How to Liquidate an LLC

by Salvatore Jackson
Liquidating an LLC is a lengthy process.

Liquidating an LLC is a lengthy process.

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According to the U.S. Department of Labor, about 17 percent of small businesses fail within the first five years of operation. When an LLC closes, its assets are liquidated and used to pay LLC creditors, and any remaining funds are distributed to LLC members according to their ownership stake. This process of liquidating an LLC is called “winding up,” and must be completed before the LLC can be terminated.

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Step 1

File a notice of winding up with the state agency responsible for registering business entities. A notice of winding up puts all businesses on notice that your LLC will soon be dissolved. Additionally, the LLC must inform businesses with which the LLC already has existing contractual relationships that it will be winding up. The LLC must not take on any new business after filing notice of winding up and informing existing contractual partners.

Step 2

Check the LLC’s operating agreement. If your LLC has an operating agreement, it will typically provide a procedure for liquidating the LLC's assets and distributing any remaining profits. If there is no applicable provision in the LLC’s operating agreement, the LLC statute in the state where the LLC is organized will provide a procedure for paying LLC creditors and members.

Step 3

Determine the LLC’s assets and debts. An accounting of all LLC assets and debts, as well as the identity of creditors, is an important step in winding up the affairs of the LLC.

Step 4

Sell off LLC assets and use the proceeds to pay LLC creditors. If there are any assets remaining after LLC creditors are paid, follow the procedures in the LLC operating agreement or the LLC statute pertaining to paying LLC members. Default statutes will generally require the repayment of any investment made by LLC members, and then a distribution of any remaining profits according to the percentage of ownership in the LLC.

Step 5

Determine if your LLC owes any taxes or franchise fees. Before dissolving, an LLC must pay any taxes or franchise fees owed. The taxation department or secretary of state in the state where the LLC is organized can generally provide assistance in determining any remaining tax or franchise fee owed.

Step 6

File an articles of dissolution document with the state agency responsible for registering business entities. This document should be filed after satisfying any debts owed to the state. All LLC members must sign the articles of dissolution form. Some states do not charge a fee for filing this document, while others can charge up to $50.