The Vermont Statutes Online

Title 11A: Vermont Business Corporations

Chapter 014: Dissolution

• Subchapter 001: VOLUNTARY DISSOLUTION

• § 14.01. Dissolution by incorporators or initial directors

  A majority of the incorporators or initial directors of a corporation that has not issued shares or has not commenced business may dissolve the corporation by delivering to the Secretary of State for filing articles of dissolution that set forth:

  (1) the name of the corporation;

  (2) the date of its incorporation;

  (3) either:

  (A) that none of the corporation’s shares has been issued; or

  (B) that the corporation has not commenced business;

  (4) that no debt of the corporation remains unpaid;

  (5) that the net assets of the corporation remaining after winding up have been distributed to the shareholders, if shares were issued; and

  (6) that a majority of the incorporators or initial directors authorized the dissolution. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 14.02. Dissolution by board of directors and shareholders

  (a) A corporation’s board of directors may propose dissolution for submission to the shareholders.

  (b) For a proposal to dissolve to be adopted:

  (1) the board of directors must recommend dissolution to the shareholders unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders; and

  (2) the shareholders entitled to vote must approve the proposal to dissolve as provided in subsection (e) of this section.

  (c) The board of directors may condition its submission of the proposal for dissolution on any basis.

  (d) The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders’ meeting in accordance with section 7.05 of this title. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider dissolving the corporation.

  (e) Unless the articles of incorporation or the board of directors (acting pursuant to subsection (c) of this section) require a greater vote or a vote by voting groups, the proposal to dissolve to be adopted must be approved by a majority of all the votes entitled to be cast on that proposal. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 14.03. Articles of dissolution; content of notice; notice to Department of Labor regarding unpaid wages

  (a) At any time after dissolution is authorized, the corporation may dissolve by delivering to the Secretary of State for filing articles of dissolution setting forth:

  (1) the name of the corporation;

  (2) the date dissolution was authorized;

  (3) if dissolution was approved by the shareholders:

  (A) the number of votes entitled to be cast on the proposal to dissolve; and

  (B) either the total number of votes cast for and against dissolution or the total number of undisputed votes cast for dissolution and a statement that the number cast for dissolution was sufficient for approval;

  (4) if voting by voting groups was required, the information required by subdivision (3) of this subsection, separately provided for each voting group entitled to vote separately on the plan to dissolve;

  (5) a statement as to the settlement of debts, the distribution of property, and the status of pending litigation;

  (6) a statement whether the corporation owes any unpaid wages to its employees.

  (b) Subject to the provisions of section 14.09 of this title, a corporation is dissolved upon the effective date of its articles of dissolution.

  (c) If a corporation owes unpaid wages to its employees, it shall also file a statement to that effect with the Department of Labor. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994; amended 2011, No. 124 (Adj. Sess.), § 2.)

• § 14.04. Revocation of dissolution

  (a) A corporation may revoke its dissolution within 120 days of its effective date.

  (b) Revocation of dissolution must be authorized in the same manner as the dissolution was authorized unless that authorization permitted revocation by action of the board of directors alone, in which event the board of directors may revoke the dissolution without shareholder action.

  (c) After the revocation of dissolution is authorized, the corporation may revoke the dissolution by delivering to the Secretary of State for filing articles of revocation of dissolution, together with a copy of its articles of dissolution, that set forth:

  (1) the name of the corporation;

  (2) the effective date of the dissolution that was revoked;

  (3) the date that the revocation of dissolution was authorized;

  (4) if the corporation’s board of directors (or incorporators) revoked the dissolution, a statement to that effect;

  (5) if the corporation’s board of directors revoked a dissolution authorized by the shareholders, a statement that revocation was permitted by action by the board of directors alone pursuant to that authorization; and

  (6) if shareholder action was required to revoke the dissolution, the information required by subdivision 14.03(a)(3) or (4) of this title.

  (d) Revocation of dissolution is effective upon the effective date of the articles of revocation of dissolution.

  (e) When the revocation of dissolution is effective, it relates back to and takes effect as of the effective date of the dissolution and the corporation resumes carrying on its business as if dissolution had never occurred. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 14.05. Effect of dissolution

  (a) A dissolved corporation continues its corporate existence but may not carry on any business except that appropriate to wind up and liquidate its business and affairs, including:

  (1) collecting its assets;

  (2) disposing of its properties that will not be distributed in kind to its shareholders;

  (3) discharging or making provision for discharging its liabilities;

  (4) distributing its remaining property among its shareholders according to their interests; and

  (5) doing every other act necessary to wind up and liquidate its business and affairs.

