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Summary:

Ah Vermont, that lovely New England state known for its maple syrup, Ben & Jerry’s ice cream…and now, limited liability corporations that only exist online. On June 6th, Gov. Jim Douglas signed an inauspicious-sounding bill entitled “H.0888, Miscellaneous Tax Documents” that could revolutionize the way startup […]

Ah Vermont, that lovely New England state known for its maple syrup, Ben & Jerry’s ice cream…and now, limited liability corporations that only exist online.

On June 6th, Gov. Jim Douglas signed an inauspicious-sounding bill entitled “H.0888, Miscellaneous Tax Documents” that could revolutionize the way startup companies are formed and run. As New York Law School professor David Johnson explained to me, up until now, U.S. law required LLCs to have physical headquarters, in-person board meetings and other regulations that have little relevance in the digital age.

No longer. Under the new law, for example, a board meeting may be conducted “in person or through the use of [an] electronic or telecommunications medium.” A “‘virtual company’ will be, as a legal matter, a Vermont limited liability company,” said Johnson. And other states are required to recognize the corporation as a legitimate LLC. So while in the past many companies registered in Delaware to take advantage of that state’s business-friendly policies, with this law, Internet-driven startups may find Vermont even more ideal.

Johnson was instrumental to crafting the bill’s language; he, along with his NYLS students and a couple of professors at Vermont Law School, spent the last two years putting it together. He foresees virtual companies launched for countless reasons, such as the production of software or publications written by people across the country, even for corporations that exist only in Second Life.

As you may have guessed, this isn’t just an academic exercise for Johnson; he’s also developing software to manage virtual corporations through NYLS’ DoTank project. Since word of the Vermont bill’s passing got out, he said, “I’ve had two people beg me to be the first to get on the list” to start filing virtual incorporation papers. Indeed, it’s easy to see this becoming standard practice in coming years, with traditional office buildings being abandoned for dynamic companies that exist wherever its employees happen to crack open their computers.

Image credit: Vermont.gov

  1. [...] was happy to see a news item about Vermont passing tax laws that pave the road for the existence of virtual corporations. Limited liability companies incorporated in most US states are required to have a registered [...]

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  2. It all sounds great, but when you get down to it the old rules were hardly insurmountable.

    – Need a physical presence? Your home address works for that
    – In person board meetings? A 1 man board makes that trivial

    I’m not saying these new rules dont make more sense in the 21st century, but i dont think that many potential companies were not created given the current laws.

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  3. [...] in Belgium, I feel excited enough to write this post, just to refer to a story by James Wagner Au on GigaOm and New World Notes,where he reports that It is now possible to create a legally recognized limited [...]

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  4. [...] you can with Ebay or PayPal? It seems harder and harder to see SL as just play and just pretend. Vermont OKs the Creation of Virtual Corporations – GigaOM And if it is not pretend, how can WSE be pretend? Capital Gains from WSE?? But I [...]

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  5. [...] More Coverage over at OM [...]

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  6. [...] Vermont OKs the Creation of Virtual Corporations – GigaOM Gov. Jim Douglas signed Miscellaneous Tax Document, which could revolutionize the way startup companies are formed and run. The law no longer requires physical headquarters, in-person board meetings, or other regulations irrelevant in the digital age. (tags: law legal corporation vermont startup business tax dotank) [...]

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  7. [...] GigaOM: Vermont Oks The Creation of Virtual Corporations – “Johnson was instrumental to crafting the bill’s language; he, along with his NYLS students and a couple of professors at Vermont Law School, spent the last two years putting it together. He foresees virtual companies launched for countless reasons, such as the production of software or publications written by people across the country, even for corporations that exist only in Second Life.“ [...]

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  8. Brenda Archer Wednesday, June 18, 2008

    First I just have to say as someone who has lived in both Vermont and Second Life, that this totally ROCKS.

    Secondly it makes perfect sense! It’s a great example of law facilitating the way work is really getting done.

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  9. [...] you can with Ebay or PayPal? It seems harder and harder to see SL as just play and just pretend. Vermont OKs the Creation of Virtual Corporations – GigaOM And if it is not pretend, how can WSE be pretend? Capital Gains from WSE?? But I digress… [...]

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  10. [...] Vermont OKs the Creation of Virtual Corporations (tags: business internet vermont maplesyrup) [...]

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  11. [...] GigaOm reports that Vermont has finally given the go ahead to sweeping corporation reform which will allow easy creation of virtual corporations. This is an excellent move for those of us looking to do business in an increasingly virtual world. The post goes on to say: [...]

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  12. [...] Vermont OKs the Creation of Virtual Corporations – GigaOM Requiring LLCs to have physical headquarters is so 20th century. Thanks, Vermont, for upping the ante. [...]

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  13. The change is really quite slight. I run a couple virtual corporations from Thetford Center, Vermont. The big problem isn’t that you can’t have virtual meetings or submit documents via email. The problem is that Vermont wants our virtual workers and shareholders in CA, CO, FL, MA, etc. to pay Vermont income taxes. In fact, we have to do a special Vermont filing for them (with its own costs) and pay the taxes. It’s a virtual company killer.

    If that isn’t fixed, don’t expect any sudden influx of virtual companies – at least not ones that have working shareholders spread out across the country.

    I’m going to call up my local legislators and float this as well. -Tig

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  14. FYI, I believethe URL tag to the “Vermont Virtual Company” act is incorrect (i.e. it is not H.888). The bill number is actually H.458 and you can find the act, as passed here:

    http://www.leg.state.vt.us/docs/legdoc.cfm?URL=/docs/2008/bills/house/H-458.HTM

    Correct me if I’m wrong but I’m pretty sure this is the Act you’re talking about…

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  15. You can also incorporate in Nevada. Get yourself a Resident Agent, like at http://www.theupsstorenv.com (which I used), and you don’t have to live in the state. Also, Nevada has no personal income tax, no business income tax, and no franchise tax. We operate in Second Life as Space Destiny, with the mission to give everyone the opportunity to participate in science and space exploration.

    http://www.nvsos.gov/business/forms/

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  16. When will this go into effect? Highly interested and excited about hving my virtual corp be a virtual corp!

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  17. [...] Vermont OKs the Creation of Virtual Corporations – GigaOM [...]

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  18. [...] Gigaom — This article on the Gigaom technology blog examines a law the state of Vermont passed in June 2008 that revamps requirements for establishing a corporation by allowing for online board meetings, among other things. [...]

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  19. [...] my last trend to watch: A month ago, the state of Vermont OK’d the formation of virtual corporations by a change in its tax laws. This means that corporations (LLCs) in Vermont no longer need to have [...]

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  20. [...] Gigaom — This article on the Gigaom technology blog examines a law the state of Vermont passed in June 2008 that revamps requirements for establishing a corporation by allowing for online board meetings, among other things. [...]

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  21. Very interesting. The only problem I see is that UE authorities would not accept it if most of the physical preserce is in the EU. This results in legal and tax problems. For the US I think it is a good thing

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  22. So, is there online registration for virtual incorporation?

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