A Limited Liability Company is an amazing tool by which to conduct business especially from a tax and liability perspective. Unfortunately (or fortunately), some situations arise which may cause the need to dissolve a LLC.
Some scenarios include:
- Planned expiration in which the LLC was only going to be valid for a set period of time;
- The business purpose has been completed and thus is does not make financial or legal sense to continue to pay taxes and fees associated with continuing the limited liability company; or
- Member disagreement (yes those occur frequently), among other valid and considerable reasons.
No matter what type of LLC, and there are advantages to different types, or why you are choosing to dissolve a limited liability company, there are steps that must be taken to avoid fines, taxes, and a ultimate loss of goodwill in the industry which could obviously prove to be detrimental to your bottom line in the long run.
Shameless plug… Whether you are winding up and dissolving a LLC in any state (we have guides for Texas, Delaware, New York, Wyoming, Florida, California), it will seem like a daunting task, but it is simple with a basic knowledge of the law and common sense.
That being said, it is always best to utilize the knowledge and expertise of an experienced business lawyer when deciding the appropriate steps to take in dissolving a LLC in your state. Take the first step here: https://mollaeilaw.com/start
Though some states have their own methods, the totality of the process is generally the same absent a few words and linguistic hurdles.
As with any major business decision, your biggest concern with dissolving a LLC should be:
- How can I do this efficiently without undue burden or delay;
- How can I avoid getting in trouble with the IRS; and
- How can I avoid getting sued? Below are steps that will assist you with all of the above in hopes that you are able to wind up your business effective.
So…how do you dissolve a LLC? While the actual black-letter steps are small, the processes and things to consider are great and varied.
Check The Article Of Organization For The Limited Liability Company To Provide You With An Outline And Any Steps As To Dissolution.
Your articles of organization are the first place you need to look when determining how to dissolve your limited liability company.
In the beginning, if you worked with a legal professional in determining how your business was to be set up, there should be a clause as regarding the dissolution of the company.
Each set of Articles are different; however, reviewing the process you initially put in place will be beneficial. This document will be accessible through the Secretary of State in your particular state if you don’t have a copy on hand.
Inform Necessary Parties Of The Dissolution
Though anyone familiar with the dissolution of a LLC will likely already be on notice that the limited liability company is dissolving, it is important to think about whether there are any other parties that need to be involved in the dissolution process -whether through proxy voting or simple notice.
An individual finding out that their share of a company has been deemed insignificant enough to either be an oversight or outright disregarded is a surefire way to a lawsuit.
At the end of the day – you have to pay your debts. Disregarding the possibility or threat of bankruptcy, you must pay your creditors, vendors, employees, etc., prior to formally dissolving your LLC in order to avoid undue delay and/or the threat of litigation.
Remember, others get paid prior to your LLC members and you receiving any assets, so it is important to handle any outstanding costs prior to dissolution.
Pay Any Outstanding Taxes and Inform Uncle Sam
Dissolving a LLC is a business decision and the worst part of a business is generally paying taxes.
Ensure that you have ceased operation prior to the end of the fiscal year to avoid paying next years taxes for a LLC that you will not be operating; however, understand that you will still need to file one additional tax return for the business you conducted in the previous fiscal year.
There are tax implications with the creation and dissolution of a business.
Our firm does not portray itself as a certified tax law firm; though we will do our best to advise you as to how your dissolution will affect your business in the eyes of the IRS as well as potentially you personally.
If you have any tax concerns regarding the dissolution of your business, please give us a call or we would be happy to refer you to another professional. Lastly, ensure that you are up to date on your tax payments to avoid any tax penalties that you will not be expecting at a later date.
Pay Assets To Members If You Have The Funds – Technically You’re A Creditor
If after it is all said and done, the LLC still has remaining asset and funds, ensure that those assets are distributed to the members as they have a legal right to them.
Technically, members are creditors to the LLC depending on how the LLC was created and the capital provided by the members.
Again, one of the top concerns should be not being sued and the dissolution stage is not the time to be selfish or sneaky.
File The Articles Of Dissolution
Dissolution is always going to be conducted on a state level. First and foremost, you are required to file Articles of Dissolution with the Secretary of State.
This should be the only form that must be filed assuming that the dissolution is voluntary.
If the dissolution is not voluntary, please contact our office for a consultation as to the appropriate steps to take to ensure the business is dissolved appropriately.
Upon the Secretary of State approving your Articles of Dissolution, your LLC is technically dissolved; however, you need to ensure that you have engaged in the above actions to avoid fines, penalties, and possibly the threat of business litigation.
You are “technically” supposed to pay off all of your debts prior to filing the Articles. We use the word technically because while you may not get knicked for waiting a few weeks to pay off your debts, if the creditors come calling you could have potential problems.
Dissolve Your LLC In All States Where It Had A Place Of Business.
Last but not least, make sure that you dissolve your LLC in all of the states where you housed a place of business.
This is predominantly only a concern for larger business who has “headquarters” or “corporate offices” in many different states.
Many business owners make the mistake of foregoing this step and it cost them more than money, though money is the major aspect of the penalty.
Forgetting to dissolve your business in each state in which you have a place of business not only shows a lack of business savvy – it also may hinder your prospects of conducting business in that state in the future.
What To Do Next
Our law firm has had the opportunity to assist hundreds of companies dissolve their LLCs in California.
While the process may seem simple, there are various steps that must be taken to dissolve your company efficiently, avoid issues with the IRS, and avoid the threat of litigation.
Take the next step and book a call with us here or call us today at 818-925-0002 for a consultation as to the business implications of your dissolution and any other business concern you may have in the future.
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