  (b) Dissolution of a corporation does not:

  (1) transfer title to the corporation’s property;

  (2) prevent transfer of its shares or securities, although the authorization to dissolve may provide for closing the corporation’s share transfer records;

  (3) subject its directors or officers to standards of conduct different from those prescribed in chapter 8 of this title;

  (4) change quorum or voting requirements for its board of directors or shareholders; change provisions for selection, resignation, or removal of its directors or officers or both; or change provisions for amending its bylaws;

  (5) prevent commencement of a proceeding by or against the corporation in its corporate name;

  (6) abate or suspend a proceeding pending by or against the corporation on the effective date of dissolution; or

  (7) terminate the authority of the registered agent of the corporation. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 14.06. Known claims against dissolved corporation

  (a) A dissolved corporation may dispose of the known claims against it by following the procedure described in this section. The provisions of section 14.07 of this title apply in the case of claims where the claimant cannot with due diligence be notified under this section.

  (b) The dissolved corporation shall notify its known claimants in writing of the dissolution at any time after its effective date. The written notice shall:

  (1) describe information that must be included in a claim;

  (2) provide a mailing address where a claim may be sent;

  (3) state the deadline, which may not be fewer than 120 days from the effective date of the written notice, by which the dissolved corporation must receive the claim;

  (4) state that the claim will be barred if not received by the deadline; and

  (5) state the deadline under subdivision (c)(2) of this section for enforcing a claim rejected by the dissolved corporation.

  (c) A claim against the dissolved corporation is barred:

  (1) if a claimant who received written notice under subsection (b) of this section does not deliver the claim to the dissolved corporation by the deadline;

  (2) if a claimant whose claim was rejected by the dissolved corporation does not commence a proceeding to enforce the claim within 90 days from the effective date of the rejection notice.

  (d) For purposes of this section, “claim” does not include a contingent liability or a claim based on an event occurring after the effective date of dissolution, or on taxes due or assessable by the State of Vermont. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 14.07. Unknown claims against dissolved corporation

  (a) A dissolved corporation may also send and publish notice of its dissolution and request that persons with claims against the corporation present them in accordance with the notice.

  (b) The notice must:

  (1) be published one time in a newspaper of general circulation in the county where the dissolved corporation’s principal office (or, if none in this State, its registered office) is or was last located, and sent to the Office of the Attorney General;

  (2) describe the information that must be included in a claim and provide a mailing address where the claim may be sent; and

  (3) state that a claim against the corporation and shareholders will be barred unless a proceeding to enforce the claim is commenced within five years after the publication of the notice.

  (c)(1) If the dissolved corporation sends notice to the Attorney General and publishes a newspaper notice in accordance with subsection (b) of this section, causes of action against a dissolved corporation, whether arising before or after the dissolution of the corporation, may be enforced only as follows:

  (A) Against the dissolved corporation, to the extent of its undistributed assets, including any insurance assets held by the corporation that may be available to satisfy claims.

  (B) If any of the assets of the dissolved corporation have been distributed to shareholders, against shareholders of the dissolved corporation to the extent of their pro rata share of the claim or to the extent of the corporate assets distributed to them upon dissolution of the corporation, whichever is less. A shareholder’s total liability under this section may not exceed the total amount of assets of the dissolved corporation distributed to the shareholder upon dissolution of the corporation.

  (2) All causes of action against a dissolved corporation arising under subdivision (1)(A) of this subsection are extinguished unless the claimant commences a proceeding to enforce the cause of action against the dissolved corporation prior to the expiration of the statute of limitations applicable to the cause of action.

  (3) All causes of action against a shareholder of a dissolved corporation arising under subdivision (1)(B) of this subsection are extinguished unless the claimant commences a proceeding to enforce the cause of action against that shareholder of a dissolved corporation prior to the earlier of the following:

  (A) The expiration of the statute of limitations applicable to the cause of action.

  (B) Five years after the effective date of the dissolution of the corporation.

