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How to Dissolve an LLC

October 1, 2021

So, you want to dissolve your LLC. You’re not sure how to do it? We’ll show you the steps that will help make this process easier for you. The first step is to determine whether or not your state has laws regulating the dissolution of an LLC. If they do, then these laws will tell you how to go about dissolving your company. If there are no regulations, then all other methods are acceptable as long as they are legal under the law of the state where you live and operate. In this article, we will discuss how an LLC dissolves.

Types of LLC Dissolution

Voluntary, administrative, and judicial dissolutions are the most common types of LLC dissolutions.

1. Voluntary LLC Dissolution

To voluntarily dissolve an LLC, the business members need to file a legal document called “Articles of Dissolution” with their state. This is done when all debts are paid, and there are no remaining assets in the LLC. The LLC will be terminated after filing “Articles of Dissolution”, and any remaining assets are distributed to members according to their stakes in the business.

2. Administrative LLC Dissolution

An LLC may be administratively dissolved by filing a Certificate of Dissolution with the Secretary of State. The Secretary of State will automatically issue the Certificate if there is no activity in the entity for one year and no outstanding liabilities. Administrative dissolution does not terminate your liability as a member or manager to creditors, including members who have withdrawn from an LLC before its administrative dissolution.

3. Judicial LLC Dissolution

If you cannot reach an agreement with the other members of your LLC regarding dissolving, then this option is for you. This process involves filing a lawsuit and requesting that the court dissolve the company because all management has abandoned it or if its existence has become illegal. A lawyer can be beneficial in this situation; however, there will likely be significant costs involved, so make sure any payment agreements have already been made before doing anything else.

How to Dissolve an LLC in 6 Easy

Step 1: Officially record your voting history:

Members must vote on this choice if they fit into the voluntary dissolution category (and no separation trigger has happened). In your LLC’s operating agreement, the election method should be spelled out. Use the voting procedure outlined in your state’s LLC legislation if this procedure was not previously stated. For single-member LLCs, this is very straightforward. 

However, LLCs with numerous owners should move ahead seriously to ensure that the vote is recorded in writing. Make a written note of your decision. In most situations, an LLC resolution agreement should suffice.

Step 2: Resolve Debtor Claims

If the LLC has outstanding debts, then these creditors need to be paid. If there are not enough funds in the company bank account, other assets owned by the business (such as furniture) may need to be liquidated and sold for cash. This is usually done according to any state law that governs what happens when a small business goes under.

Step 3: Deliver Final Wages and Look After Your Workers

After you’ve paid all the money back to your creditors and settled any debts with other companies or individuals, it’s time to get rid of all evidence that the LLC ever existed. This means distributing what little assets you have left among its members according to their percentage ownership of the business. You’ll also want to pay out final wages if each member has been working for a salary instead of taking distributions from profits.

Step 4: Notify the appropriate taxing and license authorities

To dissolve your LLC, you should notify the appropriate authorities. In most cases, this will mean filling out a form called Articles of Dissolution with all relevant agencies and paying any fees that apply. The exact steps required vary from state to state, so make sure you research the requirements for your particular location before filing anything official.

Step 5: Submit the Dissolution Articles

File the dissolution articles with your state agency. Most states require you to file the Articles of Dissolution (also known as Certificate of Termination) within 90 days after filing for LLC dissolution. Ensure that it is filed correctly and includes all necessary information, such as the name of the company; effective date; registered agent’s signature; telephone number or address where creditors can send claims against the company, etc. Many business websites offer free downloadable forms to help you meet this requirement quickly and easily.

Step 6: Share the remaining assets in Step

The final stage in dissolving an LLC is to divide assets among the members. This is simple for single-member LLCs. Multi-member LLCs will need to devote a little more attention to this section. In general, assets are divided based on the individuals’ ownership percentages. Let’s assume you have three owners who own 40-40-20 percent of the company; assets would be allocated according to the exact rates.

The Bottom Line

It might be challenging to decide whether or not to close your firm. However, you can’t simply walk away without dissolving the LLC. If you don’t, you’ll be responsible for taxes, yearly fees, and other responsibilities that come with running a business. Penalties and fines for late payments will accumulate over time. Before you go, make sure you tie up any loose ends. 

It’s to your best advantage to prepare for the dissolution of your LLC before it occurs. If your LLC partnership agreement doesn’t cover the dissolution process, you’ll have to rely on state legislation for formal methods.

When dissolving an LLC, always check with your tax and lawyer.

Posted in Financial Management
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