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Vermont OKs the Creation of Virtual Corporations

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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. [digg=]

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.

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22 Responses to “Vermont OKs the Creation of Virtual Corporations”

  1. 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

  2. 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

  3. Brenda Archer

    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.

  4. 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.