By Jake Lawson, LLC Formation Strategist
Let me be upfront: I’ve helped over 1,200 entrepreneurs start businesses, and I rarely recommend sole proprietorship’s. But I understand that sometimes budget constraints or business simplicity make them the right choice—at least temporarily.
If you’re considering a Vermont sole proprietorship, this guide will walk you through everything you need to know, including the honest pros and cons that other guides won’t tell you.
What Is a Vermont Sole Proprietorship?
A sole proprietorship is the simplest business structure you can have. In fact, it’s not really a “structure” at all—it’s what happens when you start doing business without forming a legal entity.
The moment you start taking actions to make money from a business idea, you’re operating as a sole proprietorship. No paperwork required, no state filings, no formation fees.
Think of it this way: You and your business are legally the same person. There’s no separation between “John Smith the person” and “John Smith’s consulting business.”
Real-World Example:
Sarah starts offering freelance graphic design services from her Burlington apartment. She creates business cards, builds a website, and starts invoicing clients. Even though she hasn’t filed any paperwork, she’s automatically operating as a sole proprietorship under Vermont law.
The Sole Proprietorship Reality Check
Before diving into the how-to, let me give you the straight truth about sole proprietorships based on 15+ years of experience.
The Good News:
Simplicity: You can literally start today with zero paperwork
Cost: No formation fees (Vermont LLC costs $155 + $35 annual fee)
Taxes: Simple reporting on your personal tax return
Control: No corporate formalities or compliance requirements
The Not-So-Good News:
No liability protection: Your personal assets (house, car, savings) are at risk if your business gets sued
Credibility issues: Many clients and vendors take LLCs more seriously
Banking challenges: Some banks make it difficult to open business accounts for sole proprietorships
Growth limitations: No ability to bring in investors or issue ownership shares
Jake’s Honest Take:
In my experience, sole proprietorships work for very low-risk activities like freelance writing or consulting, but they’re a poor choice for anything involving:
- Physical products that could cause injury
- Services performed at client locations
- Significant revenue (over $50,000 annually)
- Employees or contractors
- Any interaction with the public
Vermont Sole Proprietorship vs. LLC: The Real Comparison
Let me break down the actual differences, not just the theoretical ones:
| Factor | Sole Proprietorship | Vermont LLC |
| Setup Cost | $0 | $155 |
| Annual Cost | $0 | $35 |
| Liability Protection | None | Full protection |
| Tax Complexity | Simple (Schedule C) | Same (can elect disregarded entity) |
| Business Banking | Difficult | Easy |
| Credibility | Limited | Professional |
| Growth Options | None | Flexible |
Jake’s Bottom Line: For an extra $155 upfront and $35/year, you get significant liability protection and professional credibility. That’s usually a no-brainer investment.
How to Start a Vermont Sole Proprietorship (If You’re Sure)
If you’ve decided a sole proprietorship is right for your situation, here’s exactly what you need to do:
Step 1: Business Planning (Don’t Skip This)
Even though sole proprietorships are informal, successful ones still need planning:
Define Your Business Model:
- What services/products will you offer?
- Who is your target market?
- How will you price your offerings?
- Where will you operate (home, office, client locations)?
Choose Your Business Address: This becomes important for:
- Banking applications
- Tax filings
- DBA registrations (if needed)
- Business license applications
Consider Your Business Name: By default, your sole proprietorship operates under your legal name (e.g., “Sarah Johnson”). If you want to operate under a different name (e.g., “Green Mountain Graphics”), you’ll need to register a DBA.
Step 2: Register a DBA (If You Want a Business Name)
Vermont calls this an “Assumed Business Name,” but it’s the same thing as a DBA (Doing Business As).
When you need a DBA in Vermont:
- You want to operate under any name other than your first and last name
- You want to include descriptive words (like “Sarah Johnson Design Studio”)
- You want a completely different name (like “Vermont Creative Solutions”)
Vermont DBA Process:
- Check name availability through Vermont’s business name search
- File online through Vermont’s Business Filings System
- Pay the $70 fee
- Receive your certificate (keep this for banking and licensing)
Jake’s DBA Tip: Even if you plan to upgrade to an LLC later, having a professional business name helps with credibility immediately. The $70 investment is usually worth it.
Step 3: Get an EIN (I Strongly Recommend This)
While sole proprietorships can operate using your Social Security Number, getting an EIN (Employer Identification Number) is smart for several reasons:
Identity Protection: Instead of giving your SSN to clients, vendors, and banks, you can use your EIN. This reduces identity theft risk significantly.
Professional Appearance: Business documents with an EIN look more professional than those with an SSN.
