In South Carolina, LLCs are used by many company owners to protect themselves from personal liability.
However, when the time comes for South Carolina LLC dissolution, a lot of work needs to be done to terminate and close out your company legally.
South Carolina LLC dissolution is not as simple as it may seem - with many steps and requirements that must be met before you can officially dissolve an entity in South Carolina.
Reasons to Dissolve a South Carolina LLC
A limited liability company in South Carolina needs to be dissolved when any of the following situations arises:
- When creditors file a lawsuit against the LLC in South Carolina and get a judgment for money damages.
- The company is not complying with state regulations on maintaining an office in South Carolina.
- The LLC members agree to dissolve the LLC.
- The LLC's management fails to maintain a registered agent in South Carolina for an extended period.
- The minimum annual filing fee is not paid within two years from the date it was due, and no application for extension has been filed.
- The company was created to commit a crime in South Carolina, or its activities are found by state authorities to be illegal, and it cannot achieve any legal purpose through dissolution.
Whether an LLC is dissolved voluntarily or involuntarily plays a huge difference.
Administrative dissolution, which is involuntary, means that the company ceases to exist and its assets are distributed among the LLC members according to their interests in ownership because the Secretary of State, the Internal Revenue Service, or other authorities have determined that the company has failed to comply with state law.
Voluntary dissolution occurs when the LLC files a certificate of dissolution with the South Carolina Secretary of State and winds up its affairs.
In the case of voluntary LLC dissolution, there are few to no chances that the LLC can be revoked in the future.
Voluntary Dissolution of a South Carolina LLC
Voluntarily dissolving an LLC means filing a written request with the Secretary of State's office.
Like dissolving any other business, you need to notify all your members and file documents through the South Carolina Secretary of State.
The LLC operating agreement will usually contain provisions about LLC dissolution.
South Carolina law will dictate the process if the operating agreement doesn't have any dissolution provisions.
Generally, all LLC members must agree to dissolve the LLC, most likely during a meeting based on the majority vote.
If a member disagrees with the decision to dissolve, they can file a lawsuit to stop it unless otherwise specified in the operating agreement.
Involuntary Dissolution of a South Carolina LLC
When an LLC is administratively dissolved, it implies the company could no longer legally conduct business due to reasons like failure to file annual reports, pay franchise taxes, or otherwise anything that has led to the inability to remain in good standing with the State.
If an LLC is administratively dissolved, the owner(s) must dissolve the company formally.
The process may be difficult depending on how many members are in the company and whether they can come to a consensus on how to proceed with dissolution.
All owners of record need to agree on what actions to take, and all assets of the LLC must be accounted for.
Some steps that need to be taken during dissolution include:
- Notifying creditors and customers of the closure
- Cancelling insurance policies
- Closing bank accounts
- Transferring ownership of any licenses or permits if applicable.
The Steps After the South Carolina LLC Dissolution
The first stage in dissolving your South Carolina business entity consists of notifying the State and submitting dissolution papers. The process of formally dissolving an LLC includes:
- Organizing the remaining LLC records and paperwork, such as paying any outstanding business debts.
- Paying outstanding taxes.
- Notifying creditors about the dissolution.
The "winding-up" process that ensues will likely consist of all those points before you can finally file the Articles of Termination with the South Carolina Secretary of State.
If a South Carolina LLC has unsettled debts when it dissolves, the LLC's creditors need to know.
In some cases, a creditor may be able to make a claim against an individual owner or member of the South Carolina LLC for those debts after dissolution.
For this reason, the LLC must appoint a member, a manager, or someone who performs fiduciary duties, which will keep all records regarding the company's dissolution.
They should keep track of any debts that were not paid before the South Carolina LLC dissolved so that they can be settled after the fact.
Identifying the liabilities of the LLC can be a complex process, but it's crucial to ensure that all debts are paid before dissolving the company.
Handling Tax Clearance
A South Carolina LLC can't be formally dissolved unless it settles its tax obligations.
This means that the necessary paperwork can't be filed with the SC Secretary of State until the LLC has received clearance from the South Carolina Department of Revenue.
The department will only issue a clearance if:
- All taxes owed have been paid in full, and
- There are no liens or other legal encumbrances against the LLC.
