The big advantage of a limited liability company (LLC) is that the LLC's structure shields its members from personal responsibility for the business's debts and liabilities. But if you don't properly wind up the company and dissolve it with the relevant government entities, you could lose that protection and find yourself on the hook for ongoing obligations such as unpaid debts and state fees. While it's not often as much fun closing down a business as it is starting one up, there are several steps you must take to protect yourself.
1. Vote to dissolve.
Closing down an LLC is commonly known as dissolving it. This process generally starts with a vote to dissolve by the owners, known as members. Check your LLC's operating agreement for the voting procedure as well as any other instructions it contains about how and under what circumstances the company should dissolve. If your operating agreement provides no guidance, state law establishes the framework. State LLC law specifies, for example, whether the membership's dissolution vote must be unanimous or a simple majority. Record the vote and obtain signatures from all the members voting to dissolve. You may need to file this with the state later.
2. Give notice to creditors.
You must give the LLC's creditors notice that it is going out of business so they can submit claims for any outstanding amounts the company owes them. Many states have rules specifying how to give this notice and how much time you must allow creditors to submit claims. This time period can range from 90 to 180 days, so check your state laws.
3. Inform others.
Though not legally required, it's good practice to let your clientele know that you are closing down. You should also inform other companies you do business with, such as vendors and service providers, and cancel any ongoing contracts or licenses. Also notify your employees if you have them. If you have more than 100 workers, you may have to comply with the federal Worker Adjustment and Retraining Notification Act, which requires 60 days notice to workers who will lose their jobs.
4. Pay debts and distribute assets.
Once you know the extent of your LLC's outstanding debts, pay them completely. Note that you cannot distribute assets among the members until the business pay all its obligations. Before distributing any remaining assets, consult the operating agreement, which may specify what share each member takes. If you transferred any assets into the LLC's name, such as a car, be sure to transfer them back.
5. File final tax forms.
Part of dismantling an LLC is filing final tax forms with both the Internal Revenue Service (IRS) and the state revenue department. Some states require you to obtain a certification from the Department of Revenue confirming that the LLC is up to date on all its state taxes before you can dissolve the company.
Regarding federal taxes, the IRS website has a helpful checklist for closing a business that lists federal tax forms you may need to file. For example, you may have to submit final employment tax forms, make final tax deposits, and issue final wage and tax statements to any employees. In addition, you also have to report any sales of assets made during the winding-up process.
6. File articles of dissolution.
Finally, just as you filed articles of organization with the appropriate state office when you began your LLC, when you close it down you must file articles of dissolution with that same office. Some states may also require a certification from the Department of Revenue and documentation of the membership's resolution to dissolve. An online service provider can help you prepare and file all the necessary paperwork. If your LLC is authorized to do business in multiple states, be sure to notify these states that you wish to withdraw or cancel that authorization.
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