Relations of Members to Each Other and to Limited Liability Company

V.S.A. tit. 11, ch. 25, subch. 4

in effect

11 V.S.A. § 4051 Becoming a member

4051. Becoming a member (a) If a limited liability company is to have only one member upon formation, the person becomes a member as agreed by that person and the organizer of the company. That person and the organizer may be, but need not be, different persons. If different, the organizer acts on behalf of the initial member. (b) If a limited liability company is to have more than one member upon formation, those persons become members as agreed by the persons before the formation of the company. The organizer acts on behalf of the persons in forming the company and may be, but need not be, one of the persons. (c) If articles of organization filed with the Secretary of State contain the statement required by subdivision 4023(a)(5) of this title, a person becomes an initial member of the limited liability company with the consent of a majority of the organizers. The organizers may consent to more than one person simultaneously becoming the company’s initial members. (d) After formation of a limited liability company, a person becomes a member: (1) as provided in the operating agreement; (2) as the result of a transaction effective under subchapter 10 of this chapter; (3) with the affirmative vote or consent of all the members; or (4) if, within 90 consecutive days after the company ceases to have any members: (A) the last person to have been a member or the legal representative of that person designates a person to become a member; and (B) the designated person consents to become a member. (e) A person may become a member without acquiring a distributional interest and without making or being obligated to make a contribution to the limited liability company. Added 2015, No. 17, § 2.

11 V.S.A. § 4052 Form of contribution

4052. Form of contribution A contribution may consist of tangible or intangible property or other benefit to the company, including money, promissory notes, services performed, agreements to contribute money or property, or contracts for services to be performed. Added 2015, No. 17, § 2.

11 V.S.A. § 4053 Member’s liability for contributions

4053. Member’s liability for contributions (a) A person’s obligation to make a contribution to a limited liability company is not excused by the member’s death, disability, or other inability to perform personally. If a person does not make the required contribution, the person’s estate is obligated at the option of the company to contribute money equal to that portion of the value of the part of the contribution which has not been made. (b) A creditor of a limited liability company who extends credit or otherwise acts in reliance on an obligation described in subsection (a) of this section, and without notice of any compromise under subdivision 4054(d)(4) of this title, may enforce the original obligation. Added 2015, No. 17, § 2.

11 V.S.A. § 4054 Management of limited liability company

4054. Management of limited liability company (a) A limited liability company is a member-managed limited liability company unless the operating agreement: (1) expressly provides that: (A) the company is or will be “manager-managed”; (B) the company is or will be “managed by managers”; or (C) management of the company is or will be “vested in managers”; or (2) includes words of similar import. (b) In a member-managed limited liability company: (1) the management and conduct of the company are vested in the members; (2) each member has equal rights in the management and conduct of the company’s activities; and (3) except as otherwise provided in subsection (d) of this section, any matter relating to the activities of the company may be decided by a majority of the members. (c) In a manager-managed limited liability company: (1) Except as otherwise provided in subsection (d) of this section, the managers have the exclusive authority to manage and conduct the company’s activities. (2) Each manager has equal rights in the management and conduct of the company’s activities. (3) Except as specified in subsection (d) of this section, any matter relating to the activities of the company may be exclusively decided by the manager or, if there is more than one manager, by a majority of the managers. (4)(A) A manager may be chosen at any time by the affirmative vote or consent of a majority of the members and remains a manager until a successor has been chosen, unless the manager at an earlier time resigns, is removed, or dies, or, in the case of a manager that is not an individual, terminates. (B) A manager may be removed at any time by the affirmative vote or consent of a majority of the members without notice or cause. (5)(A) A person need not be a member to be a manager, but the dissociation of a member that is also a manager removes the person as a manager. (B) If a person that is both a manager and a member ceases to be a manager, that cessation does not by itself dissociate the person as a member. (6) A person’s ceasing to be a manager does not discharge any debt, obligation, or other liability to the limited liability company or members which the person incurred while a manager. (d) Except as provided in the operating agreement, the affirmative vote or consent of all the members is required to: (1) amend the operating agreement of a limited liability company; (2) amend the articles of organization under section 4024 of this title; (3) compromise an obligation to make a contribution under section 4053 of this title; (4) compromise, as among members, an obligation of a member to make a contribution or return money or other property paid or distributed in violation of this chapter; (5) make interim distributions under subsection 4055(a) of this title; (6) admit a new member; (7) use the company’s property to redeem an interest subject to a charging order; (8) waive the right to have the company’s business wound up and the company terminated under subsection 4102(b) of this title; and (9) sell, lease, exchange or otherwise dispose of all, or substantially all, of the company’s property with or without goodwill. (e)(1) A member or manager may appoint a proxy to vote or otherwise act for the member or manager by signing an appointment instrument, either personally or by the member’s or manager’s attorney-in-fact. (2) An appointment of a proxy is valid for 11 months unless a different time is specified in the appointment instrument. (3) An appointment is revocable by the member or manager unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest, in which case the appointment is revoked when the coupled interest is extinguished. (f)(1) An action requiring the affirmative vote or consent of members under this title may be taken without a meeting if the action is approved in a consent by members having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all members entitled to vote thereon were present and voted. (2) A member may appoint a proxy or other agent to consent or otherwise act for the member by signing an appointing record, personally or by the member’s agent. (g)(1) An action that may be taken at a meeting of the managers may be taken without a meeting if the action is approved by consent of all managers entitled to vote on the action. (2) The action must be evidenced by one or more consents reflected in a record describing the action taken and signed by all managers entitled to vote on the action. (h) The dissolution of a limited liability company does not affect the applicability of this section. However, a person that wrongfully causes dissolution of the company loses the right to participate in management as a member and a manager. (i) This chapter does not entitle a member to remuneration for services performed for a member-managed limited liability company, except for reasonable compensation for services rendered in winding up the activities of the company. Added 2015, No. 17, § 2.

