How to dissolve an LLC?
In this section, I’m gonna talk about how to dissolve an LLC?
Maybe you started a business and you realize that being a business owner just isn’t for you or maybe you started a business with some partners.
And you realize that your partners are just a couple of turd bags.
Whatever the reason behind it there are a few steps that you need to take to dissolve an LLC.
6 Steps to dissolve an LLC
Although the termination of LLC procedure varies State to State.
But following are the steps to dissolve an LLC which is almost applicable to all the States.
In accordance to avoid any error which may cause financial damage, you must follow the steps.
While following this procedure the probabilities of financial loss will become minimized.
1. Approval by the members of LLC
In order to dissolve an LLC, the members of the LLC must arrange the winding up meeting in which they express their consent and vote for the dissolution of an LLC.
Note: This procedure is not required when an LLC terminates itself through procedure of expiration or accomplishment of the specific purpose. Make sure you have scanned the operating agreement of your LLC.
2. Notices to the creditors
Once the members have voted for the dissolution, then before going for another procedure it will be better to serve the notices to all the creditors of the company in order to notify them for winding up of the company.
In those notices, you must have to mention the details and explanation of the winding up, the liabilities and the rights of the members/creditors alongwith the interest.
You may serve them the notices via:
- By official Mail
- By Advertisement in Newspapers
- By Post
3. Filing of Articles of Dissolution
After the notices procedure and before the settlement of claims, Article of Dissolution or Certificate of Dissolution must be filed before the concerning department of the State in which the business was registered. It will secure the time to serve the notices and wait for their response which could take time.
Note: Filing the AoD/CoD varies State to State. States have their own procedure to file Certificate of Dissolution. Some States require filing of a certificate after the completion of the entire procedure i.e. after the settlement of claims of creditors, after the payment of taxes etc.
4. Settlement of claims
If you have notified your company’s creditors and they reserve any monetary claim regarding the debts or interests then make sure you have settled their issues or claims before distribution of the assets of the company. Such claims will be settled by the company or responsible members even otherwise you could be personally liable to the creditors and you may be sued in your personal capacity.
5. Payment of Taxes
After the settlements of the creditor’s claim , you have to make sure that you don’t leave any tax obligation whether it amounts to the Federal level or the State level. Go to the IRS and fulfill the requirements in order to file the tax forms of your LLC.
6. Distribution of company’s assets
Once all the steps mentioned above are carefully followed and there’s nothing left regarding the claims, taxes, bills etc. then you are free to distribute the assets of the company in accordance with their shares and rights. Before distributing the assets, make sure all the liabilities of the company have been succeeded.
Note: The assets of the company must be distributed at the very end of the procedure so that you may secure your undue financial obligations.
LLC Dissolution Agreement
First things as with most things having to do with your LLC check your operating agreement.
However, an operating agreement can be considered as LLC Dissolution Agreement.
Your operating agreement might describe how and when or the process by which the LLC can be dissolved.
If you don’t have an operating agreement or if your operating agreement is silent on the issue then you want to check the statutes in your state because every state is going to have a statute that describes how to dissolve an LLC or what requirements there are for doing so.
For example, Colorado requires that all of the members consent for termination of an LLC.
So in Colorado if you have an LLC with multiple members all of the members are going to have to consent to it.
If you all want to voluntarily close the company and then depending on the requirements of your operating agreement or your state’s laws, you’re most likely going to need to have some kind of a vote or some kind of written documentation that all of the members have consented to this.
Even if you’re the only member you as the one member have to consent to dissolving an LLC and you want some sort of written documentation of that.
So whether it’s a formal meeting with you and the other members or just a written document saying that you as the only member or the group of you as all of the members have agreed to dissolve the LLC you want to make that documentation.
Upon dissolution of an LLC who gets paid first?
Once everybody is in agreement on it, then you want to start paying off any debts of the company and you have to determine that upon dissolution of an LLC who gets paid first.
If there are outstanding debts creditors that still need to be paid off that need to be paid before you make any final distributions to the members.
You’re also going to want to check your operating agreement and your state statutes because there might be some sort of priority of who gets paid off.
For example, if one of the members made a loan to the LLC, typically a member who is a creditor is going to be paid off after other creditors that priority to pay off a member who made a loan to the LLC is going to be lower than the priority of paying off a bank.
If your company doesn’t have any debts there are no creditors then at that point what’s that’s all taken care of you can make the final distribution.
So for simplicity’s sake, let’s say there are two members and there’s $1,000 left in the company.
All of the company’s assets are $1,000 in the bank and you each own fifty-fifty of the company then that final distribution is going to be five hundred to one, five hundred to the other.
Then you’re gonna want to file the cancellation paperwork with your state in Colorado.
