Vermont Rewrote Its LLC Act in 2015 and Kept One Rule Nobody Expects
Vermont replaced its limited liability company act wholesale in 2015 with Act No. 17, which now sits at Title 11, chapter 25 of the Vermont Statutes. The structure is the revised uniform act: manager management only by express words, dissociation at will, a charging order with foreclosure, a ninety-day rule for a company with no members.
One rule was not copied. The uniform text divides money in equal shares. Section 4055 divides it in proportion to the agreed value of the contributions made by each member, for profits and losses under subsection (a) and for distributions under subsection (b). Vermont is one of the few states that reached into the model act and changed that number, and it means the contribution record is doing real legal work here rather than sitting in a binder.
None of it is filed. The Secretary of State takes articles of organization and an annual report and has no channel and no fee for an operating agreement. General patterns are set out in the operating agreement essentials guide; the transactional page for this state is Vermont operating agreement.
What chapter 25 supplies when nobody wrote anything down
Money follows the agreed value of contributions. Section 4055(a) allocates profits and losses in proportion to the agreed value of contributions as stated in the company records, taking account of variations during the period. Subsection (b) distributes cash the same way, measured as of the date of the distribution.
Votes do not. Section 4054(b)(2) gives each member equal rights in management and subsection (b)(3) decides ordinary matters by a majority of the members. A member holding eighty percent of the capital holds one vote out of four.
Nine decisions need everyone. Section 4054(d) requires the consent of all members for a fixed list, and two entries matter more than the rest: making an interim distribution, and using company property to redeem an interest subject to a charging order. Both give a single objector a veto over the company's cash.
Leaving is free and pays nothing. Section 4082(a) lets a person dissociate at any time, rightfully or wrongfully, and section 4055(c)(2) states that dissociation does not entitle the person to a distribution. There is no buyout in the act at all.
Proxies expire. Section 4054(e)(2) makes an appointment of proxy valid for eleven months unless the instrument specifies a different period. It is a small rule that quietly invalidates a governance arrangement families often set up once and forget.
One member, ninety days, and no cure written into the statute
Section 4101(a)(3) dissolves a Vermont limited liability company on the passage of ninety consecutive days during which the company has no members. Several states that adopted the same model attached a proviso letting the transferees admit a replacement member within the window. The Vermont text carries no such proviso, which makes succession planning in the operating agreement the practical answer for a sole owner.
Section 4074 then handles the creditor side, and it is not the strongest position in the country. Subsection (c) allows foreclosure on a showing that distributions will not pay the judgment within a reasonable time, and subsection (g) provides that on foreclosure against the sole member the purchaser obtains the member's entire interest, becomes a member, and the former owner is dissociated. Subsection (h) still calls the charging order the exclusive remedy. Federal and banking treatment is covered in the single-member LLC guide, with state detail on the Vermont single-member LLC page.
Ten Clauses, Written Against Title 11 Chapter 25
Section 4003(a) lets the operating agreement regulate the affairs of the company and govern relations among the members, managers and company. Subsection (b) lists what it cannot do, and subsections (c) through (f) then open a narrow door back. These ten clauses live inside that structure.
Vermont at a glance
| Question | What Title 11 chapter 25 says |
|---|---|
| Governing act | Vermont Limited Liability Company Act, 11 V.S.A. sections 4001 and following, enacted by 2015 Act No. 17 |
| Required by statute? | No. Section 4003 is permissive |
| Form accepted | The act does not require writing. Written is the only sensible option |
| Filed with the state? | Never. No form, no submission, no fee |
| Default voting | Equal rights per member, majority of the members, section 4054 |
| Default distributions | In proportion to the agreed value of contributions, section 4055 |
| Dissociation | Permitted at any time, with no right to a distribution on leaving |
| Charging order | Exclusive remedy, but foreclosure is available and the sole member loses everything |
| Low-profit companies | The L3C election is available under sections 4161 to 4163 |
| State fees you do pay | $155 to form, $45 for the annual report. Nothing for the agreement |
1. Members, percentages, and the distributional interest
List each member with a stated percentage and use the statute's vocabulary. A distributional interest is the right to receive distributions and nothing more, and it is what a transferee or a foreclosure purchaser ends up holding. Vermont publishes no member detail, so this schedule is the only record a bank or a buyer can rely on.
