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 have an LLC in Vermont, you’ll need to dissolve it. Sometimes, this process is for beneficial reasons (i.e., to avoid fraud or liabilities). In other cases, dissolution may be required because of a triggering event, such as death of an operating member.
While it may be tempting to just let your business exist without dissolving it officially, there are actually a few dangers to owning a “shell” company. You can still be sued, held liable for outstanding debts, or rack up fines and penalties with the state. Here’s everything you need to know about dissolving an LLC in Vermont (each state has its own rules for this process).
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.
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.
If you fail to dissolve your LLC and simply forgo renewing any licenses or registration fees, the secretary of state will dissolve your business for you. Administrative dissolution is when the secretary removes all rights and authorities of a Vermont LLC. If dissolution occurs this way, you may be able to reinstate your business after paying fines and submitting reinstatement paperwork with the state.
While administrative dissolution often occurs when you abandon your business and let it lapse, judicial dissolution is ordered by the court. Typically, this type of dissolution happens when you’ve broken the law, such as committing fraud or engaging in illicit activities. 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.
Various scenarios may drive you to dissolve your LLC voluntarily. Perhaps a founding member died (meaning you need to form a new LLC without them). 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.
First, you must hold a formal vote on whether to dissolve your LLC. If you have a multi-member LLC, one member cannot dissolve the business by themselves.
As you may know, LLCs can be formed with a single member or multiple founding members. Each of these individuals must be part of the LLC operating agreement and be part of the dissolution vote. If you’re a single-member LLC, you can just file the articles of termination yourself since no one else can vote. With multi-member LLCs, votes typically require a majority. If there are only two founding members, you’ll need a unanimous vote to continue with dissolution.
When forming your 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).
“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:
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.
One important thing to note is that bankruptcy doesn’t necessarily discharge all of your business debts. Instead, it may allow you to restructure your debts (chapter 11) to make them more manageable, or you may have to negotiate settlement terms with your creditors. Typically, if you discharge your debts, you’ll likely lose assets to cover those liabilities. Also, filing a Chapter 7 bankruptcy can make it much harder to start a business or borrow money in the future.
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.
The final step in dissolving an LLC in Vermont is to file articles of termination with the secretary of state (SOS). You can find a fillable copy of this document online. All you need is some basic information about your business and when the dissolution takes effect. You must also certify that you have finished winding up your business before it can be officially dissolved by the state.
If you’re filling out this form in person, you must mail two copies (originals or one original and a copy) to:
Vermont Secretary of State
Corporations Division
128 State Street
Montpelier, VT 05633-1104
If you mail the form, you must also include a self-addressed envelope and a check or money order for $20 made out to VT SOS. You can also drop off the paperwork and payment in person.
Fortunately, you can also submit this paperwork online. However, you must have an account with the Vermont Secretary of State to file. If you don’t already have an account, you can create one and still submit these articles of termination.
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.
There may be many reasons to dissolve your LLC, such as the death of a founding member, mismanaged or disorganized business structure, or transitioning to a different business entity type (i.e., a corporation). Dissolution gives you the peace of mind that your business is officially terminated and can't be liable for debts or lawsuits in the future.
Filing dissolution paperwork in Vermont costs $20. However, there are other costs associated with dissolving your LLC, such as legal bills, debt settlements, and more.
Yes, you can file articles of termination online. Doing it online is faster and more reliable than sending a physical copy via mail.
Once you file the articles of termination, the secretary of state may take seven to 10 business days to finalize the dissolution. However, depending on the complexity of your business, it may take several weeks or months to get everything in order first. For example, winding up your business may take several weeks since you must close accounts and liquidate assets.
Failing to dissolve your LLC officially can lead to various legal and administrative headaches. First, you may accrue fines and penalties by not renewing business-related paperwork with the state. Second, creditors can sue your business if you have any outstanding debts. Finally, your company may be ripe for fraud, as scammers may open business accounts without your knowledge.
Once your business is wound up and ready to dissolve, you must file articles of termination with each state in which your LLC is registered. Typically, you should start with your home state. Once your dissolution is finalized, you can file articles in each other state where you're registered.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.
Terry is a serial entrepreneur with over 25 years of experience building businesses across multiple industries – construction, real estate, e-commerce, hotelier, and now digital media. When not working, Terry likes to kick back and relax with family, explore Taoism’s mysteries, or savor the taste of fine Italian red wine.
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