  (d)(1) In addition to the notice published in accordance with subsections (a) through (c) of this section, a dissolved corporation may also give notice of the dissolution of the corporation to persons with claims contingent upon the occurrence or nonoccurrence of future events or otherwise conditional or unmatured, and request that such persons present such claims in accordance with the terms of such notice. Such notice shall be in substantially the form, and sent and published in the same manner, as described in subsection 14.06(b) of this title.

  (2) The corporation or successor entity shall offer any claimant whose claim is contingent, conditional or unmatured, such security as the corporation or successor entity determines is sufficient to provide compensation to the claimant if the claim matures. The corporation or successor entity shall mail such offer to the claimant by certified mail, return receipt requested, within 90 days of receipt of such claim. If the claimant offered such security does not deliver in writing to the corporation or successor entity a notice rejecting the offer within 90 days after receipt of such offer for security, the claimant shall be deemed to have accepted such security as the sole source from which to satisfy his or her claim against the corporation.

  (e)(1) A corporation or successor entity which has given notice in accordance with subsections (a) through (d) of this section may petition the Superior Court to determine the amount and form of security that will be sufficient to provide compensation to any claimant who has rejected the offer for security made pursuant to subdivision (d)(2) of this section.

  (2) A corporation or successor entity which has given notice in accordance with subsections (a) through (d) of this section may petition the Superior Court to determine the amount and form of security which will be sufficient to provide compensation to claimants whose claims are known to the corporation or successor entity but whose identities are unknown. The Superior Court shall appoint a guardian ad litem to represent all claimants whose identities are unknown in any proceeding brought under this subsection. The reasonable fees and expenses of such guardian, including all reasonable expert witness fees, shall be paid by the petitioner in such proceeding.

  (f) The giving of any notice or making of any offer pursuant to the provisions of this section shall not revive any claim then barred or constitute acknowledgment by the corporation or successor entity that any person to whom such notice is sent is a proper claimant and shall not operate as a waiver of any defense or counterclaim in respect of any claim asserted by any person to whom such notice is sent.

  (g) As used in this section, the term “successor entity” shall include any trust, receivership, or other legal entity governed by the laws of this State to which the remaining assets and liabilities of a dissolved corporation are transferred and which exists solely for the purposes of prosecuting and defending suits, by or against the dissolved corporation, enabling the dissolved corporation to settle and close its business, to dispose of and convey the property of the dissolved corporation, to discharge the liabilities of the dissolved corporation, and to distribute to the dissolved corporation’s shareholders any remaining assets, but not for the purpose of continuing the business for which the dissolved corporation was organized. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 14.08. Payment and distribution to claimants and shareholders

  (a)(1) A dissolved corporation or successor entity which has followed the procedures described in sections 14.06 and 14.07 of this title:

  (A) shall pay the claims made and not barred or rejected in accordance with subsections 14.06(c) and 14.07(c) of this title;

  (B) shall post the security offered and not rejected pursuant to subsection 14.07(d) of this title;

  (C) shall post any security ordered by the Superior Court in any proceeding under subsection 14.07(e) of this title; and

  (D) shall pay or make provision for all other obligations of the corporation or such successor entity.

  (2) Such claims or obligations shall be paid in full and any such provision for payment shall be made in full if there are sufficient funds. If there are insufficient funds, such claims and obligations shall be paid or provided for according to their priority, and, among claims of equal priority, ratably to the extent of funds legally available therefor. Any remaining funds shall be distributed to the shareholders of the dissolved corporation; provided, however, that such distribution shall not be made before the expiration of 90 days from the date of the last notice of rejection given pursuant to subdivision 14.07(b)(2) of this title (if any such notice is provided). In the absence of actual fraud, the judgment of the directors of the dissolved corporation or the governing persons of such successor entity as to the provision made for the payment of all obligations under subdivision (4) of this subsection shall be conclusive.

  (b) A dissolved corporation or successor entity which has not followed the procedures described in sections 14.06 and 14.07 of this title shall pay or make reasonable provisions to pay all claims and obligations, including all contingent, conditional, or unmatured claims known to the corporation or such successor entity and all claims which are known to the dissolved corporation or such successor entity but for which the identity of the claimant is unknown. Such claims shall be paid in full and any such provisions for payment shall be made in full if there are sufficient funds. If there are insufficient funds, such claims and obligations shall be paid or provided for according to their priority and, among claims of equal priority, ratably to the extent of funds legally available therefor. Any remaining funds shall be distributed to the shareholders of the dissolved corporation.

