Find Out How to Dissolve an LLC & Different Types of Dissolution

Companies choose to close their doors permanently for a variety of reasons. The list is endless and includes owner retirement, insufficient cash flow, and member disputes. It is insufficient to just lock the doors and take down the sign. There are precise processes you must take in order to formally dissolve your LLC. Otherwise you might face legal consequences. In this write-up, we will discuss how to dissolve an llc and different types of dissolution. 

How to dissolve an llc?

1. Decide to Dissolve

The LLC members must make the decision to dissolve and terminate the LLC. This usually requires a majority vote or unanimous consent depending on your operating agreement terms. Carefully review your reasons for dissolving and make sure it is the right business move before proceeding. 

2. File Articles of Dissolution 

Draft and file Articles of Dissolution with the Secretary of State or other state authority. This document announces your intent to formally dissolve the LLC. It should include information such as the LLC’s legal name and state file number, principal office address, the names of the organizing members, the dissolution date, and member signatures.

3. Notify Creditors 

If you are wondering how to dissolve an llc, you must provide notice to all known creditors and public notice to unknown creditors and claimants of your intent. This gives them time (usually 90 days) to make any claims against the LLC before dissolution. You can provide notice through direct mail and publishing in a local newspaper.

4. Pay or Settle Debts

Make an effort to pay off or settle all remaining LLC debts, loans, obligations, taxes, and claims. Obtain tax clearance certificates from the state tax agency and IRS confirming you have paid all taxes. Convert assets to cash in order to pay creditors.

5. Distribute Remaining Assets

Distribute any remaining company assets to members according to ownership percentages and your operating agreement terms. Physical assets can be sold and converted to cash for easier distribution. If your LLC is nonprofit, follow appropriate asset distribution rules.

6. File Final Tax Returns

File any final federal, state, and local tax returns and reports for the LLC, including income tax returns. Consult a tax advisor to ensure you comply with all final tax filing requirements.

7. Cancel Licenses and Permits 

Cancelling any required local, state, or federal business licenses and permits that were obtained is a really important step to be aware of if you want to know how to dissolve an llc. Notify industry-specific regulatory agencies as needed. This helps avoid any compliance issues.

8. Close Business Accounts 

Close all LLC business accounts including bank accounts, credit cards, accounting software, domain registrations, and business services subscriptions. Transfer any remaining funds to members.

9. Submit Articles of Dissolution 

Submit copies of your filed Articles of Dissolution to the state to confirm the dissolution process is complete. This officially terminates your company’s legal existence.

10. Maintain Records

Keep company records and tax filings for at least 7 years as required by the IRS. This includes financial statements, operating agreements, meeting minutes, asset distribution records, and other important company documents.

11. Issue Dissolution Certification

Creating a dissolution certification that members can retain provides further legal proof the LLC no longer exists. It certifies assets were distributed and debts were settled.

Different types of Dissolution 

Now that you know how to dissolve an llc, let’s check out different types of dissolution. 

1. Voluntary Dissolution 

A voluntary dissolution is when the LLC members choose to dissolve the company. Reasons may include the business being unprofitable, achieving a project completion, retirement of owners, or preparation for mergers. So, If you want to find out how to dissolve an llc voluntarily? The operating agreement is followed to make the decision. The LLC then completes the dissolution process.

2. Administrative Dissolution

An administrative dissolution is when a state government dissolves the LLC for failing to comply with regulations. This may happen if an LLC does not file required documentation or fees, pay taxes, maintain a valid business licence, or is inactive for a period of time. The state will issue a notice of impending dissolution if violations are found. If the issues are not resolved in time, the state administratively dissolves the LLC against the members’ will. 

3. Court-Ordered Dissolution 

A court may order the dissolution of an LLC as part of a legal ruling or judgement. Reasons include member disputes that cause operating agreement deadlocks, mismanagement of funds, or fraudulent activity. If you want to find out how to dissolve an llc with court order, members or creditors affected by the situation can petition the court to judicially dissolve the LLC. If approved, a court will issue a dissolution order and appoint a receiver to oversee paying debts and distributing assets per court instructions. 

Conclusion 

Knowing how to dissolve an llc is a must when you want to shut down your business. If you don’t know the process, you’ll be responsible for paying taxes, yearly fees, and other legal things that come with being a business owner. Over time, late fees and penalties will mount up. Before you go, make sure to wrap up any loose ends. Planning for an LLC dissolution before it occurs is the best thing to do. 

Frequently Asked Questions 

Q: How long does it take to dissolve an LLC? 

A: The dissolution process typically takes around 6 months or longer to fully complete all winding up procedures.

Q: Does dissolving an LLC protect owners from liability?

A: Yes, formally dissolving relieves LLC members of ongoing liability. 

Q: Can you reopen a dissolved LLC?

A: It may be possible to rescind the dissolution if it was recent. You would have to start over with a new filing for reinstatement. 

Q: What happens to business assets when dissolving an LLC?

A: Assets must be used to pay off any LLC debts and obligations first. 

Q: Do LLC members have to pay taxes on asset distributions?

A: Asset distributions are generally not taxable. But any unpaid income taxes and tax filing obligations still need to be handled.