It is not uncommon for LLC owners to decide to terminate their company. Whether it is because of a change in personal circumstances or just wanting to start fresh with something new, dissolving an LLC can seem like a daunting task.
However, many resources are available that will walk you through the process step-by-step and answer any questions you may have.
This article will discuss all aspects of terminating an LLC, from how to dissolve an LLC yourself and what documents need to be filed with the state government.
Reasons Why Owners Dissolve LLCs
The most common reasons LLC owners decide to dissolve an LLC is because they are no longer interested in operating the business or have reached the end of their term.
Another reason why LLC members might want to dissolve is if a member dies, becomes ill, or is no longer available to work on the LLC.
In addition, LLC members might dissolve their LLCs because of personal reasons, such as relocating or employment changes, making it difficult to conduct business.
Whatever the case may be, there are procedures and paperwork you have to complete to officially dissolve your LLC.
What Documents Must Be Filed When Terminating an LLC?
To begin the dissolution process, you will have to follow a procedure that includes a number of steps:
Consult Your LLC Operating Agreement
Every limited liability company should have an LLC operating agreement. It's a document that provides the LLC members with a road map for their business.
It's an agreement between all LLC members. It should include rules on issues like how the money will be distributed to individual LLC member(s), what percentage of votes each LLC member has, when annual meetings are held, etc.
The LLC operating agreement also contains the outline of dissolution steps.
In the majority of cases, the members will vote on whether to dissolve the business or not.
If there are any disputes on dissolution, they could be settled in court if needed.
In short, if you have an operating agreement, it's just a matter of following its steps for dissolving your LLC.
It would also make sense to consult with a law firm with some experience in this area because they will know the ins and outs of dissolution.
There are a few types of vote: unanimous vote, majority vote, and a two-thirds vote.
A unanimous vote is when all LLC members agree to vote yes, no matter how many people are in agreement.
The Majority vote must have more than 50% of votes for a decision to be made, and a two-thirds vote requires a ¾ majority or 66 percent approval from voting members. Dissolving an LLC vote must have a vote from all members.
This is why it's important to vote on LLC dissolution and vote for decision-making in the LLC Operating Agreement at formation.
Settling Debts and Notifying Creditors
In addition to voiding contracts and canceling leases, you must settle any remaining debts and notify creditors about the dissolution. The deadline to submit claims will differ depending on the state laws.
Suppose you are no longer going to do business. In that case, it is important that creditors get a message from your company about how they can submit claims and receive whatever money or remaining assets may be left over after you pay off all debts.
Notifying them of this dissolution also allows them to inform you of any debts that are still owed.
Creditors can submit these claims in writing or through a representative, using the information available on your state's Secretary of State website and submitting it to either the LLC office address or registered agent.
Closing Tax Accounts
Before filing for the dissolution of an LLC, it is important that all outstanding state taxes are settled and any tax returns from previous years have been submitted in full.
This process can be very time-consuming; therefore, we advise you to start this task as early on during your year as possible so that there will not be a last-minute rush.
An LLC must have an accountant registered with the relevant tax authority (e.g., IRS) to close any accounts that are still open and submit claims for refunds of taxes paid in previous years if applicable.
It is only after all the financial obligations of your LLC have been settled that you can distribute the remaining LLC assets to the members.
Filing Articles of Dissolution
Filing the Articles of Dissolution (also called a certificate of dissolution) is one of the final steps for dissolving an LLC.
The Articles of Dissolution are equivalent to the Articles of Organization you had to file when you set up your LLC.
You file the Articles of Dissolution with the state agency in charge of handling your formation paperwork.
The deadline for filing paperwork will differ based on the state laws and what assets are being distributed, so it is important to look into your specific state's guidelines when filing your dissolution paperwork.
Some states will require you to pay any remaining taxes before you can even file articles of dissolution.
How Much Does It Cost to Dissolve LLC?
The minimum filing fee for submitting dissolution paperwork is around $100 on average, depending on your state's requirements and legal processes.
If you need copies of the certificate, additional fees can be applied.
Can You Walk Away From an LLC?
You can't simply walk away from an LLC because member withdrawal has to follow certain procedures.
The first step is submitting an intent to withdraw according to the withdrawal notice specified in the Articles of
Dissolution before you want your withdrawal request approved by other members. This will allow the remaining membership (if any) to submit a new operating agreement.
You can either dissolve or withdraw, but it is best to seek legal advice beforehand for assistance with this process. Every state has different requirements when dissolving or leaving an LLC.
Can You Reopen a Dissolved LLC?
Potentially, you can reopen a dissolved LLC.
An LLC is typically dissolved when its membership agreement has been executed and the fiduciary process to wind up the company's affairs has been completed.
It can be difficult to reopen an LLC that was originally formed years ago, as many jurisdictions will not allow a turnaround on this process and will require you to apply as a new entity.
However, some states are more lenient with this process and will allow you to apply for a reinstatement of the LLC.
If your state does not permit a turnaround on an old dissolved LLC, then applying as a new entity is necessary if you wish to take up where you left off.
Can an LLC Be Sued After It Is Dissolved?
Yes, an LLC can still be sued after it is dissolved.
In case you fail to file articles of dissolution and terminate the business properly, there will be grounds for a lawsuit from creditors or other aggrieved parties, for example.
What Happens to Debt When an LLC Fails?
LLC assets are separated from their owners because LLCs are disregarded entities in the eyes of the IRS.
However, LLC's debts are paid off through the LLC assets. Creditors can take measures such as putting a lien on the company's assets or submitting claims in case of dissolution to recoup the debt owed by the business.
Can You Freeze an LLC?
Technically, no. Your LLC will have to continue sending tax filings and maintaining a good standing regardless of generating any revenue.
You can never put your LLC on hold without complying with state law.
This includes sending annual reports, filing taxes, and so on.
Can You Take the Name of an Inactive LLC?
No, you can't.
If the LLC has been inactive, the company failed to file necessary documents and was consequently made inactive. That doesn't mean the LLC is dissolved and no other company can take its name.
If an LLC has been dissolved and officially terminated, its former name becomes vacant.
Dissolving an LLC: Conclusion
Dissolving a business can be a complex procedure. For this reason, it is best to consult with a lawyer or an agency before taking any action.
Make sure to contact your Secretary of State's office and inquire about the dissolution process.
Each state has its laws regarding the procedures needed to dissolve a business, so make sure you know your company's requirements by reviewing this information in advance.