Last updated: January 8, 2023

When a firm is shut down, it ceases to exist. In accordance with state legislation, the company's shareholders and managers typically wind down their operations. But what happens to the company assets?

Types of Company Dissolution

A paper about types of company dissolution

There are several types of dissolution, depending on the circumstances.

The most common types are voluntary dissolution and involuntary dissolution.

In a voluntary LLC dissolution, also called a "voluntary termination," the company itself terminates its existence because it's winding up its business affairs and is getting ready to dissolve.

With an involuntary dissolution, also called a "winding up," the company is legally dissolved by court order when creditors or shareholders file suit against the company to demand that it be shut down and its business affairs wound up under judicial supervision.

What Should I Do When I Dissolve My Company?

Unfinished paperworks on table

If you're in charge of a company that's being dissolved, you should consult with an experienced business attorney in your state about how to proceed.

Depending on the type of dissolution, you might be required to file paperwork with your secretary of state or other relevant government officials. You should also consider the following points:

1. Liquidate The Dissolved Company Asset

Pointing at the camera while holding money

A dissolved business has assets that are property or assets of value, including cash. It applies regardless of its financial position.

Liquidating company assets means converting them to cash so the company can pay its debts and any other financial obligations as they come due.

A business usually sells or disposes of the company assets if it's going out of business, but state law may require a public sale that anyone can attend.

If there are land-owned assets, leases, or other real properties, they may be sold by a public auction.

The sale of a company's assets is usually held at the company's place of business or some other location in the county seat.

The sale is usually open to the public, but that depends on the state.

Some states permit a dissolved business to use its remaining company assets for ongoing operations if they're not connected to the dissolved business.

This is called "substantially liquidating." A court-appointed receiver or trustee may be appointed by the court to oversee the collection of debts and termination of ongoing relationships during the dissolution process.

In most cases of dissolution, a company's remaining assets are distributed to its shareholders or members after they have paid off outstanding debts from the proceeds of liquidation.

The business may be wound up by a court-appointed receiver or trustee until all issues involving claims against it have been resolved. Then, the assets owned by the company may be sold to your competitors or other third parties.

2. Close Down Operations

Closed sign on a door

A dissolved business entity must close the business by ceasing activities and taking all reasonable steps to protect company property.

Protecting company property includes checking that pre-existing contracts remain valid after dissolution, protecting equipment from theft, removing trade fixtures (property specifically used in a trade), selling off leased assets, canceling insurance policies, notifying suppliers of the breakup, and paying outstanding bills covered by the dissolution.

If the company holds money in some kind of account--for example, a bank account or safe deposit box--you must close the bank accounts and distribute the contents to shareholders.

You don't have to close any accounts with operating expenses until all obligations are met.

You must also remove your LLC from the Companies Register at Companies House.

3. Send Final Invoices

A dissolved company must send final invoices to all creditors and supply a list of amounts due and payable. You should also close all other company accounts in accordance with state law.

4. Notify Suppliers

Suppliers usually want to be paid for supplies or services provided after the dissolution.

Changing your company name after dissolution will not protect you from claims by creditors, so you must notify suppliers of pending termination and supply a list of all amounts due and payable.

5. Taxes

Calculating taxes

When the company is dissolved, it must also file all required tax returns, pay any income taxes due, and close out its assets.

Dissolved companies are not exempt from federal income taxes, state taxes, self-employment taxes, or any other business taxes.

You should also make sure the company bank accounts and payroll funds are equally divided and distributed to shareholders.

6. Shareholder Distribution

Lastly, you'll have to distribute any assets that are left over after creditors and the company is paid.

You must pay off all claims of shareholders in proportion to their share of ownership.

If there aren't enough assets to go around, you'll have to ask for contributions from shareholders/owners. If someone doesn't contribute, you may sue them in court for their share.

What Assets Are Distributed?

Holding a document while having a conversation

Company assets are distributed to creditors with claims against the business or its shareholders for unpaid bills.

If there is no money left after paying off these debts, then the remaining assets are distributed proportionately to shareholders.

The most common assets in dissolution are cash, accounts receivable (money owed to the company by clients), inventory (goods on the shelves of a business), equipment, and prepaid expenses.

However, there may also be real estate owned by the LLC or special values such as a patent acquired from a research project.

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What About Assets With a Market Value?

If any of your business's assets have value, you will likely be able to sell them for cash for shareholder distribution.

In some cases, these proceeds may even cover your company's outstanding debts and costs associated with winding up operations and closing down the books.

Who Owns the Company's Assets?

When a firm shuts its doors, everything it owns becomes the property of the company's owner.

Creditors have no claim on any assets until they are paid in full if there are any debts outstanding.

At the time that the firm is officially closed, shareholders are under no legal obligation to pay off any outstanding debt.

What About Intellectual Property Assets?

Intellectual property is a form of an intangible asset, a type of work that has some creativity. It includes copyright, patents, trademarks, and trade dress.

When a business is dissolved it does not have any claims on its intangible assets.

But the owner of the business still needs to protect it from being sold or disposed of by a third party.


What Happens to Investments When a Company Is Dissolved?

When an LLC is dissolved, assets are distributed first to creditors and shareholders. Any remaining assets would be awarded to the investors on a pro-rata basis

Are My LLC’s Assets Vulnerable to Seizure?

No, LLCs are not considered legal entities and do not possess any property rights. As such, all assets become the property of the company owners when dissolved.

Is It Possible to Sue a Dissolved LLC?

Yes, LLCs are not considered legal entities and therefore file no tax returns or pay any taxes.

As such, the owners of an LLC who declare bankruptcy may be held personally liable for filing liabilities. You must seek legal advice and legal services from a law firm.

What if I Don’t Want to Dissolve My Business?

Although it is highly recommended that you formally close your books at the end of every fiscal year, you are not required to dissolve your LLC until assets reach $0.

At that point, you must either close or continue maintaining your business with the support of new capital.

How Long Does It Take To Dissolve an LLC?

It may take 60 days to a year.

What Happens if a Company Is Dissolved?

In conclusion, when an LLC is dissolved it needs to do many things. It must close all of its cash accounts, liquidate its tangible and intangible assets, notify suppliers, remove the register at Companies House and pay off debts.

The remaining property is distributed to the owners in proportion to how much they own. This property includes intellectual property that should not be sold or given away to a third party. Consider getting some legal services to make the distribution smoother.

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