2. Contributions, and the record section 4055 actually reads
This is the most load-bearing clause in a Vermont agreement. Section 4055 measures both profit allocation and cash distributions against the agreed value of contributions as stated in the company records. A company that never agreed a value, or never wrote it down, has disabled its own default rule and left the split to argument.
3. Management, and the words the statute wants to see
Section 4054(a) makes a company member-managed unless the operating agreement expressly says manager-managed, managed by managers, or vested in managers, or uses words of similar import. Manager management is impossible without a document. Set authority, term, compensation and removal, and define who may sign for the company.
4. Weighting the vote, and pruning the nine-item list
Tie votes to ownership if that is the intention, since section 4054 counts heads. Then work through the unanimity list in subsection (d), which is expressly subject to the operating agreement. Interim distributions sit on it, so in a four-member company one objector can stop everyone from being paid.
5. Allocations, distributions and a tax draw
Separate the allocation of taxable income from the distribution of cash and add a mandatory tax distribution, because members of a company taxed as a partnership owe tax on allocated income whether or not the money arrived. If the members want a split that does not track contributions, section 4055 has to be displaced expressly.
6. Transfers, and the charged interest
Sections 4072 and 4073 already limit what a transferee receives. Add consent requirements, a right of first refusal, permitted estate transfers, and a mandatory purchase on death, divorce, bankruptcy or expulsion. Then address section 4074 directly: state whether the company may redeem a charged interest and who authorises it, given that the unanimity list already covers using company property to do so.
7. Dissociation, and the buyout the act omits
A member may leave at any time and takes nothing. Section 4055(c)(2) is explicit that dissociation does not entitle the person to a distribution, and the departed member still holds the distributional interest. Write the buyout: trigger events, valuation method, discounts, instalment terms and interest rate, or accept a permanent silent holder.
8. Dissolution, succession, and the ninety-day clock
Section 4101(a)(3) dissolves the company after ninety consecutive days with no members, and the Vermont text sets out no cure. For a sole owner that makes a named successor and a transfer-on-death mechanism part of the governance file rather than the estate plan. The filing itself sits on the Vermont dissolution page, and a lapsed entity works through reinstatement.
9. Tax classification, and the annual calendar
Record the federal classification and test the allocations against it, since an S corporation election cannot carry preferred returns or special allocations. Vermont also imposes a minimum entity tax on pass-through companies, so the federal election changes the state return as well, and the annual report is a separate obligation to the Secretary of State.
10. Duties, amendments, and the unreasonableness line
Set the amendment vote, since section 4054(d)(1) otherwise requires every member. Then draft duties carefully: section 4003(b)(4) blocks eliminating or restricting the duty of loyalty, care or any other fiduciary duty, and subsection (c) reopens the door only for terms that are not unreasonable. That is a tighter standard than the manifest-unreasonableness test used in neighbouring states. Store the file with the articles and any Vermont articles of amendment.
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How the Vermont Charging Order Behaves, and Where It Ends
Section 4074(a) lets a court enter a charging order against the distributional interest of a judgment debtor, creating a lien and requiring the company to pay over any distribution that would otherwise reach the debtor. Subsection (b) allows a receiver of those distributions and any other orders needed to give the charging order effect.
Subsection (c) is the limit of the protection. On a showing that distributions will not pay the judgment debt within a reasonable time, the court may foreclose the lien and order the sale of the distributional interest, and in a multi-member company the purchaser takes only that interest and does not become a member.
Subsection (g) changes the result where there is one member: the court confirms the sale, the purchaser obtains the entire interest, the purchaser becomes a member, and the former owner is dissociated. Subsections (d) and (e) leave redemption and subrogation routes open, and subsection (h) calls the charging order the exclusive remedy.
The drafting response is the same one that works in every foreclosure state. Make distributions discretionary rather than mandatory, so a charging order collects nothing and the reasonable-time showing becomes harder to make. Then write the redemption mechanics, including who decides and where the money comes from, before a judgment exists.
