How to Handle the Dissolution of an LLC

Although a dissolution of an entity, or closing it down in simple terms, is never something that people plan on doing when they open up a business, it does not mean that it does not happen. Also, it does not have to mean that the business is closing. In fact, a dissolution of an entity could simply be the result of wanting to change how the company is set up. More often than not, though, it is a process to close a business down; so when this happens, you need to take special care.

If and when the time comes that you need to handle a dissolution of an entity, make sure that you do it in the right way so that you and your business are protected throughout the process. The way that you will dissolve an entity really depends on the type of entity that you have. In the same way that you took the time to make sure that you set up your business entity correctly by filing the relevant documents, additionally—if you have decided to close the business down—you will need to take the proper steps to make sure that you do everything correctly and by law.

Step 1: Follow the LLC's Internal Procedures

With an LLC, there can be one or more members. If there is more than one, you must make sure that you approve this action as set forth in your internal procedures. These would have been decided upon when you formed the LLC. How you should handle this can depend on whether or not you included a voting procedure, or another kind of procedure, in your LLC operating agreement.

If you have guidelines for voting for a dissolution, you must follow those guidelines. If you have not created a guideline for this, follow the procedure for LLC dissolution that is outlined in your state laws. Every state is different, so check your local state guidelines to be sure that you are following them correctly. After you have taken the vote, you should outline this vote in your resolution so you have a written record. While it is not a requirement to keep a resolution on file, it is highly recommended. This written decision should be kept in the official records of the LLC.

Step 2: Notify Any Creditors of the Dissolution

If the vote is in agreement for the dissolution, the next step to take is actually notifying any creditors that you will be closing the business. As part of this notification, you should also tell creditors how to submit the claims and the deadline that you will need to have these claims submitted for payment. The deadline for getting these claims is something that is dictated by the statutes set forth by the state for LLCs. Generally, it is somewhere between 90 and 180 days from the day you give notice to them, but you should check with your state laws to be sure. Your notice should also state that any claims received after the outlined date will be barred.

When you should supply these notices is something that you need to check with your state. Some states require that this be done before you actually file dissolution papers. While not all states will require you to notify any creditors, it is good business practice. It is something that will also benefit you in the long run because it can help you to take care of any of the remaining financial obligations of the LLC before it is dissolved. Not only does this provide you with some peace of mind, but it also limits the possibility of getting late fees tacked on or any potential lawsuits for not paying any financial obligations.

Step 3: Notify the Tax and License Authorities

While you are notifying everyone else, you also need to take some time to notify your local and state tax authorities. This should be done in order to determine if your LLC currently owes any taxes before you officially dissolve it. You can pay these and move on to notifying any agencies that provided you with licenses to operate your business. Every business is different, so you should make sure that you notify the agencies that you have done business with. When you contact them, you should cancel the licenses and pay any outstanding fees so you can completely close your account with them. After you have paid all outstanding fees and any outstanding financial obligations, you can take the remaining assets and distribute them to the LLC members evenly or as outlined in the business plan for the LLC.

Step 4: File Dissolution Papers

Just like you filed the proper paperwork to form your LLC, you will need to file the proper paperwork to dissolve it. It is a process, and you will need to make sure that you follow all of the instructions that are given to you at the government office. Before you go to file, check with your state office to make sure you have everything in place. One of the more required items that you will need to file is an article of dissolution. Some states have their own form of this document, so make sure that you provide the right one. If they do not provide their form to you, you can use a standard article of dissolution in its place.

Once you have filled out the form or forms, you can then officially file them. Where you file these is typically the same place or state agency where you filed your original LLC formation documents. That should be the first place you check; if you cannot file it there, you should go to the Secretary of State to make the filing. In order to file you may have to pay a fee, which can vary from state to state. Check with your local agency to see what you may need to pay, the specific filing procedure, and the forms you will need.

An additional step you may need to take to file in some states is getting the certification from the state taxing agency to confirm that the LLC is current on all of the state taxes and other financial obligations. This is not a requirement in all states, but where it is, the previous two steps do come in handy here to make the process faster. If you do need to provide this certification, you will need to file it along with your dissolution papers.