Vermont LLC governance: the first state to let an LLC be governed by code

Vermont did something in 2018 that no state had done: it let an LLC be governed by code. Its blockchain-based LLC statute recognizes that a company can run its governance through smart contracts and on-chain voting, and it treats the software procedures, together with a written agreement, as jointly constituting the operating agreement. That is the first time American law accepted executable code as part of a company’s governance document, and it is what lets a decentralized autonomous organization operate as a real legal entity. For a conventional Vermont LLC, the governance rules are ordinary, a fiduciary floor and an equal-shares default, so the story here is really two stories: the standard one most owners need, and the blockchain-based one that makes Vermont unique. Both sit alongside the general mechanics on the site’s default rules and freedom of contract guides.

Code as the operating agreement

Start with the feature that sets Vermont apart.

Vermont’s blockchain-based LLC lets smart contracts and on-chain voting, together with a written agreement, jointly constitute the operating agreement.

Under 11 V.S.A. Section 4172 and the sections that follow, an LLC whose business uses blockchain technology for a material part of its activities can elect to be a blockchain-based LLC, and its operating agreement must then specify how the company governs itself on-chain: the type of decentralized ledger it uses, the access and permissions participants have, whether it issues a virtual currency, and its voting procedures, which may be carried out through smart contracts. The statute treats those software-enabled procedures, together with the written agreement, as jointly forming the operating agreement. So in a Vermont blockchain-based LLC, part of the governing document is running code, and a member vote can be an on-chain transaction rather than a signature on paper. That is the legal innovation the DAO on the protection page depends on: it lets an organization that actually operates through a blockchain have a governance document the law recognizes, instead of forcing it into a paper structure that does not match how it works.

The blockchain-based election does not escape the Vermont LLC Act; the Act still governs except where its provisions are inconsistent.

The important limit is that a blockchain-based LLC is still a Vermont LLC. The statute provides that the regular Vermont LLC Act governs except to the extent it is inconsistent with the blockchain-based provisions, so a company cannot use code to opt out of the Act’s mandatory rules wholesale. The fiduciary duties, the member protections, and the default rules of the Act still apply to a blockchain-based LLC except where the blockchain subchapter specifically displaces them, which means the on-chain governance operates inside the traditional framework rather than replacing it. That interaction is powerful and, as the aside below notes, not fully mapped.

The conventional Vermont LLC

For an ordinary company, Vermont’s governance is standard.

In a conventional Vermont LLC, the duties of loyalty and care and good faith are a floor, and distributions default to equal shares.

For an LLC that is not blockchain-based, Vermont follows the modern pattern: under 11 V.S.A. Section 4059, members and managers owe the duties of loyalty and care and an obligation of good faith, and the operating agreement cannot eliminate them, so Vermont is a floor state on duties like Connecticut and Iowa. Distributions default to equal shares among the members under Section 4054, a per-capita rule rather than one weighted by contribution, so any LLC with unequal contributions needs an explicit distribution provision. Management defaults to the members unless the agreement provides for managers. So a conventional Vermont operating agreement does the ordinary work of setting the split and defining the permitted conduct within the floor, while the blockchain-based option is reserved for the organizations built to use it.

The bottom line

Vermont was the first state to let an LLC be governed by code, treating smart-contract procedures and a written agreement as jointly forming the operating agreement.

The blockchain-based LLC lets a DAO have a governance document the law recognizes, which is what gives the organization legal status.

A blockchain-based LLC is still a Vermont LLC, so the Act governs except where the blockchain provisions are inconsistent, and the mandatory rules still apply.

Who owes fiduciary duties in a fully decentralized, code-governed organization is unsettled, so the internal accountability questions remain open.

In a conventional Vermont LLC, the duties are a floor and distributions default to equal shares, so the ordinary drafting still matters.

What this page does not cover

This page is about the rules that run your company from the inside. How creditors reach a member’s interest, the homestead, and the DAO liability shield are on the protection page. Vermont’s high income tax, the 3.4% transfer tax on investment property, and the lack of a series LLC are on the structure and cost page. The $125 formation fee and the blockchain-based election made at formation are on the filing page.

Last verified August 2026.