When a Texas LLC is no longer needed or wanted, the business owners must dissolve it. This process can be complex, which is why we have created this comprehensive guide.
In this article, we will explain how to dissolve an LLC in Texas, as well as the reasons why LLC owners choose to do so. We will also highlight the differences between voluntary and involuntary dissolution. Read on for more information if you are ready to dissolve your Texas LLC.
Steps to Dissolving an LLC in Texas
A Texas limited liability company must take necessary steps before you properly dissolve the business entity. Every step in the dissolution process is equally important, but some may take longer than others. The following is a list of the steps required to dissolve an LLC in Texas.
Step 1: Hold the Members' Meeting
LLC members should meet and discuss the dissolution of the domestic entity before taking any further action. A majority vote should be cast to agree on the LLC's dissolution. However, if your LLC operating agreement stipulates different voting procedures, you will need to follow through with those instead.
LLC's business activities should be wound down following the vote to dissolve. This usually includes selling off any remaining assets, distributing them among the LLC members, and paying off any debts or liabilities through a voluntary decision.
Step 2: Follow Your LLC Operating Agreement
Your LLC operating agreement will state the specific steps that must be followed to dissolve your LLC.
Typically, this will include notifying all LLC members of the dissolution and holding a final meeting. Be sure to follow these steps exactly to avoid any legal issues.
Dissolving the LLC may not release you from LLC liabilities obligations. It's important to consult an attorney to discuss your specific situation and find the best way to dissolve your LLC properly.
Your operating agreement will probably contain this provision, including other winding-up tasks, LLC property, asset distributions, and more.
Step 3: Notify Third Parties
Creditors, lenders, and other claimants should know that your LLC will no longer conduct business. Business debts and other liabilities will need to be addressed. You must provide written notice of the dissolution to all known third parties, including creditors and government agencies.
The notification process should include the effective date of the dissolution, business name, and contact information for the LLC representative (or authorized member-manager) responsible for winding up affairs and a statement that assets will be distributed following Texas law.
Step 4: Close Business Accounts
Business accounts you LLC has with the state will need to be closed. To do this, you'll need to notify each account holder of the Texas LLC dissolution and provide them with a copy of the Certificate of Dissolution you will obtain later.
After taking care of all accounts, you'll need to dissolve any private LLC accounts. This is generally done by sending a letter to the LLC bank or other financial institution stating that the LLC has been dissolved and providing them with a copy of the Certificate of Dissolution.
Step 5: Disclose Your Final Tax Liabilities
All LLCs in Texas must file an annual franchise tax report. If you dissolve your LLC before the end of the year, you may still need to file a final franchise tax report.
A tax clearance letter from the Comptroller of Public Accounts is also required.
You will also need to file a final Texas income tax return, even if you do not owe any taxes. Make sure to submit all income and expenses from the LLC on this return.
The Texas Department of Revenue may audit your return after dissolution, so it is important to be accurate.
Texas Comptroller of Public Accounts handles all taxes for the state of Texas. They have a helpful website with more information on dissolving your LLC and final tax liabilities.
Your LLC must pay the annual report fees for the year you will stop doing business in Texas. Your LLC may be subject to penalties and interest if you do not pay these fees.
Texas Comptroller will notify you if your LLC owes any taxes or fees. You can submit online, by mail, or in person at one of their offices.
Step 6: Acquire the Certificate of Account Status
The Certificate of Account Status to Terminate a Taxable Entity's Existence can be obtained from the Texas Comptroller's office. The Certificate will state that the LLC has been dissolved and is no longer in existence.
The filing entity must file Form 05-359 before filing Articles of Dissolution with the Texas Secretary of State. The Certificate of Account Status form is available on the Texas Comptroller's website.
There is no filing fee to filing the Certificate of Account Status.
Texas Business Organizations Code will issue a statement that the LLC is no longer in existence once the Articles of Dissolution are filed.
Step 7: File LLC Articles of Dissolution
After submitting the Certificate of Account Status request, the LLC must file Articles of Dissolution and obtain the Certificate of Termination from the Texas Secretary of State.
The Articles of Dissolution must include full business name, mailing address, the effective date of dissolution, the signatures of all members or an authorized manager.
Once filed, a physical copy will be sent to each individual member of the LLC, and the registered agent.
The Certificate of Termination is proof that the business can no longer transact business and releases the LLC from any future tax or legal liability.
Reasons to dissolve an LLC in Texas
An LLC in Texas can be dissolved for a number of reasons. Certain situations lead to voluntary dissolution, while others lead to LLC being administratively dissolved by the state.
Voluntary Dissolution of a Texas LLC
LLCs in Texas dissolve on a voluntary basis for many different reasons. Most often, LLCs are dissolved because the business has reached the end of its natural life cycle. The LLC may have accomplished its goals, or it may be no longer profitable. In these cases, the LLC members agree to dissolve the company.
LLCs can also be dissolved if the members cannot agree on important decisions, such as how to transact business or how to divide profits. If the members of an LLC cannot agree, it may be in the best interest of all parties to dissolve the company.
There are a few other reasons why an LLC in Texas might be dissolved voluntarily. These include the death or withdrawal of a member, the expiration of the LLC's term, or the LLC's bankruptcy.
Involuntary Dissolution of a Texas LLC
When an LLC fails to file an annual franchise tax report, misses annual reports, or otherwise loses its good standing status, the state may involuntarily dissolve the company. The LLC will be officially dissolved when the Secretary of State mails a notice of dissolution to the LLC's registered agent.
Other reasons why the state dissolves LLCs in Texas include a court decree or if the IRS revokes the LLC's tax-exempt status. Once an LLC is dissolved, it can no longer conduct business in Texas, and its rights and privileges are revoked. The LLC's assets become the property of the state, and creditors may begin collecting debts from the LLC's members.
How Much Does It Cost to Dissolve an LLC in Texas?
The filing fee for the Certificate of Termination is $40. You can choose expedited processing for an additional fee of $25. You can submit the Certificate of Termination online, in person, or by mail to the Texas Comptroller office.
How Long Does It Take To Dissolve an LLC in Texas?
It takes around two days to obtain the Certificate of Account Status. The Certificate of Termination takes longer to process, so it might extend to up to one month unless you opt for expedited processing.
Do LLCs in Texas Need Tax Clearance Before They Can Dissolve?
Yes. The Certificate of Account Status is equivalent to tax clearance in other states in Texas. You have to submit it along with the Certificate of Termination.
Can You Sue a Dissolved LLC in Texas?
Technically, you can sue anyone for anything. However, a court is unlikely to hear your case if the company no longer exists. You may want to consult with a Texas business law attorney before taking any legal action against a dissolved LLC.
Can I Reinstate a Dissolved LLC in Texas?
Yes. Tax Code governs the reinstatement of a dissolved LLC. You must file Articles of Reinstatement with the Secretary of State, pay all taxes, penalties, and interest owed to the state, and submit a Certificate of Good Standing from the Comptroller's office.
Dissolving an LLC in Texas: Conclusion
If you are considering dissolving your LLC in Texas, it is important to seek professional help from an experienced attorney. The process may seem daunting at first, but with the help of a qualified legal representative, the process can be simple and straightforward.