A limited liability company is legally considered a registered citizen of the state where it filed articles of organization. In order to cease operations, the members of the company must surrender the company's authority to do business by filing articles of dissolution with the secretary of state. Filing dissolution papers is only one aspect of closing down an LLC, however. Members should refer to the state's statute dealing with limited liability companies and follow the exact provisions of the law to wind up affairs and to avoid personal liability for debts and lawsuits that may arise after dissolution.
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Call a meeting of the members and vote to dissolve the LLC. Many states require a simple majority vote for dissolution. Some states require a two-thirds majority vote. A few states require all members to agree in writing to the dissolution. Check with the dissolution provisions of your state's LLC statute for the exact procedure the company should follow.
Pay all outstanding debts of the company and make provisions for any future obligations that may arise and of which the members are aware. State law will require the LLC to pay debts to the extent that the company has assets before any distributions are made to members. Members cannot simply close the doors and loot the company for their share of liquid assets. Failure to pay creditors first can lead to the members' being held personally liable for those debts after the company has been dissolved.
Close the LLC's employer tax accounts with the state and federal tax authority, if needed. Make sure all payroll withholding taxes are up-to-date. Contact the Internal Revenue Service to notify them that the company's employer identification number will no longer be in use. Members can be held personally liable for payroll taxes if not paid.
Distribute the remaining assets to the members. Close out each member's capital account and distribute any remaining assets in proportion to each member's ownership interest.
File articles of dissolution with the state. Articles of dissolution should be filed with the same state agency that accepted the company's articles of organization. In most states, this is the secretary of state's office. A dissolution template can usually be found on the state's website.
File final federal and state tax returns. Both forms will have check boxes in the header section where the LLC will indicate that the return is a final return. Distribute Schedule K-1 to members to indicate the proportion of company profits and losses the member should reflect on his individual tax return.
Check the state's LLC statute for dissolution notice requirements and the length of time during which a creditor can bring suit against an LLC after dissolution. Some states require an LLC to publish notice of dissolution in a newspaper. If notice is provided, it protects members against lawsuits after dissolution. Also note the statutory length of time a creditor has to bring a lawsuit against a dissolved LLC. It usually ranges from three to five years. If you were in the type of business where a subsequent claim could arise, plan accordingly.
Cancel bank, credit and insurance accounts, registrations, permits and licenses, if necessary. Finalize the company records and make provisions to store the records for up to seven years, in case of financial audit or legal action.
Tips & Warnings
- The procedure for closing a LLC is dependent on state law and any operating agreement that may be in place. Check both sources for specific dissolution provisions before adopting any course of action. Failure to follow the law in your state can lead to significant personal liability.
References & Resources
- Business.gov: Closing a Business
- FindLaw: A Road Map to Closing Down Your Business
- FindLaw: Checklist for Dissolution and Winding Up
- Citizen Media Law Project: Limited Liability Company
- Uniform Limited Liability Company Act
- SCORE: Business Tools
- U.S. Small Business Administration: Small Business Planner
- The 'Lectric Law Library: Business Entity Forms
- Jupiterimages/Goodshoot/Getty Images