This is called a statement of dissolution, other states might call it something else but every state is going to have some paper that you need to file to dissolve the LLC officially with the state.
And then lastly you’re gonna need to wrap up the LLC’s taxes just because the LLC is dissolved doesn’t mean you get out of paying taxes for that last year.
So you need to whenever your tax time comes up.
Whether it’s in April or you have a different tax year you file.
That final tax return pays whatever taxes you owe to the IRS and whomever else and then on that tax return you can indicate that this is going to be the final tax return of the company.
So for most companies that’s going to be basically the process of dissolving an LLC for some situations that might be more complex.
So because of that it’s always good to work with an attorney when you’re trying to dissolve an LLC if there are multiple partners.
If you’re a single member LLC, you’re the only owner the process is a bit easier and it’s really easy if you don’t have any debt then there’s really nothing to worry about.
But either way at least checking with an attorney who’s licensed in your state to assist with the termination is going to be a good idea if you’re in Colorado and want some assistance dissolving your LLC or anything else having to do with your LLC.
How to close a company?
So we know how to open a company.
Have you actually closed a company?
Let’s say yeah.
I’ll see you know working on that anymore whatever you have to pay taxes on it to the government.
They cannot do anything and how do you just close it? That was the process thing with an LLC or corporation.
You typically have to begin by like a shareholder.
What’s called a winding up process?
Where do you see debts that the company owes to outside vendors?
Debts that the company owes to shareholders or members distributions that are due to shareholders and members and you could do that yourself or typically you’d hire like an accountant or somebody to kind of do what’s good like a true up to see where things stand, who gets what and how much is owed.
And then you would.
In New York State you do have to file a dissolution with the state in order to kind of essentially close it out, take it off the books make it inactive because technically speaking if you are a corporation in New York State you could never do any business, no costs, no revenue, nothing.
There is a minimum tax that you’re going to have to pay or that the company will have to pay as long as it’s still in existence.
So you know as a practical matter people in companies all the time and just walk away and it just sits there and eventually what will happen is the state.
At least in New York State, the state will render it inactive and dissolved by law at which point it just goes away but in order to do it.
So you don’t owe anything after the dissolution.
You have to file that paper with the secretary of state which is the same place that you filed the papers to start calibration right.
LLC Owner Liability After or Post-Dissolution
I’ve been getting a lot of questions about
Where do you dissolve an LLC?
What happens when you dissolve the LLC?
What happens in terms of the personal liability of the prior LLC owners?
So we’re going to talk about dissolution.
How do you go about the solving LLC?
And what happens?
Should you improperly dissolve it?
Should you intentionally dissolve it?
Before I get into that, I need you attention.
Dissolving an LLC really encompasses a proper procedure whereby you dissolve a LLC by first paying off known creditors and in your operation of the business.
You should know the following questions
Who your creditors are?
What do you owe them?
Only then you can distribute the assets of the company.
The money that was put in by each individual LLC owner as well as the actual hard assets and then the thirdly the profits get distributed according to the share of ownership by each LLC member.
Remember, always go by your operating agreement.
You always should have one especially if you’re not a single member LLC.
This will indicate the voting rights and the ownership rights.
All of those come into play are very important.
When you go to dissolve the LLC you’re going to want to know that
What share is attributable to each individual?
So let me just briefly talk a little bit about,
What happens if you close your business?
You just shut the doors and you know about existing creditors.
If you do that a creditor will come after you and a creditor will connect you personally.
You could be personally liable up to the amount of the profits and assets that were distributed to each LLC member.
So there’s no more LLC but you knew about a creditor claim.
The creditors can now come after you.
What I typically advise here to do is to wait till after the statute of limitations passes on any potential claim before you dissolve the LLC.
That’s why it’s important to have a lawyer on board who works with you who you can call and ask questions and get some feedback.
You know you’re on the edge and you’re not sure exactly what to do.
The creditor thing is pretty simplistic.
However I mean who you owe money you must know what kind of a potential claim can be brought against you.
If you don’t then you pick up the phone you call your attorney your attorney advises you and tells you how long the statute limitations is and hopefully you’re going to pay this creditor.
But if you have an issue with the creditor and don’t think that he or she deserves to be paid for whatever reason, you’ll want to know what the statute of limitations is.
You can let it run before you dissolve your LLC.
If you don’t know about a creditor’s claim and in good faith you dissolve your LLC, you’re going to be okay afterwards typically they can’t come after you on a personal level.
But if you’re aware of a creditor’s claim and you closed the LLC or if you’re aware of something coming down a potential claim or a potential lawsuit and you close the LLC before that is resolved then it comes to fruition and they’re going to come after you personally, if they find out about you later on dissolving an LLC.
Remember some States have a requirement that we must send out notice to creditors at the time we’re dissolving an LLC to all existing creditors that we know about.