Banking Requirements: Many banks require an EIN to open business accounts, even for sole proprietorships.
Future Growth: If you hire employees or convert to an LLC later, you’ll already have your EIN.
How to Get Your EIN (Free from IRS):
- Go to IRS.gov (never pay third-party services for this)
- Complete the online application (takes 15 minutes)
- Receive your EIN immediately online
- Save the confirmation letter for banking and other business needs
Required Information:
- Your legal name and SSN
- Business name (if different from your legal name)
- Business address
- Reason for applying (starting a new business)
Step 4: Research License Requirements
Vermont doesn’t require a general business license for most sole proprietorships, but you may need industry-specific licenses.
Common Vermont Business Licenses:
- Professional licenses: Issued by Vermont Office of Professional Regulation
- Health permits: For food service, beauty services, healthcare
- Sales permits: If you’ll be selling tangible goods
- Professional contractor licenses: For construction, electrical, plumbing
Where to Research:
- Vermont Office of Professional Regulation: sos.vermont.gov/opr/
- Your town/city clerk: Local business permits
- Vermont Department of Health: Health-related permits
Jake’s License Reality: Don’t assume you don’t need licenses. I’ve seen entrepreneurs get shut down for operating without required permits. When in doubt, call the relevant agency directly.
Step 5: Set Up Business Banking
This is where sole proprietorships get tricky. Some banks make it difficult to open business accounts without formal business entities.
What You’ll Need:
- Photo ID
- EIN confirmation letter (if you got one)
- DBA certificate (if you registered one)
- Initial deposit ($25-500 depending on bank)
Vermont Banks That Work Well for Sole Proprietorships:
- Community National Bank: Good local service, reasonable fees
- People’s United Bank: Accommodating for small businesses
- Vermont Federal Credit Union: Lower fees, personal service
- TD Bank: Easy online banking, multiple locations
Jake’s Banking Strategy: Call ahead and ask specifically about sole proprietorship accounts. Some banks have special programs, while others will try to steer you toward personal accounts (which isn’t ideal for business use).
Step 6: Understand Your Tax Obligations
Sole proprietorship taxes are relatively straightforward, but there are Vermont-specific considerations:
Federal Taxes:
- Schedule C: Report business income and expenses
- Schedule SE: Pay self-employment taxes (Social Security and Medicare)
- Quarterly estimated payments: If you expect to owe more than $1,000
Vermont State Taxes:
- Vermont income tax: Business profits are taxed as personal income
- Sales tax: Required if you sell tangible goods (register with Vermont Department of Taxes)
Record Keeping Requirements:
- Income records: All money received from business activities
- Expense receipts: Everything deductible (office supplies, equipment, travel, etc.)
- Bank statements: Separate business account statements
- Mileage logs: If you use your vehicle for business
Jake’s Tax Tip: Set aside 25-30% of your business income for taxes. Sole proprietors often get surprised by self-employment taxes, which add 15.3% on top of regular income taxes.
Maintaining Your Vermont Sole Proprietorship
Business Record Keeping
Even though sole proprietorships are informal, you still need organized records:
Essential Documents to Keep:
- Tax returns: Previous 3 years minimum
- Financial statements: If you prepare them
- Contracts and agreements: With clients and vendors
- License and permit renewals
- Insurance policies (if you have business insurance)
Organization System:
- Physical filing system: For paper documents
- Digital storage: Scan important documents to cloud storage
- Accounting software: QuickBooks Self-Employed, FreshBooks, or Wave
Annual Requirements
Vermont Requirements:
- Personal income tax return: Including Schedule C for business
- License renewals: If you have professional or business licenses
- Sales tax filings: If you collect sales tax
Federal Requirements:
- Personal income tax return: Form 1040 with Schedule C and SE
- Quarterly estimated payments: If applicable
When to Convert to an LLC
Consider upgrading to an LLC when:
Your business grows: Revenue over $50,000 annually
You face liability risks: Client visits, physical products, employees
You want credibility: Bidding on larger contracts, working with corporations
You need investors: Want to bring in partners or outside investment
Banking becomes difficult: Banks prefer working with formal entities
The Conversion Process:
- Form a Vermont LLC ($155 + registered agent)
- Get a new EIN for the LLC
- Transfer business assets to the LLC
- Update contracts and agreements
- Change business banking to LLC accounts
- Update licenses and permits
Jake’s Conversion Timeline: This process typically takes 3-4 weeks and costs $300-500 total. Plan ahead rather than doing it during busy season.
Common Vermont Sole Proprietorship Mistakes
Mistake #1: Mixing Personal and Business Finances
What happens: Tax complications, difficulty tracking business performance, problems if you get audited.
