fictitious business name. A separate bank account can be beneficial to keeping your personal assets and spending separate from business assets, providing a clear record of business transactions. 

Are sole proprietorships easy to manage?

Compared to other types of business structures, a sole proprietorship can be easier to manage. As an owner of a sole proprietorship, you have complete control over your business, and that might be the most challenging aspect. But with no formal legal requirements or governance structures, the administrative tasks are minimal. 

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