So they can then file the appropriate claim against your company.
So this is important work you have to do is to.
- Make sure you dissolve properly by way of the operating agreement.
- Make sure the voting rights are in place so you can properly vote to dissolve the LLC.
- Once you dissolve you pay back the principle that was contributed by each member you distribute the hard assets and the monetary profits according to the ownership interests of each LLC member.
- After you pay off all existing creditors and don’t forget to send out your notice you know find a lawyer keep them on boards a lawyer is not going to nickel and dime you for every phone call that you make to the person I have a habit of getting my clients my personal phone number so they.
Dissolution of an LLC Itself?
Well generally this is going to be controlled by the operating agreement.
Any operating agreement is going to have general standards by which the type of conduct constitutes or violates some rules causing dissolution of the Limited Liability Company itself.
So any LLC member dissociating from the firm calls for the dissolution of Limited Liability Company and the winding up of all its affairs and the distribution of its assets.
The operating agreement is going to have by sale provisions in it that provide for what the responsibility of the LLC is in purchasing the interest of the dissociating LLC member and what are the LLC members rights to receive their interest in the LLC upon this association.
But it will generally also provide for the continued operations of the LLC in the event of this association of a member.
But on top of that and on top of simply the leaving of an LLC member the operating agreement can lay out any number of provisions that specifically give rise determination of the LLC.
One example would be when the LLC is formed for a specific amount of time or for a specific purpose.
The conclusion of that time period or that purpose could again give rise to dissolution of the LLC and winding up of its affairs.
How Does LLC Protects Assets?
I’m going to be talking about asset protection.
This is what you need to know as you build your businesses, invest in real estate as you grow your assets; you need to protect them if you decide not to use an entity.
Some people think it’s too expensive, for whatever reason you can start business as a sole proprietor you’re operating in your own name and the problem with that is you are exposed for every claim.
You are personally responsible for every claim.
So for example you’re a plumber and you start business as a sole proprietor.
You go out and do a job and something bad happens at someone’s house they can sue you.
As the sole proprietor meaning not only the plumbing business assets like equipment are exposed but all of your personal assets like the money in your bank account, the equity in your house.
All of that is exposed to a claim from someone suing the business.
So at the start we want to set up that good entity we mentioned Single Member versus Multi-member LLC protection.
And it’s important to realize that there’s a trend across the country to deny protection to the single member LLC.
Let’s look at why we want to use a state that does protect the single member.
The idea behind the charging order is to protect the innocent member.
We want to structure things that take advantage of the LLC and the charging order protection.
Questions for limited liability companies receiving notice of grounds of administrative dissolution or revocation.
If you received a notice of grounds postcard in the mail and you have questions about the notice then you are on the right hub.
If you’re a registered agent for the company then forward the notice to the company’s principal office.
Why did I get a notice?
You are missing at least one annual report.
You should have one annual report on file for every year following the year you formed your company all the way through the current year.
For example, if your company started in 2014 you should have three annual reports on file.
The first annual report was due in 207, the second was doing 2018 and the third annual report was due in 2019.
If you received a notice you are not current on the annual report filings.
How can I find out which report is missing?
1. You just go to the website at www.lp.com.
2. Then click on search for business under the business registration header.
3. Enter your company name in the search criteria.
For example when we use the company test, a listing of entities will appear then scroll down the list until you find the entity you were looking for.
4. It will indicate filing an annual report.
5. Click the computer screen icon to file an annual report.
6. You will see a listing of previous annual report submissions.
7. Count the number of annual reports that you have on file.
8. Pay attention to the date file to determine which year may be missing.
Opening the actual report by clicking the icon will allow you to see which year the report was closed.
Can I ignore this notice?
No if you received a notice it means your company is still active on the records.
You don’t have to file an annual report but you do need to close it by filing articles of dissolution.
Articles of dissolution are the form that officially closes the company on the Secretary of State’s records.
Do I still have to file the report?
Yes, the annual reporters do regardless of the activity level or profit level of the LLC.
The annual report is not a financial statement.
It is a separate report that all LLC’s are required to file with the Secretary of State filing the tax return with the NCA Department of Revenue does not satisfy this requirement.
What if your LLC is not active?
If you want to maintain the LLC and the rights to the name, you must file an annual report and pay the fee.
There is no inactive status on the Secretary of State’s records.
How long do I have to respond to the notice?
You have 60 consecutive days from the date of the notice.
If the notice is dated May 14th you have until July 13th to file the missing reports.
What happens if I don’t respond?
The entity will be administratively dissolved.
Entities may only conduct the business to wind up the affairs of the LLC in accordance with general statute.
What if I can’t afford the fee? Can I pay in installments?
No, the entire fee is required at the time the report is submitted to this office.