How to avoid: Open a separate business bank account immediately, even if it’s just a second personal account designated for business use.
Mistake #2: Not Getting Proper Insurance
What happens: One lawsuit or accident can wipe out your personal assets.
How to avoid: Get general liability insurance immediately. It costs $200-400/year and provides significant protection.
Mistake #3: Ignoring Quarterly Tax Payments
What happens: Large tax bills and penalties at year-end.
How to avoid: If you expect to owe more than $1,000 in taxes, make quarterly estimated payments to IRS and Vermont Department of Taxes.
Mistake #4: Operating Without Required Licenses
What happens: Fines, business closure, inability to collect payments from clients.
How to avoid: Research thoroughly and get proper licenses before starting operations.
Mistake #5: Not Planning for Growth
What happens: Scrambling to restructure when the business outgrows sole proprietorship limitations.
How to avoid: Set revenue or liability thresholds where you’ll convert to an LLC.
Vermont Sole Proprietorship Costs (Real Numbers)
Startup Costs:
- Business formation: $0
- DBA registration: $70 (optional)
- EIN application: Free
- Business bank account: $0-25/month
- Basic liability insurance: $200-400/year
- Business licenses: $50-500 (varies by industry)
Total startup cost: $320-995
Annual Costs:
- Vermont personal income tax: Variable based on profits
- Federal self-employment tax: 15.3% of profits
- Business insurance: $200-400
- License renewals: $50-200
- Accounting software: $100-300
Total annual cost: $350-900 + taxes on profits
Compared to Vermont LLC:
- Additional LLC costs: $155 formation + $35/year
- Benefits: Liability protection, professional credibility, banking ease
Jake’s Cost Analysis: For most businesses, the extra $190 over two years to operate as an LLC provides significantly more value than the cost.
Frequently Asked Questions
Is a sole proprietorship right for my Vermont business?
Sole proprietorships work best for:
- Very low-risk service businesses (freelance writing, consulting)
- Testing business ideas before formal launch
- Part-time businesses with minimal revenue
- Situations where LLC costs are prohibitive
Consider an LLC if:
- You interact with customers in person
- You sell physical products
- You provide services at client locations
- You expect significant revenue (over $25,000/year)
- You want professional credibility
Do I need Vermont business insurance as a sole proprietor?
Yes, absolutely. General liability insurance costs $200-400/year and protects against common business risks. Since sole proprietors have no liability protection, insurance is even more critical than for LLCs.
Can I have employees as a Vermont sole proprietor?
Yes, but it’s complicated. You’ll need:
- Workers’ compensation insurance
- Unemployment insurance registration
- Payroll tax setup
- Employment law compliance
Most sole proprietors who need employees convert to LLCs for simplicity and protection.
How do I close a Vermont sole proprietorship?
Simply stop doing business. There’s no formal dissolution process since there’s no formal entity. However:
- File final tax returns
- Cancel business licenses
- Close business bank accounts
- Notify clients and vendors
- Cancel business insurance
Can I convert my sole proprietorship to an LLC later?
Yes, but it’s not a simple “conversion”—you’re essentially starting over. You’ll need to:
- Form a new Vermont LLC
- Transfer assets to the LLC
- Get new EIN and banking
- Update all contracts and licenses
Plan for 3-4 weeks and $300-500 in costs.
Jake’s Final Recommendation
After 15+ years of helping entrepreneurs, here’s my honest advice about Vermont sole proprietorships:
They make sense if:
- You’re testing a low-risk business idea
- You genuinely can’t afford the $155 LLC fee
- You’re doing very simple consulting or freelance work
- You plan to stay very small (under $25,000 revenue)
Skip them if:
- You can afford the extra $155 for an LLC
- You have any liability concerns
- You want to be taken seriously by larger clients
- You plan to grow the business
The middle ground: Start as a sole proprietorship to test your business idea, but set a trigger point (revenue level or time period) where you’ll convert to an LLC.
Remember: Business formation is just the beginning. The real work is building something valuable for your customers. Don’t get so caught up in structure decisions that you forget to focus on creating a successful business.
Ready to start your Vermont business? Whether you choose sole proprietorship or LLC, the most important step is taking action on your business idea.
Jake Lawson has guided over 1,200 entrepreneurs through U.S. business formation decisions. His recommendations are based on real client experiences and outcomes, not theoretical advantages. For more Vermont business formation guidance, visit llciyo.com.
Thinking about a Vermont LLC instead? Check out our complete Vermont LLC formation guide or compare sole proprietorship vs LLC vs Corporations in detail.