Separateness, and What a Vermont Court Weighs
Vermont courts disregard the entity where the owner exercised such control that the company had no separate existence and where respecting the form would work an injustice or defeat a legitimate claim. The inquiry is fact-driven: capitalisation at formation, whether funds and assets stayed apart, whether the company observed the formalities it set for itself, and whether the business was in substance the owner acting under a different name.
The operating agreement supplies most of the answers. A contribution ledger fixes capitalisation with a number and a date, which matters twice over in Vermont because section 4055 already depends on that ledger. A declared distribution shows money was paid rather than taken. An authority clause explains why a particular person signed a particular contract.
The reverse holds as well. An agreement that imposes procedures the company never follows gives a claimant a written standard to measure the failure against. Draft the formalities you will keep, paper any intercompany transactions at arm's length, and keep a current certificate of good standing for each entity as the cheapest evidence that it is being maintained.
Five Mistakes Vermont Owners Keep Making
Two of these come from assuming Vermont copied the uniform act exactly. Three come from provisions that only bite years later.
Mistake 1: Using a uniform act template with an equal-shares clause
The model act distributes in equal shares and most templates repeat it. Vermont replaced that with proportion to the agreed value of contributions in section 4055. A template that recites equal shares is not merely unhelpful here, it actively contradicts the statute the members were relying on, and it does so in the clause about money.
Mistake 2: Leaving a sole owner with no succession clause
Section 4101(a)(3) dissolves the company after ninety consecutive days with no members and the Vermont text supplies no cure. A single-member company whose owner dies has three months before the entity ends by operation of law, and the only place to arrange for a successor is the document nobody wrote.
Mistake 3: Never recording the agreed value of a contribution
Section 4055 measures both profits and distributions against the agreed value of contributions as stated in the company records. A company that took in cash, equipment and services and recorded only the cash has stated values for one member and nothing for the others, which is the worst possible starting point for a dispute.
Mistake 4: Looking for the filing or the fee
There is neither. The operating agreement is never delivered to the Secretary of State, appears in no fee schedule and is not part of the formation packet. What Vermont charges is $155 to form the company and $45 for the annual report. Filing the agreement publicly would expose the member schedule and contribution values for no benefit.
Mistake 5: Leaving the nine-item unanimity list untouched
Section 4054(d) requires every member's consent for nine things and is expressly subject to the operating agreement, which means it is the easiest default in the act to fix and one of the least often fixed. Interim distributions and redeeming a charged interest are both on the list, so silence hands each member a veto over being paid.
Three Vermont Companies and the Clause That Decided It
Composite cases built from the patterns that recur under chapter 25.
Example 1: A Burlington food producer and a contribution nobody valued
Three members started a specialty foods company. One contributed $310,000 in cash, one contributed a commercial kitchen lease and equipment, and one contributed recipes and full-time work. Only the cash was recorded. When a $180,000 distribution was declared four years later, section 4055(b) pointed at agreed values that existed for one member and not the other two, and the split went to litigation rather than to a spreadsheet.
Example 2: A Stowe lodging company where one member stopped the payout
Four members held a seasonal lodging business generating about $260,000 of distributable cash a year. Section 4054(d)(5) makes an interim distribution a unanimous decision, and one member withheld consent for two seasons during an argument about a renovation budget. The company was profitable and nobody could be paid, and every member owed tax on income that stayed in the account.
Example 3: A Montpelier consultancy that ended ninety days after its owner
A sole owner ran a policy consultancy with retainers worth roughly $220,000 a year. She died with no operating agreement and no successor arrangement. Section 4101(a)(3) dissolved the company after ninety consecutive days with no members, and the Vermont text offers no cure. The estate was left winding up a business whose value lived entirely in continuing client relationships.
The Financial Consequence of Relying on Chapter 25
Vermont imposes no penalty for having no operating agreement. There is no fine and no compliance event attached to it. These are the amounts the defaults move.
The distribution nobody can compute. Where agreed contribution values were never recorded, section 4055 gives a court nothing to apply. On a company distributing $180,000, a disagreement about whether a sweat-equity member holds a third or a tenth is a $42,000 swing on a single payment and a precedent for every payment after it.