11 V.S.A. § 4055 Sharing of profits and losses and right to distributions

4055. Sharing of profits and losses and right to distributions (a) The profits and losses of a limited liability company shall be allocated among the members or the holders of distributional interests, as the case may be, in proportion to the agreed value, as stated in the limited liability company records required to be kept under this chapter, of the contributions made by each member, taking into account variations in the capital contributions of each member during the period for which such allocations are made. (b) Any distributions made by a limited liability company before its dissolution and winding up shall be made among the members or the holders of distributional interests, as the case may be, in proportion to the agreed value of the contributions made by each member as of the date of such distribution. (c)(1) A member has a right to a distribution before the dissolution and winding up of a limited liability company only if the company decides to make an interim distribution. (2) A person’s dissociation does not entitle the person to a distribution. (d) A member has no right to receive, and may not be required to accept, a distribution in kind. (e) If a member or transferee becomes entitled to receive a distribution, the member or transferee has the status of, and is entitled to all remedies available to, a creditor of the limited liability company with respect to the distribution. Added 2015, No. 17, § 2.

11 V.S.A. § 4056 Limitations on distributions

4056. Limitations on distributions (a) A distribution shall not be made if: (1) the limited liability company would not be able to pay its debts as they become due in the ordinary course of business; or (2) the company’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the company were to be dissolved, wound up, and terminated at the time of the distribution, to satisfy the preferential rights upon dissolution, winding up, and termination of members whose preferential rights are superior to those receiving the distribution. (b) A limited liability company may base a determination that a distribution is not prohibited under subsection (a) of this section on financial statements prepared on the basis of: (1) generally accepted accounting practices and principles; (2) a fair valuation; or (3) another method that is reasonable under the circumstances. (c) Except as otherwise provided in subsection (e) of this section, the effect of a distribution under subsection (a) of this section is measured: (1) in the case of distribution by purchase, redemption, or other acquisition of a distributional interest in a limited liability company, as of the date money or other property is transferred or debt incurred by the company; and (2) in all other cases, as of the date the: (A) distribution is authorized if the payment occurs within 120 days after the date of authorization; or (B) payment is made if it occurs more than 120 days after the date of authorization. (d) A limited liability company’s indebtedness to a member incurred by reason of a distribution made in accordance with this section is at parity with the company’s indebtedness to its general, unsecured creditors. (e) Indebtedness of a limited liability company, including indebtedness issued in connection with or as part of a distribution, is not considered a liability for purposes of determinations under subsection (a) of this section if its terms provide that payment of principal and interest are made only if and to the extent that payment of a distribution to members could then be made under this section. If the indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness and not the issuance of the indebtedness is treated as a distribution, the effect of which is measured on the date the payment is made. Added 2015, No. 17, § 2.