If taxes are owed, an application for clearance must be submitted along with a list of all taxes due and proof that they have been paid in full.
There is no fee for filing an application, but the department will put a hold on any payments or refunds owed to you until your tax obligations have been settled.
Corporate filings are submitted through IRS Form 1120, while partnerships file IRS Form 1065 during the final year of an LLC's existence.
Filing the Articles of Termination
The last step in your dissolution process is to file Articles of Termination with the South Carolina Secretary of State.
This document formally declares the dissolution of your LLC. There is a $10 filing fee, which can be paid online.
The Articles, however, can only be failed by mail and sent to South Carolina Secretary of State's Office, Attn: Corporate Filings.
The processing time for the Articles of Termination is 2-2 business days.
When you file your Articles of Termination, you'll need to include the following information:
- The business name and mailing address of your LLC
- The effective date of dissolution
- The date that your filed your Articles of Organization
- A statement that the LLC is in the process of being dissolved
- The name and signature of an authorized individual
After filing your dissolution articles, be sure to notify all affected parties (e.g., customers, suppliers, creditors, employees) of the dissolution.
Make sure to obtain a certified copy of your Articles of Termination because you'll need it to close out your LLC's bank account and finalize other administrative tasks.
What Is the Difference Between Dissolution and Termination of LLC?
The difference is that dissolution is a voluntary process, while termination is an involuntary process.
Dissolution happens when the members of the LLC agree to end the company and terminate its existence.
Termination can happen when the state or federal government intervenes and forces the company to close.
Additionally, you can always revoke the process of dissolution, but once the LLC has been terminated, it can no longer be revoked.
How Much Does It Cost to Dissolve an LLC in South Carolina?
Filing the Articles of Termination with the South Carolina Secretary of State - Division of Business Filings is $10.
There are additional fees and costs to pay if you hire a professional service to help you through this process.
What Happens to Assets of Dissolved LLC in SC?
The assets are distributed among members or else used to pay off creditors and other liabilities.
The members can't be held personally liable for the debts of the LLC. If there is any leftover money, it goes to the State.
There is no specific order in which these things happen, so it can be a little bit complicated. Your operating agreement and LLC Articles of Organization should contain a provision regarding the asset distribution.
How Do I Dissolve a Foreign LLC in South Carolina?
Foreign LLCs in South Carolina are not dissolved. Instead, they need to cancel their registration with the Secretary of State by filing a Certificate of Cancellation.
The process is the same as for domestic LLCs, but there might be some additional requirements as SC LLC Act is not very clear about this.
How Do I Reinstate a Dissolved LLC in SC?
To reinstate an administratively dissolved LLC in South Carolina, you need to file an Application for Certificate of Reinstatement with the SC Secretary of State.
Unfortunately, limited liability companies that were dissolved voluntarily can't be reinstated.
Do I Need to File an Annual Report if I Close My Business?
Yes. You need to file the annual report for the year you closed your LLC.
You must also file any annual reports that are left from the previous years of the LLC's existence.
You can find more information on the South Carolina Secretary of State website.
Who Owns a Dissolved LLC in South Carolina?
It depends. A dissolved LLC is an entity, which means it has a separate legal existence from its members.
What this means is that the LLC itself will continue to exist even though the company may no longer be in business.
Once dissolved, the LLC's assets may be distributed among the members according to the ownership interest or other arrangement that was in place when the company dissolved.
Do You File Taxes for a Dissolved LLC in SC?
It depends. If you are the responsible party for an LLC in South Carolina that is dissolved, you may still be held liable for it.
Any outstanding tax obligations will need to be filed. You'll be responsible for additional termination forms if you do not submit them by the deadline.
Failing to file the extra termination papers means you'll be liable for annual report costs and minimal company taxes indefinitely.
Can Someone Use My LLC Name in South Carolina After Dissolution?
The company name can be used by another entity only after the company's official dissolution and termination.
An LLC can continue to use its name even after it is dissolved if the entity has not been administratively or judicially denied the right to do so by the State.
Dissolving an LLC in South Carolina can be complicated.
The State has several requirements that must be fulfilled before the company is dissolved, and this process can quickly become overwhelming if you are not well versed in these laws.
It's best to hire professional services when dissolving your business for guidance through this process, so it goes smoothly without any hiccups and costly mistakes along the way.