The distribution nobody can approve. Unanimity on interim distributions is the quiet expensive default. Two seasons of withheld cash on $260,000 a year is $520,000 sitting in an account while four members pay tax on income they never received.
The ninety-day dissolution. For a sole owner this is a total loss risk rather than a percentage. A consultancy worth $220,000 a year in recurring revenue is worth very little as a wound-up shell, and the clause that prevents it is a paragraph naming a successor.
The costs the state does charge. Formation is $155 and the annual report is $45, so the calendar barely registers and nothing prompts an owner to reopen the governance file. A certificate of good standing pulled for a closing is often the first review in years, and trading in another state adds foreign qualification and a second calendar.
How File.Business Drafts a Vermont Operating Agreement
The intake starts with the contribution schedule, because section 4055 makes it the operative document for both profit allocation and cash distributions. Every contribution gets a form, a date and an agreed value, including services and promised future contributions, and the schedule is drafted to be handed to a bank as beneficial ownership evidence at the same time.
The second pass is the nine-item unanimity list in section 4054(d), which the statute expressly allows the agreement to change, and the succession arrangement that keeps section 4101(a)(3) from ever running. From there the work covers a real buyout to replace the one the act omits, discretionary distributions to blunt a charging order, and duty modifications drafted against the unreasonableness standard in section 4003(c). Delivery includes signature pages and an adopting consent. Adjacent work runs alongside: registered agent coverage, agent changes and assumed business name filings. The flat fee is $99 and no state fee attaches, because there is no filing.
Template or drafted document
A single-member Vermont company can run on a careful template, provided it names a successor and makes distributions discretionary. Those two clauses answer the two provisions of the act that can end a one-owner business outright.
For a multi-member company the test takes one search. Open the template and look for the words equal shares. If they appear in the distribution clause, the document was written for a different statute, and the members have adopted a split that section 4055 does not recognise.
Vermont Operating Agreement FAQ
Does Vermont require an LLC operating agreement?
No. Section 4003 of Title 11 describes what an operating agreement governs and what it may not do, but nothing in chapter 25 requires a Vermont limited liability company to have one. The Secretary of State never asks to see it.
Do I file the operating agreement with the Vermont Secretary of State?
No. There is no form for it, no filing channel and no fee, because it is a private contract among the members. The state fees you do pay are $155 to form the company and $45 for the annual report.
How are profits and distributions split in a Vermont LLC with no agreement?
By contribution. Section 4055(a) allocates profits and losses in proportion to the agreed value of the contributions made by each member as stated in the company records, and subsection (b) distributes cash the same way as of the date of the distribution.
Can a creditor foreclose on a Vermont membership interest?
Yes. Section 4074(c) allows a court to foreclose the charging order lien and order the sale of the distributional interest on a showing that distributions will not pay the judgment debt within a reasonable time. Subsection (g) then gives the purchaser the entire interest where the debtor was the sole member.
What happens to a Vermont LLC when its only member dies?
It dissolves after ninety days. Section 4101(a)(3) dissolves the company on the passage of ninety consecutive days during which it has no members, and the Vermont text sets out no cure period for admitting a replacement, which makes a successor clause in the operating agreement the practical answer.
Which decisions require every member of a Vermont LLC to agree?
Nine of them. Section 4054(d) lists amending the operating agreement or the articles, compromising a contribution obligation, making interim distributions, admitting a new member, using company property to redeem a charged interest, waiving winding up, and disposing of substantially all the property. The list is expressly subject to the operating agreement.
Can a Vermont operating agreement change fiduciary duties?
Only within limits. Section 4003(b)(4) prevents an agreement from eliminating or restricting the duty of loyalty, the duty of care or any other fiduciary duty, and subsection (c) then permits specified restrictions only where they are not unreasonable, which is a tighter standard than several neighbouring states apply.
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Doing this in Vermont specifically: Vermont operating agreement covers the state detail. There is no state form and no fee, because the document is never filed.
Every statutory statement above was read in the sources below. Confirm the current text with the agency or the legislature before acting on it.
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