11 V.S.A. § 4057 Liability for unlawful distributions

4057. Liability for unlawful distributions (a) A member of a member-managed limited liability company or a member or manager of a manager-managed company who votes for or assents to a distribution made in violation of section 4056 of this title, the articles of organization, or a written operating agreement is personally liable to the company for the amount of the distribution which exceeds the amount that could have been distributed without violating section 4056 of this title, the articles of organization, or a written operating agreement if it is established that the member or manager did not perform the member’s or manager’s duties in compliance with section 4059 of this title. (b) A member of a manager-managed limited liability company who knew a distribution was made to such member in violation of section 4056 of this title is personally liable to the limited liability company, but only to the extent that the distribution received by such member exceeded the amount that could properly have been paid under section 4056 of this title. (c) A member or manager against whom an action is brought under this section may implead in the action all: (1) other members or managers who voted for or assented to the distribution in violation of subsection (a) of this section and may compel contribution from them; and (2) members who received a distribution in violation of subsection (b) of this section and may compel contribution from the member in the amount received in violation of subsection (b) of this section. (d) A proceeding under this section is barred unless it is commenced within two years after the distribution. Added 2015, No. 17, § 2.

11 V.S.A. § 4058 Information rights

4058. Information rights (a) In a member-managed limited liability company, each member has the right, subject to such reasonable standards, including standards governing what information and documents are to be furnished and at what time and location, as may be set forth in the articles of organization, an operating agreement, or otherwise established by the members to obtain from the company from time to time and upon reasonable demand for any purpose reasonably related to the member’s interest as a member of the limited liability company during the period in which he or she was a member: (1) information concerning the company’s business or affairs reasonably required for the proper exercise of the member’s rights and duties under the operating agreement or this chapter; and (2) other information concerning the company’s business or affairs, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances. (b) In a manager-managed limited liability company: (1) the right to receive information as stated in subdivision (a)(1) of this section shall apply to the managers and not the members; (2) during regular business hours and at a reasonable location specified by the company, a member may inspect and copy information regarding the activities, affairs, financial condition, and other circumstances of the company as is just and reasonable if: (A) the member seeks the information for a purpose reasonably related to the member’s interest as a member; (B) the member makes a demand in a record received by the company, describing with reasonable particularity the information sought and the purpose for seeking the information; and (C) the information sought is directly connected to the member’s purpose; and (3) the managers shall have the right to keep confidential from members who are not managers, for such period of time as the managers deem reasonable, any information which the managers reasonably believe to be in the nature of trade secrets or other information the disclosure of which the managers in good faith believe is not in the best interest of the company. (c) A company may impose a reasonable charge, limited to the costs of labor and material, for copies of records or other information furnished under this section. (d) A company may maintain its records in other than written form if such form is capable of conversion into written form within a reasonable time or into an electronic form that may be prescribed by the Secretary of State. (e) Any demand under this section shall: (1) be in writing; (2) be made in good faith and for a proper purpose; and (3) describe with reasonable particularity the purpose and the records or information desired. (f)(1) A member or person dissociated as a member may exercise the rights under this section through an agent or, in the case of an individual under legal disability, a legal representative. (2) Any restriction or condition imposed by the operating agreement or under subsection (h) of this section applies both to the agent or legal representative of such a member and to a person dissociated as a member. (g) Subject to section 4075 of this title, the rights under this section do not extend to a person who is a transferee of an interest in a limited liability company, except that a transferee is entitled to an account of the company’s transactions only from the date of dissolution. (h)(1) In addition to any restriction or condition stated in this section or the company’s operating agreement, a limited liability company may impose reasonable restrictions and conditions on access to and use of information to be furnished under this section, including designating information confidential and imposing nondisclosure and safeguarding obligations on the recipient. (2) In a dispute concerning the reasonableness of a restriction under this subsection, the company has the burden of proving reasonableness. (i) Failure of the company to keep or maintain any of the records or information required pursuant to this section shall not be grounds for imposing liability on any person for the debts and obligations of the company. Added 2015, No. 17, § 2.

