Vermont Single-Member LLC Operating Agreement

Introduction

Key Things to Know

1. 1

   Written form is not required for a Vermont operating agreement in general, since the law defines it to include oral or implied agreements (11 V.S.A. Section 4001(20)).

2. 2

   Without an operating agreement, Vermont law allocates profits and losses in proportion to the agreed value of each member's capital contribution, not split evenly (11 V.S.A. Section 4055(a)).

3. 3

   Vermont's default management rule gives each member an equal vote regardless of contribution size, with ordinary matters decided by a majority of members (11 V.S.A. Section 4054(b)).

4. 4

   Vermont's charging order statute singles out single-member LLCs: if a court forecloses a charging order against a sole member's interest, the purchaser gets the member's entire interest and becomes the new member (11 V.S.A. Section 4074(g)).

5. 5

   Vermont LLCs generally owe a $250 annual minimum entity tax to the Department of Taxes if taxed as a partnership, separate from a $45 Annual Report fee owed to the Secretary of State (32 V.S.A. Section 5921; 11 V.S.A. Sections 4012, 4033).

6. 6

   Fiduciary duties can be altered, and particular aspects eliminated, unless doing so is unreasonable, but the implied covenant of good faith and fair dealing can only have its standards defined, never eliminated (11 V.S.A. Section 4003(b)-(c)).

7. 7

   The operating agreement itself is not filed with the state. You form the LLC by filing Articles of Organization ($155 fee) with the Vermont Secretary of State (11 V.S.A. Sections 4012, 4023).

Vermont Requirements for LLC Operating Agreement

• Operating Agreement Authority (11 V.S.A. § 4003)

  The Operating Agreement governs the relations among the Members and between the Members and the LLC; where the Agreement is silent, the Vermont LLC Act's default rules apply. The Agreement may not, however: vary the LLC's capacity to sue or be sued in its own name; vary the choice of Vermont law; vary a court's power to decree dissolution or order winding up; unreasonably restrict a Member's right to bring an action on the LLC's behalf; or, except as specifically permitted, eliminate the duties of loyalty and care, the good faith and fair dealing covenant, or a Member's information rights (11 V.S.A. Section 4003(b)).

• Articles of Organization Compliance (11 V.S.A. § 4023)

  The Operating Agreement may not vary the nonwaivable provisions of Section 4003(b). Beyond that, if the Operating Agreement conflicts with the Articles of Organization filed with the Vermont Secretary of State, the OPERATING AGREEMENT controls as between the Members, Managers, and their transferees; the Articles control only as to outside persons who relied on the Articles to their detriment (11 V.S.A. Section 4023(c)).

• Member Voting Rights (11 V.S.A. § 4054)

  Unless the Operating Agreement provides otherwise, each Member of a member-managed Vermont LLC has an EQUAL right to participate in management, and an ordinary-course matter is decided by a MAJORITY OF THE MEMBERS, not a vote weighted by capital contribution. Nine enumerated major matters, including amending the Operating Agreement or admitting a new Member, instead require the unanimous consent of all Members (11 V.S.A. Section 4054(b)-(d)).

• Fiduciary Duties (11 V.S.A. § 4059)

  Members and managers owe fiduciary duties of loyalty and care to the LLC and other members. The Operating Agreement may define, alter, or eliminate aspects of these duties to the extent permitted by Vermont law, but may not eliminate the implied contractual covenant of good faith and fair dealing.

• Indemnification Provisions (11 V.S.A. § 4060, § 4003(f))

  The Operating Agreement may provide for indemnification, reimbursement, and insurance for Members and Managers (11 V.S.A. Section 4060), and may alter or eliminate that indemnification or limit money-damages liability, EXCEPT for: a breach of the duty of loyalty; receipt of an improper financial benefit; a breach of the good faith and fair dealing obligation; intentional infliction of harm on the LLC or a Member; or an intentional violation of criminal law (11 V.S.A. Section 4003(f)).

• Records and Information Rights (11 V.S.A. § 4058(b))

  The LLC must maintain certain records and provide members with access to information concerning the company's activities, financial condition, and other circumstances as required by Vermont law. The Operating Agreement may establish reasonable restrictions on information access.

• Allocation of Profits and Losses (11 V.S.A. § 4055)

  Unless the Operating Agreement provides otherwise, profits and losses are allocated among Members in proportion to the agreed value of each Member's capital contribution, not split evenly, taking into account variations in contributions during the allocation period (11 V.S.A. Section 4055(a)).

• Distributions (11 V.S.A. § 4056, § 4055(c))

  A Vermont LLC may not make a distribution if the LLC could not then pay its debts as they come due in the ordinary course of business, or if the LLC's total assets would fall below its total liabilities plus amounts needed to satisfy Members with superior preferential rights (11 V.S.A. Section 4056(a)). A Member has no right to an interim distribution absent a company decision to make one, and dissociation alone does not entitle a Member to a distribution (11 V.S.A. Section 4055(c)).

• Member Withdrawal and Dissociation (11 V.S.A. § 4081)

  The Operating Agreement should specify the circumstances causing a Member's dissociation, in addition to the 14 statutory dissociation events already listed in the Vermont LLC Act (11 V.S.A. Section 4081). By default, a Member's dissociation alone does not entitle that Member to any distribution from the LLC (11 V.S.A. Section 4055(c)(2)); the Operating Agreement can set different buyout terms.

• Transfer of Membership Interests (11 V.S.A. § 4071, § 4073)

  A Member's distributional interest is personal property and may be transferred (11 V.S.A. Section 4071). A transferee does not automatically become a Member and, unless admitted with the consent of all other Members, has no right to participate in management, access LLC records, or inspect the LLC's books; the transferee is entitled only to the distributions the transferor would have received (11 V.S.A. Section 4073).

• Dissolution Procedures (11 V.S.A. § 4101)

  The Operating Agreement should specify events triggering dissolution in addition to the LLC Act's own statutory dissolution events (11 V.S.A. Section 4101). Winding-up and termination mechanics are addressed separately (11 V.S.A. Section 4102).

• Amendment Procedures (11 V.S.A. § 4054(d)(1))

  Except as the Operating Agreement provides otherwise, amending the Operating Agreement requires the affirmative vote or consent of ALL Members, not merely a majority (11 V.S.A. Section 4054(d)(1)). This is a default rule, not merely a permitted option; the Operating Agreement can lower this threshold if the Members agree to do so.