How to Dissolve an LLC in Texas? (Step-by-Step Guide)
When an LLC is no longer needed or wanted, the business owners have the option to dissolve it.
As a business consultant and legal advisor with over a decade of experience, I conducted intensive research backed with legal information and personal experience to produce a comprehensive guide in dissolving a Texas LLC.
In this article, we will explain the reasons why LLC owners voluntarily choose to dissolve the business and how the state may terminate the entity involuntarily.
- To dissolve an LLC in Texas, members must vote, inform third parties, clear outstanding debt, and file the Articles of Dissolution.
- The LLC dissolution process must be outlined in the operating agreement and the members are mandated to stick to them.
- In light of the 20.7% business failure rate in Texas, understanding the comprehensive steps for dissolving an LLC is crucial for business owners navigating this complex process.
- From my experience, a well-planned dissolution strategy is essential for Texas LLC owners to navigate the complex regulatory landscape successfully.
6 Steps to Dissolving an LLC in Texas
Given the significant number of business closures, with 68,032 Texas establishments shutting down between March 2021 and March 2022, understanding each step to properly dissolve an LLC in Texas is crucial. While all steps are important, some may require more time than others .
Steps to dissolving an LLC in Texas are equally important, but some may take longer than others. These include the following:
Step 1: Vote to Dissolve the LLC
LLC members should meet and discuss the dissolution of the domestic entity before taking any further action.
In our case, the LLC manager notified all the members of the dissolution and held a final meeting where a majority vote was cast to agree on the Texas LLC dissolution.
Your LLC operating agreement will state the specific steps that must be followed to dissolve your LLC.
However, if your LLC operating agreement stipulates different voting procedures, you will need to comply with the conditions.
Step 2: Notify Creditors About Your LLC's Dissolution
Creditors, lenders, and other claimants should know that your LLC will no longer conduct business.
During our dissolution, we provided written notices of the dissolution to all known third parties and settled all business debts and other liabilities.
Your LLC can utilize remaining funds or sell off any assets to cover debts and liabilities, any surplus may be equitably distributed among the LLC members.
Step 3: File Final Tax Returns and Obtain Tax Clearance
File a final income tax return to indicate that the Texas LLC is in the process of dissolution.
Pay all outstanding LLC business taxes that apply to the nature of your entity, these may include sales, employee, and use tax .
"In Texas, every LLC is obligated to submit an annual franchise tax report. Even if an LLC is dissolved prior to year's end, a final franchise tax report may still be required."
-Jon Morgan, Co-Editor & Co-Founder of Venture Smarter
In our case, aside from an annual franchise tax report, we also needed a tax clearance letter from the Texas Comptroller of Public Accounts.
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. Texas Comptroller will notify you if your LLC owes any taxes or fees.
Step 4: File Articles or Certificate 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.
Once we filed the document, a physical copy was sent to each member of our LLC, and our registered agent in Texas.
The Certificate of Termination is proof that the your business can no longer operate and releases the LLC from any future tax or legal liability.
The Articles of Dissolution must include the following:
- Full business name
- Mailing address
- The effective date of dissolution
- The signatures of all members or an authorized manager.
Step 5: Distribute Assets
Before distributing assets, the LLC must "wind up" its affairs. This includes collecting outstanding receivables, selling assets, and paying off creditors.
The LLC must pay or make provisions to pay all of its liabilities and obligations. This includes loans, contracts, and other debts.
In our case, after all creditors had been paid, any remaining assets were distributed to the LLC members.
Note that the distribution should be following the terms of the operating agreement.
If the operating agreement does not specify, then Texas state law requires the assets to be distributed to members in proportion to their ownership interests in the LLC.
Step 6: Close All Accounts and Cancel Licenses and Permits
Closing all accounts and canceling licenses and permits is a crucial step in the process of dissolving an LLC in Texas. This ensures that the LLC's legal and financial obligations are fully concluded
Business accounts registered with the state should be closed.
To do this, you'll need to notify each account holder of the limited liability company and provide them with a copy of the Certificate of Dissolution you will obtain later.
How Much Does It Cost to Dissolve an LLC in Texas?
It costs $40 to dissolve an LLC in Texas and an additional $25 for expedited processing.
How Long Does It Take To Dissolve an LLC in Texas?
It takes more than a month to dissolve an LLC in Texas. Obtaining a Certificate of Account Status can be completed in two days while 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, LLCs in Texas need tax clearance before they can dissolve. The Certificate of Account Status is equivalent to the tax clearance letter in other states in Texas. You have to submit it along with the Certificate of Termination.
Can I Reinstate a Dissolved LLC in Texas?
Yes, you can reinstate a dissolved LLC in Texas by filing Articles of Reinstatement with the Secretary of State, paying all taxes, penalties, and interest owed to the state, and submitting a Certificate of Good Standing from the Comptroller's office.