How To Dissolve A Limited Liability Company
In order to form a limited liability company (LLC), certain requirements need to be met. Terminating or dissolving an LLC must also meet additional requirements and procedures. How does one dissolve an LLC? Let’s discuss.
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When is an LLC Properly Formed?
In order for one to properly understand the dissolution of an LLC, one must first understand what an LLC is and how it is properly formed. An LLC is a business structure that is created in order to protect the personal assets of the members in case the business entity is sued. In short, there are four main steps that one must follow in order to form an LLC:
- Choose a business name that is available in the state in which the LLC is to be formed.
- File the articles of organization, accompanied with the filing fee in the state in which the LLC is to be formed.
- Set out the rights and responsibilities of the LLC in the document called an ‘operating agreement’.
- Obtain the proper licenses and permits required for the LLC.
Why Should an LLC be Dissolved?
As mentioned above, the formation of an LLC requires the proper filing of documents in the state in which the LLC was to be formed, with the Internal Revenue Service (IRS), and with local taxing or licensing authorities; this process gave public notice that the LLC is conducting business.
If one wishes cease to conduct business under the LLC, dissolving the LLC would terminate the LLC’s responsibility to file taxes, pay state fees, and report earnings. Dissolving the LLC would also terminate the LLC’s ability to accumulate debts.
Is a Vote Required to Dissolve an LLC?
Typically, as stated above, while forming an LLC, the members will form what is called an ‘operating agreement’ and a ‘certificate of formation’. The agreement and certificate will outline the procedure for voting on a dissolution. However, not all LLCs have an operating agreement; in those instances, one must follow the procedure outlined in the statutes of the state in which the LLC is formed.
In Texas for example, the process of dissolving an LLC is called the ‘winding up’ of the LLC. The Texas Business Organization Code contains dissolution provisions that requires the majority vote of all the LLC members to trigger the winding up of an LLC. This vote should be recorded in the LLC’s official minutes.
Should Creditors, Taxing, and Licensing Authorities be Notified of the Dissolution?
Once the vote has been made to dissolve the LLC and it has been recorded in the minutes, the next step would be to notify all creditors that the LLC is being dissolved and will cease to exist. Creditors should be notified that the dissolution is going to occur and where the creditors can submit claims; the deadline to do so is defined by state statute.
Once creditors have been notified, state and local taxing authorities must be notified in order to determine whether the LLC has any outstanding taxes owed. It is important to notify agencies that provided the LLC with licenses and permits of the dissolution.
What Final Paperwork Must be Filed?
Once the above-mentioned steps in the dissolution of the LLC have been completed, the LLC must file the ‘articles of dissolution’ with the state in which the LLC was formed – this is usually filed with the secretary of state.
It is monumentally important to remember that if the LLC is registered in any other state, the same documents must be filed as per the states’ requirements.
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