How to Dissolve an LLC in Vermont

As an entrepreneur, there’s nothing quite as exciting as starting a new business. However, as many new founders discover, starting a business is easy, but making it successful over the long term is hard. You may often have to terminate your venture for one reason or another. If you registered an LLC in Vermont, you’ll need to dissolve it. Sometimes, this process is for beneficial reasons (e.g., to avoid fraud or liabilities). In other cases, dissolution may be required because of an event your operating agreement says will dissolve the company. A member’s death doesn’t dissolve a Vermont LLC on its own, unless your operating agreement says so or the LLC is left with no members for 90 days (11 V.S.A. § 4101).

Each state has its own rules for this process, let’s review what you need to know about the LLC dissolution process in Vermont.

Basics of LLC dissolution

Dissolving an LLC means formally terminating the business in the eyes of the state. This way, the government knows that your company no longer exists and doesn’t try to collect taxes or fees for it. There are multiple steps involved, but before you even get started on this process, you should know some basic information first. Here’s a quick overview of the various components that may be included.

If you don’t follow the correct steps, you may not actually dissolve your business. Generally speaking, you must notify the secretary of state, settle any outstanding debts or liabilities, cancel any business licenses or tax ID numbers, and terminate any contracts you may have with vendors, employees, and partners.

Most of these steps require specific paperwork to dissolve your LLC legally. This way, once everything is all said and done, you eliminate all responsibility you may have.

Types of LLC dissolution

There are three main types of LLC dissolution. Ideally, you’ll voluntarily terminate the business and handle the paperwork yourself. However, the dissolution may be involuntary, which could cause headaches down the line. Here’s a quick rundown of each type of LLC dissolution.

Administrative dissolution

If your LLC doesn’t file its annual report, Vermont law says its articles of organization terminate (11 V.S.A. § 4034), and the Secretary of State shows the business as terminated or inactive. To reinstate, file the overdue annual reports online and pay the $45 report fee plus a $35 reinstatement fee for each missed year. If you wait more than five years after a report was due, the LLC loses the right to its name.

Judicial dissolution

While administrative dissolution often occurs when you abandon your business and let it lapse, judicial dissolution is ordered by the court. A member can ask the Superior Court to dissolve the LLC if its activities are unlawful, if it’s no longer reasonably practicable to carry on the business, or if those in control have acted illegally, fraudulently or oppressively in a way that harms the member (11 V.S.A. § 4101(a)(4)–(5)). In this case, even if you want to keep your business up and running, you can’t. Instead, you must follow the court’s orders and terminate your LLC.

Voluntary dissolution

Various scenarios may drive you to dissolve your LLC voluntarily. Perhaps the members have decided to close the business, or your operating agreement sets an end date. Alternatively, perhaps you’re restructuring your business to be a different entity type (like a corporation). We’ve outlined the steps of voluntary dissolution below.

Dissolving your LLC in Vermont

Step 1: Vote to dissolve the LLC

First, the members must agree to dissolve your LLC. If you have a multi-member LLC, one member generally cannot dissolve the business by themselves.

Single vs. multi-member LLC dissolution

As you may know, LLCs can be formed with a single member or multiple founding members. If you’re a single-member LLC, you can just file the articles of termination yourself since no one else can vote. Unless your operating agreement sets a different rule, dissolving a Vermont LLC requires the consent of all members (11 V.S.A. § 4101(a)(2)). Record the decision in writing.

Dissolution rules in your LLC operating agreement

When forming your Vermont LLC operating agreement, you should have included rules and regulations regarding what to do if you must dissolve the business. Make sure to review these rules and follow them to the letter to ensure no mistakes or legal headaches later on. If you don’t follow the rules outlined in the agreement, you could wind up with protracted lawsuits from members who voted against dissolution (if applicable).

Step 2: Wind up all business affairs and handle any other business matters

“Winding up” your business means liquidating assets and closing business-related accounts. The purpose of winding up is to eliminate any potential liabilities that could spring up later on. Generally speaking, this process involves:

• Notifying your registered agent (Vermont law calls it an agent for service of process) that you’re dissolving the business.
• Notify suppliers and customers that the company is closing (and when, if possible).
• Canceling any business licenses or permits (e.g., a seller’s permit or foodservice license).
• Settle any outstanding employee payments or obligations.
• Closing business bank accounts, credit cards, and other merchant services.

Step 3: Notify creditors and claimants about your LLC’s dissolution, settle existing debts and distribute remaining assets

Many businesses accrue debts and liabilities during their tenure. Even though you’re dissolving your company, you’re still responsible for settling any outstanding debts before you can finalize the paperwork. But what if you’re dissolving the LLC because you can’t afford to pay these debts? In that case, you may have to file for bankruptcy before you can dissolve the business.

Vermont law lets you send known creditors a written notice with a deadline for claims of at least 120 days; a creditor whose claim you reject has 90 days to sue (11 V.S.A. § 4107). You can also publish a notice once in a newspaper in the county of your principal office and send it to the Attorney General. Claims not brought within five years after publication are barred (11 V.S.A. § 4108).

Bankruptcy may let you reorganize debts (Chapter 11) or liquidate assets to pay creditors (Chapter 7 bankruptcy). Talk to a bankruptcy attorney before you file.

Step 4: Notify tax agencies and settle remaining taxes

Just as you must settle outstanding debts with creditors, you must also pay any remaining taxes to the government. No matter when you dissolve your LLC, you must still file a final tax return and pay any outstanding balances. File your final Vermont returns, pay what you owe, and close each business tax account in myVTax or with Form B-2. If you had employees, file a final Form WHT-434 within 30 days of closing your withholding account.

Step 5: File articles of termination with the Secretary of State

The final step in dissolving an LLC in Vermont is to file articles of termination with the secretary of state (SOS). The articles state your LLC’s name, the date it dissolved, and that its business has been wound up and its existence terminated (11 V.S.A. § 4105).

The filing fee is $20. Online filing through the Secretary of State’s Online Business Service Center (account required) is the preferred method and is faster. You can also file by mail at Business Services Division, 128 State Street, Montpelier, VT 05633, which takes 7–10 business days.

Conclusion

Overall, dissolving your LLC may be time-consuming, but it’s necessary to ensure you don’t get any surprises later on. The more organized you are, the easier this process is, and the faster you can dissolve your LLC and move onto your next venture. If you’re disorganized, it’s best to rely on professional third-party services instead. These pros can help you navigate through the entire process so you don’t miss a step or do anything incorrectly.

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