LLC Reimbursement, Indemnification, Advancement, and Insurance Requirements in Vermont
At a glance
| Governing LLC law and scope | 11 V.S.A. §§ 4003, 4060 distinguish mandatory company payments/liability indemnity and member advances from permissive status insurance |
|---|---|
| Covered people and capacities | Member of member-managed or manager of manager-managed LLC for payments/liabilities; members for excess-contribution advances; member or manager for insurance (§ 4060(a)–(c)); no former-status term |
| Company-payment reimbursement | Must reimburse a covered member/manager for payments made in ordinary and proper company conduct or preservation; must reimburse member’s advance beyond agreed contribution (§ 4060(a), (c)) |
| Indemnification and conduct limits | Must indemnify covered member/manager for liabilities reasonably incurred in ordinary and proper conduct or preservation of company activities/property (§ 4060(a)) |
| Expense advancement and repayment | § 4060(c) covers a member’s advance to the company; § 4060 does not prescribe a distinct defense-expense advance or repayment undertaking |
| Insurance purchase authority | May buy and maintain member/manager capacity or status liability insurance even where agreement could not provide indemnity (§ 4060(b)); policy coverage is separate |
| Approval and court procedure | § 4060 prescribes no special approval or court route; ordinary member/manager majority decisions follow § 4054(b)(3), (c)(3) |
| Agreement control and survival | Agreement may alter or eliminate § 4060 member/manager indemnification (§ 4003(f)); its separate money-damages exculpation exceptions do not themselves ban indemnity; no express former-status survival in § 4060 |
| What the statute does not decide | Actual capacity, ordinary/proper conduct, reasonable liability, agreement terms and insurance coverage require case-specific review |
Requirements one by one
Company payments and liabilities
§ 4060(a)-(d) sets out several distinct payment rules. Subsection (a) requires an LLC to reimburse a member in a member-managed company or a manager in a manager-managed company for payments made, and to indemnify that person for liabilities reasonably incurred, in the ordinary and proper conduct of the company's activities or preservation of its activities or property. Section 4060(c) separately requires reimbursement of a member's advance to the company beyond the member's agreed contribution. Under § 4060(d), a qualifying payment or advance is a company loan accruing interest from its date.
Insurance and the agreement
Section 4060(b) lets an LLC buy and maintain insurance for a member or manager against capacity or status liability even if the agreement could not provide indemnity against that liability. Section 4003(a) makes the agreement govern internal relations and Chapter 25 fill gaps. § 4003(f) expressly permits the agreement to alter or eliminate § 4060 indemnification; its five exceptions separately limit elimination of a person's liability for money damages to the company and members.
What trips people up
A member's advance to the company under § 4060(c) is different from paying defense costs before a claim is resolved. Section 4060 does not set a defense-expense advancement procedure or require a repayment promise. It also gives no special indemnity approval vote or court route; ordinary decisions follow § 4054(b)(3) or (c)(3). Its insurance permission does not decide a policy's terms or coverage.
Common questions
Does the insurance power depend on an indemnity right? No. Section 4060(b) expressly permits insurance even where the agreement cannot provide indemnity against the liability.
Does the statute expressly cover a former manager? Section 4060 names a member or manager and status-related insurance, but it does not state a former-status survival rule. The agreement and actual capacity need review.
Statutes and sources
- 11 V.S.A. § 4003(a), (f): agreement control and express power to alter or eliminate member or manager indemnification. Official Chapter 25, accessed 2026-09-23.
- 11 V.S.A. § 4054(b)(3), (c)(3): ordinary member or manager decisions. Official Chapter 25, accessed 2026-09-23.
- 11 V.S.A. § 4060(a)–(d): company payments and liabilities, insurance, excess-contribution advances and loan interest. Official Chapter 25, accessed 2026-09-23. The official 2026 acts-affecting-statutes publication, checked the same day, showed no 2026 change to these sections.
Source links
Every statute quoted above, linked, with the date we checked it.
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