Why Dissolve a Limited Liability Company

By Laura Payet

Why Dissolve a Limited Liability Company

By Laura Payet

To dissolve a limited liability company (LLC) in most states, you must file the appropriate form, usually called Articles of Dissolution, with the appropriate state office. Thereafter, the LLC no longer exists as a legal business entity. There are a number of reasons why it might be necessary or desirable to dissolve your LLC before moving on to your next business venture, ranging from simple unprofitability to intractable conflict among the members.

Man looking at papers at desk

Unprofitable Business

If your business is unprofitable or you just want to move on to something else, it is a good idea to officially dissolve your LLC and wind up its business. Taking this step frees you from the ongoing responsibility to file annual reports and pay required annual fees and taxes as well as from incurring substantial penalties if you fail to do so. If you share the LLC's ownership with other members, you must have their consent before you can proceed. Note that an LLC's members can typically dissolve an LLC at any time, for any reason, by a unanimous vote. Alternatively, the LLC's operating agreement may specify a process to follow for dissolving the company, including the number of members who must agree.

Mission Accomplished

Your LLC's articles of organization include a statement of your business purpose. Often that statement is broad and general, but sometimes an LLC forms for a narrower, more specific reason. If your LLC has achieved this business purpose, it makes sense to dissolve the LLC. Again, doing so means that you and any other members are no longer responsible for annual filings, fees, taxes, and potential penalties. In addition, the operating agreement may require the LLC's dissolution when or if a particular event occurs.

Member Death or Bankruptcy

If a member dies, enters bankruptcy, or otherwise becomes incompetent, the LLC's operating agreement or state law may provide for dissolving the company. Note, however, that the remaining members may choose to continue the business. If, for example, the operating agreement requires the LLC to dissolve under these circumstances, the surviving members may be able to vote to amend the agreement by following the agreement's amendment process.

Member Disagreement

If the members are unable to agree on important aspects of the LLC's business operations, it may be time to dissolve the company. Some common areas for disagreement may include the amount of time members devote to the business, methods for sharing profits and losses, and new directions the business may take. Under these circumstances, it is preferable for all the members to agree to dissolution, but if the members cannot reach consensus on dissolution, you may be able to petition the state court individually to dissolve the company if you can demonstrate that the members with the authority to manage operations are acting in a way that is oppressive and potentially harmful to your interests.

Unlawful Activity or Management

If you discover that your LLC is engaged in illegal business activities or that the other members are using the LLC for fraudulent business dealings, you can file a petition with the state court requesting dissolution of the LLC.

Next Steps

When you decide to dissolve an LLC, for any reason, it's important to settle or resolve all of the business's outstanding debts and obligations as part of the process. Otherwise, you and the other members may find yourselves personally liable for those debts and obligations. You must also prepare and file the proper forms with the state where you created your LLC. You can complete these forms on your own or with the help of an online service provider to make sure that everything is done right the first time.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.

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