How to Dissolve an LLC in Alabama? (Full Business Guide)

Delina Chantel Yasmeh
Published by Delina Chantel Yasmeh | Author
Last updated: June 20, 2024
FACT CHECKED by Lou Viveros, Growth & Transition Advisor
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If your LLC is no longer serving a purpose or facing legal trouble, you may be wondering how to dissolve an LLC in Alabama.

With years of experience as a professional business consultant and entrepreneur, I've gained comprehensive insights into the LLC dissolution process in Alabama.

In addition to my expertise, I spent countless hours of meticulous study. I further consulted with experts in the field, including lawyers and business advisors, to understand the legal procedures involved.

As a result, this article presents a step-by-step approach to help you navigate the process effectively while complying with the Alabama law.

Quick Summary

  • To dissolve an Alabama LLC, follow the official procedure, notify all members, and comply with the LLC operating agreement or state statutes
  • Inform third parties, close business tax accounts, and file Articles of Dissolution with the Alabama Secretary of State.
  • Given Alabama's slightly lower business failure rate of 19.5% within the first year, below the national average of 20.7%, the necessity for LLC dissolution in the state may be less frequent but remains critical for those impacted.
  • I always remind my clients that dissolution reasons include voluntary decisions (e.g., business no longer profitable) or involuntary dissolution by the State for non-compliance.


6 Steps to Dissolving an LLC in Alabama

The people thinking the steps to dissolve an LLC in Alabama

Every Alabama limited liability company must follow the official procedure proposed for the dissolution. Every step of the process is vital so that the owners can protect themselves from personal financial liability.

1. Vote to Dissolve the LLC

LLC members must vote on dissolution.

Before initiating the dissolution process, it's crucial to reflect on the broader business climate in Alabama. Between March 2021 and March 2022, the state saw 11,477 establishments close, according to the US Small Business Administration.

In our case, we gave each member at least seven days' notice of the meeting date, time, and location of the dissolution meeting.

The dissolution vote must be by a majority of the LLC members unless your LLC operating agreement specifies a different voting requirement. Only members present at the meeting or who have properly waived notice can vote on dissolution.

Distributing assets should also be one of the points of the meeting. If you are the sole business owner of the LLC, you don't need to have a meeting.

2. Notify Creditors About Your LLC's Dissolution

It is important to notify all interested parties of the LLC dissolution process, including creditors, taxing authorities, and other stakeholders.

You should send an official written notice to each creditor and include your contact information and the timeframe they have to make viable claims.

Following this step helped us minimize any potential damages that could have occurred after the business had officially ceased operations.

In Alabama, limited liability companies should distribute the remaining assets only after settling business debts. Any remaining assets should be distributed to the company's members in proportion to their ownership interests.

3. File Final Tax Returns and Obtain Tax Clearance

A person signing a paper

Various tax accounts for an LLC must be closed when the business is dissolved.

The Alabama Department of Revenue website provides a guide for how to close these accounts.

Common taxes that must be closed include Alabama Corporate Income Tax, Withholding Tax, and Sales and Use Tax.

It's crucial to submit the final tax returns for each tax type and be sure to indicate on the return that it is a final tax return.

During our dissolution, we also contacted the Internal Revenue Service to settle any outstanding taxes and close our IRS account including our federal employer identification number.

IRS Form 8832 is used to close the Alabama LLC's tax status with the IRS [1].

"Initiate the process by ensuring all members agree to dissolve according to the terms outlined in your LLC operating agreement."

- Jon Morgan, CEO, Co-Founder and Editor-in-Chief of Venture Smarter

Make sure to close your business licenses with the Alabama Secretary of State. File Form LLC-12, Final report of business entity.

This form reports the date of dissolution, the business name and address of company officers, LLC business bank accounts, and the signature of an officer.

4. File Articles or Certificate of Dissolution

Alabama Secretary of State requires LLCs to file Articles of Dissolution before they can dissolve. To do this, you'll need to fill out the Articles of Dissolution form available on the Alabama Secretary of State website.

The state filing fee for the Articles of Dissolution is $100, and you can only submit your dissolution filing by mail [2]. Our documents were reviewed and processed within 3 weeks.

The Articles of Dissolution must contain your full business name, mailing address, the effective date of the dissolution, and the signatures of all members.

5. Distribute Assets

A panel writing on forms

In this next step, it's crucial to have a clear understanding of the value of the LLC's assets. For this purpose, you may consider hiring a professional appraiser, especially for assets like real estate or specialized machinery. This ensures a fair distribution among members.

In some cases, it may be more practical to distribute assets "in kind" rather than selling them and distributing the proceeds. This can be beneficial if members wish to retain specific assets personally or if the assets are not easily marketable.

During our asset distribution process, we were mindful of any contingent liabilities that could arise after dissolution. These included unresolved legal disputes or potential claims against the LLC.

We properly addressed these issues to prevent future complications.

6. Close All Accounts and Cancel Licenses and Permits

The process of closing accounts and canceling licenses should be carried out with utmost efficiency.

In our case, we promptly transferred funds and notified service providers about the closure to ensure a seamless transition out of business operations.

Review all contracts and agreements tied to your business accounts and licenses. Ensure that you fulfill any contractual obligations and comply with termination clauses to avoid penalties or disputes.

If your LLC operates in an industry that requires environmental permits, make sure to follow the specific regulations for permit cancellation in Alabama.

Failing to do so could lead to environmental compliance issues down the road.

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FAQs

How Much Does It Cost to Dissolve an Alabama LLC?

It costs $100 to dissolve an Alabama LLC. Expedited dissolutions are available for an additional $50. Keep in mind that the cost of dissolving an LLC can vary depending on the county in which the entity is registered, especially for any assets that need to be liquidated.

How Long Does It Take To Dissolve an Alabama LLC?

It takes fifteen days to dissolve an Alabama LLC. Sometimes, it takes a bit longer to obtain the LLC's Certificate of Dissolution depending on the State's backlog. The formal date of dissolution for an LLC is the date on which a Certificate of Dissolution is filed with the State.

Can I Dissolve a Foreign LLC in Alabama?

You can dissolve a foreign LLC in Alabama but you must file a Certificate of Authority Cancellation with the state. Once this is filed, the LLC is no longer authorized to do business in Alabama and can begin the process of dissolving.

Can You Sue a Dissolved LLC in Alabama?

You can sue a dissolved LLC in Alabama. First, file a petition with the court. The petition must allege that the LLC's directors or managers breached their fiduciary duties to the LLC or its members. If the court approves your petition, then you will be allowed to proceed with your lawsuit.


References

  1. https://www.irs.gov/forms-pubs/about-form-8832
  2. https://www.sos.alabama.gov/sites/default/files/2022-09/DomesticLLCDissolution.pdf

 

About The Author

Author
Delina Chantel Yasmeh, J.D./Tax LL.M, specializes in Mergers and Acquisitions at Deloitte and PwC, managing billion-dollar transactions. Educated in Accountancy at California State University and holding advanced degrees from Loyola Law School, she is highly skilled in tax law. Delina also dedicates time to pro bono work for women and children.
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Growth & Transition Advisor
LJ Viveros has 40 years of experience in founding and scaling businesses, including a significant sale to Logitech. He has led Market Solutions LLC since 1999, focusing on strategic transitions for global brands. A graduate of Saint Mary’s College in Communications, LJ is also a distinguished Matsushita Executive alumnus.
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