  (c) Directors of a dissolved corporation or governing persons of a successor entity which has complied with subsection (a) or (b) of this section shall not be personally liable to the claimants of the dissolved corporation.

  (d) As used in this section, the term “successor entity” has the meaning set forth in subsection 14.07(g) of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 14.09. Tax liabilities

  (a) Notwithstanding any other provisions of this chapter, a corporation’s liability to the Vermont Department of Taxes for unpaid taxes and other amounts shall not be affected by the corporation’s dissolution and winding up of its affairs except to the extent provided in subsections (b), (c), and (d) of this section.

  (b) Any corporation that has filed articles of dissolution with the Secretary of State pursuant to section 14.03 of this title may apply for a tax clearance from the Department of Taxes. Upon issuance of such a tax clearance, the applicant corporation shall have no further liability to the Department of Taxes after the effective date of the clearance for a tax liability incurred up to the date stated in the clearance, subject to the right of the Department of Taxes to review and determine the accuracy of the information provided by the corporation or its representatives and used by the Department of Taxes to process such tax clearance. The corporation will continue to be liable to the Department of Taxes for any liability incurred after the date stated in the clearance.

  (c) The shareholders of a dissolved corporation shall not be liable for any unpaid taxes or other amounts payable to the Department of Taxes as a result of the corporation’s dissolution and winding up of its affairs except if the corporation has failed to obtain a tax clearance as provided in subsection (b) of this section or to the extent that such liabilities arose subsequent to the date stated in such tax clearance and insufficient assets are then held by the corporation to pay its tax liabilities. In such event, the shareholders of the dissolved corporation shall be severally liable for the dissolved corporation’s unpaid taxes and other liabilities to the Department of Taxes in an amount equal to the lesser of the shareholder’s pro rata share of the tax liability or the corporate assets distributed to him or her in liquidation, whichever is less, but a shareholder’s total liability for all claims and liabilities under this chapter, including those subject to the provisions of sections 14.06 and 14.07 of this title, may not exceed the total amount of assets distributed to the shareholder.

  (d) The directors of a dissolved corporation shall not be liable, in such capacity, for any unpaid taxes and other liabilities of such corporation to the Department of Taxes as a result of its dissolution and winding up of its affairs pursuant to the provisions of this chapter. However, directors shall be liable if they fail to use reasonable efforts to cause the corporation to obtain the clearance described under subsection (b) of this section through the last date on which the corporation incurred any such liabilities and fail to use reasonable efforts to cause the corporation to pay or create sufficient reserves to pay such liabilities, to the extent of available corporate assets, and vote for or assent to the distribution of assets to the shareholders. Directors shall only be liable under this subsection to the extent that corporate assets otherwise available to pay tax liabilities are distributed to shareholders, and the corporation lacks sufficient assets to pay such liabilities.

  (e) The remedies provided to the Department of Taxes in this section shall be in addition to, and not in derogation of, any other remedies provided by law. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• Subchapter 002: INVOLUNTARY TERMINATION

• § 14.20. Involuntary termination

  (a) A corporation, which fails to file an annual report required by section 16.22 of this title, shall terminate and the Secretary of State shall notify such corporation of such termination. If, however, such terminated corporation shall file such annual report together with any fee required by law, its charter shall be reinstated by the Secretary of State.

  (b) When the reinstatement is effective, reinstatement shall relate back to and take effect as of the date of the corporation’s termination under subsection (a) of this section as if the termination had never occurred.

  (c) A corporation shall lose the right to retain its corporate name if the annual report required under subsection (a) of this section is not filed on or before five years after the date when the report is due, and if another domestic or foreign corporation files articles of incorporation requesting the name of the corporation.