11 V.S.A. § 4059 General standards of member’s and manager’s conduct

4059. General standards of member’s and manager’s conduct (a) The only fiduciary duties a member owes to a member-managed limited liability company and its other members are the duty of loyalty and the duty of care imposed by subsections (b) and (c) of this section. (b) A member’s duty of loyalty to a member-managed limited liability company and its other members is limited to the following: (1) to account to the company and to hold as trustee for it any property, profit, or benefit derived by the member in the conduct or winding up of the company’s business or derived from a use by the member of the company’s property, including the appropriation of the company’s opportunity; (2) to refrain from dealing with the company in the conduct or winding up of the company’s business as or on behalf of a party having an interest adverse to the company; and (3) to refrain from competing with the company in the conduct of the company’s business before the dissolution of the company. (c) A member’s duty of care to a member-managed limited liability company and its other members in the conduct of and winding up of the company’s business is limited to refrain from engaging in grossly negligent or reckless conduct, or a knowing violation of the law. (d) A member shall discharge the duties to a member-managed limited liability company and its other members under this chapter or under the operating agreement and exercise any rights consistently with the obligation of good faith and fair dealing. (e) A member of a member-managed limited liability company does not violate a duty or obligation under this chapter or under the operating agreement merely because the member’s conduct furthers the member’s own interest. (f) All the members of a member-managed limited liability company or a manager-managed limited liability company may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty. (g) It is a defense to a claim under subdivision (b)(2) of this section and any comparable claim in equity or at common law that the transaction was fair to the limited liability company. (h) This section applies to a person winding up the limited liability company’s business as the personal or legal representative of the last surviving member of the company as if the person were a member. (i) In a manager-managed limited liability company: (1) subsections (a), (b), (c), and (g) of this section apply to the manager or managers and not the members, and the duty stated in subdivision (b)(3) of this section continues until winding up is completed; (2) subsection (d) of this section applies to managers and members; (3) subsection (e) of this section applies only to members; (4) the power to ratify under subsection (f) of this section applies only to members; (5) subject to subsection (d) of this section, a member does not have any duty to the company or to the other members solely by reason of being a member; (6) a member who pursuant to the operating agreement exercises some or all of the rights of a manager in the management and conduct of the company’s business is held to the standards of conduct in subsections (a), (b), (c), and (g) of this section to the extent that the member exercises the managerial authority vested in a manager by this chapter; and (7) a manager is relieved of liability imposed by law for violation of the standards prescribed by subsections (a), (b), (c), and (g) of this section to the extent of the managerial authority delegated to the members by the operating agreement. (j) In discharging his or her duties, a member or a manager is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by: (1) one or more members, managers, officers, or employees of the company whom the member or manager reasonably believes to be reliable and competent in the matter presented; (2) legal counsel, public accountants, or other persons as to matters the member or manager reasonably believes are within the person’s professional or expert competence; or (3) a committee of the members or managers of which the member or manager is not a member if the member or manager reasonably believes the committee merits confidence. (k) A member or manager is not acting in good faith if he or she has knowledge concerning the matter in question that makes reliance permitted by subsection (j) of this section unwarranted. (l)(1) A member of a member-managed limited liability company or a manager of a manager-managed limited liability company may lend money to and transact other business with the company. (2) As to each loan or transaction, the rights and obligations of the member or manager, as applicable, are the same as those of a person who is not a member or manager, subject to other applicable law. (m) A member or manager is not liable for any action taken as a member or manager or any failure to take any action, if the member or manager performed the duties of his or her office in compliance with this section. Added 2015, No. 17, § 2.

11 V.S.A. § 4060 Reimbursement, indemnification, and insurance

4060. Reimbursement, indemnification, and insurance (a) A member-managed limited liability company shall reimburse a member, and a manager-managed limited liability company shall reimburse a manager, for payments made and indemnify the member or manager for liabilities reasonably incurred by the member or manager in the ordinary and proper conduct of the activities of the limited liability company or for the preservation of its activities or property. (b) A limited liability company may purchase and maintain insurance on behalf of a member or manager against liability asserted against or incurred by the member or manager in that capacity or arising from that status whether or not the operating agreement is permitted to provide for the member or manager to be indemnified against the liability. (c) A limited liability company shall reimburse a member for an advance to the company beyond the amount of contribution the member agreed to make. (d) A payment or advance that gives rise to an obligation of a limited liability company under subsections (a) through (c) of this section constitutes a loan to the company, which accrues interest from the date of the payment or advance. (e) A member is not entitled to remuneration for services performed for a limited liability company even in the capacity as a manager of a manager-managed company, except for reasonable compensation for services rendered in winding up the activities of the company. Added 2015, No. 17, § 2.

Source: Vermont General Assembly (legislature.vermont.gov)URL: https://legislature.vermont.gov/statutes/chapter/11/025Fetched: 10/21/2026