Reasons for Voluntary Dissolution of LLC

By Larissa Bodniowycz, J.D.

Reasons for Voluntary Dissolution of LLC

By Larissa Bodniowycz, J.D.

Once a limited liability company (LLC) is formed, it continues in existence until its owners, called members, decide to dissolve it. Dissolution is the method of formally terminating a company's existence. It can be either voluntary or involuntary. It is voluntary if all the members decide to end it. Plus, it is involuntary if a court orders a business to dissolve over some or all its members' objections. State law generally governs this procedure.

Coworkers sitting around a table together

Reasons for Voluntary Dissolution

There are a number of events that can trigger this process from occurring. The following are a few of the most common ones.

Triggering Event

An event may occur that the LLC's articles of organization or written operating agreement identifies as a trigger. In this case, the members have provided for automatic closure upon the occurrence of a certain event, such as the death of one of the members, filing for bankruptcy, or the loss of an asset. Once the event occurs, the business can begin the dissolution process.

Specified Date

The operating agreement may set out a specific date for this. If so, the members have only intended for the company to last for a set amount of time from the beginning. Upon that date, they would begin the closure process.

A Vote in Favor of Dissolution

Members may want to end the business for a variety of reasons: for example, if the company is no longer profitable, if there is internal conflict among themselves and the managers, or if the members simply want to move on to new projects, then it might be the most appropriate thing to do.

If these individuals wish to undergo this process, they can call a vote, and if the required percentage of owners vote in favor of it, the LLC will shut its doors. The required percentage is specific to each company and depends on the rules set forth in the applicable state laws, the articles of organization, and the written operating agreement.

No More Members

An entity may voluntarily dissolve if it no longer has any members. This may occur if the sole owner passes away. However, sometimes, their interest passes to an heir, successor, or assignee depending upon applicable state laws and the provisions of the operating agreement.

Dissolution Process

Even when it is voluntary, it is important to follow proper procedures set by state law and the operating agreement to dissolve the company and wind up affairs. Following the proper procedure helps companies avoid excess taxes and fees and protects the members from personal liability for remaining professional obligations.

State law and the LLC's governing documents detail the requirements for dissolving and winding up affairs. Typically, dissolution requires a written record of the decision to dissolve; the winding up of affairs, which includes tasks such as paying off debts, accounting, and distributing any remaining assets; and the filing of articles of dissolution with the Secretary of State.

Depending on the circumstances regarding your entity's operations, you have been determined that the next step is to close your business. If so, consider your options and understand your state's rules and regulations before doing so.

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