  (d) Involuntary termination of a corporation does not:

  (1) prevent commencement of a proceeding against the corporation in its corporate name;

  (2) abate or suspend a proceeding pending by or against the corporation on the effective date of involuntary termination; or

  (3) terminate the authority of the registered agent of the corporation. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• Subchapter 003: JUDICIAL DISSOLUTION

• § 14.30. Grounds for judicial dissolution

  The Superior Court may dissolve a corporation:

  (1) in a proceeding by the Attorney General if it is established that:

  (A) the corporation obtained its articles of incorporation through fraud; or

  (B) the corporation has continued to exceed or abuse the authority conferred upon it by law;

  (2) in a proceeding by a shareholder if it is established that:

  (A) the directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and either irreparable injury to the corporation is threatened or being suffered, or the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally because of the deadlock;

  (B) the directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent;

  (C) the shareholders are deadlocked in voting power and have failed, for a period that includes at least two consecutive annual meeting dates, to elect successors to directors whose terms have expired; or

  (D) the corporate assets are being misapplied or wasted;

  (3) in a proceeding by a creditor if it is established that:

  (A) the creditor’s claim has been reduced to judgment, the execution on the judgment returned unsatisfied, and the corporation is insolvent; or

  (B) the corporation has admitted in writing that the creditor’s claim is due and owing and the corporation is insolvent; or

  (4) in a proceeding by the corporation to have its voluntary dissolution continued under court supervision. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 14.31. Procedure for judicial dissolution

  (a) Venue for a proceeding by the Attorney General to dissolve a corporation lies in Washington County. Venue for a proceeding brought by any other party named in section 14.30 of this title lies in the county where the corporation’s principal office (or, if none in this State, its registered office) is or was last located.

  (b) It is not necessary to make shareholders parties to a proceeding to dissolve a corporation unless relief is sought against them individually.

  (c) A court in a proceeding brought to dissolve a corporation may issue injunctions, appoint a receiver or custodian pendente lite with all powers and duties the court directs, take other action required to preserve the corporate assets wherever located, and carry on the business of the corporation until a full hearing can be held. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 14.32. Receivership or custodianship

  (a) A court in a judicial proceeding brought to dissolve a corporation may appoint one or more receivers to wind up and liquidate, or one or more custodians to manage, the business and affairs of the corporation. The court shall hold a hearing, after notifying all parties to the proceeding and any interested persons designated by the court, before appointing a receiver or custodian. The court appointing a receiver or custodian has exclusive jurisdiction over the corporation and all of its property wherever located.

  (b) The court may appoint an individual or a domestic or foreign corporation (authorized to transact business in this State) as a receiver or custodian. The court may require the receiver or custodian to post bond, with or without sureties, in an amount the court directs.

  (c) The court shall describe the powers and duties of the receiver or custodian in its appointing order, which may be amended from time to time. Among other powers:

  (1) the receiver

  (A) may dispose of all or any part of the assets of the corporation wherever located, at a public or private sale, if authorized by the court; and

  (B) may sue and defend in his or her own name as receiver of the corporation in all courts of this State;

  (2) the custodian may exercise all of the powers of the corporation, through or in place of its board of directors or officers, to the extent necessary to manage the affairs of the corporation in the best interests of its shareholders and creditors.

  (d) The court during a receivership may redesignate the receiver a custodian, and during a custodianship may redesignate the custodian a receiver, if doing so is in the best interests of the corporation, its shareholders, and creditors.

  (e) The court from time to time during the receivership or custodianship may order compensation paid and expense disbursements or reimbursements made to the receiver or custodian and his or her counsel from the assets of the corporation or proceeds from the sale of the assets. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• § 14.33. Decree of dissolution

  (a) If after a hearing the court determines that one or more grounds for judicial dissolution described in section 14.30 of this title exist, it may enter a decree dissolving the corporation and specifying the effective date of the dissolution, and the clerk of the court shall deliver a certified copy of the decree to the Secretary of State, who shall file it.

  (b) After entering the decree of dissolution, the court shall direct the winding up and liquidation of the corporation’s business and affairs in accordance with section 14.05 of this title, the notification of claimants in accordance with sections 14.06 and 14.07 of this title, and the payment of claims in accordance with sections 14.08 and 14.09 of this title. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)

• Subchapter 004: MISCELLANEOUS

• § 14.40. Deposit with State Treasurer

  Assets of a dissolved corporation that should be transferred to a creditor, claimant, or shareholder of the corporation who cannot be found or who is not competent to receive them shall be reduced to cash and deposited with the State Treasurer or other appropriate State official for safekeeping. When the creditor, claimant, or shareholder furnishes satisfactory proof of entitlement to the amount deposited, the State Treasurer or other appropriate State official shall pay him or her or his or her representative that amount. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)