How to Dismantle an LLC

By Lisa McQuerrey

A limited liability company, or LLC, is a business designation that allows its owners, known as members, to maintain limited personal liability for the actions of the company. Dismantling an LLC involves a number of steps that are similar to the process of closing any business entity. Members should review the LLC’s original operating agreement, which typically details the process for dismantling the LLC. If there is no agreement or no such provision exists, it falls to a majority vote of the members to approve the dissolution and to create a timeline for formal closure and dismantling.

Finalize Business Contracts

Once you decide to dismantle an LLC, stop taking new projects or orders and inform clients, customers and vendors of your plans to cease operations. Make plans to complete projects and finalize all invoices.

Notify Employees

Depending on your LLC employment figures and the regulations of the state where your company is based, you may be required through the Worker Adjustment and Retraining Notification Act to provide employees with 60 days notice of business termination. Before final business operations cease, you will need to pay employees all outstanding earnings and file final employee pension, payroll and tax paperwork.

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Notify Service Providers

You will need to give notice of your impending closure to companies and individuals that provide services to your LLC. This includes utility companies, office machine rental companies, suppliers and vendors. Settle all debt before finalizing the dismantling of your LLC.

Distribute Company Assets

You will also need to liquidate assets and divide proceeds among the LLC’s members based on the percentage of ownership each member holds. Disposition of assets should have been outlined in your original operating agreement. If no such provision exists, consider options such as a liquidation sale or liquidation auction. Once LLC assets have been distributed and all debt finalized, close out financial accounts including credit cards and bank accounts.

Complete Final Tax Paperwork

A final tax return should be filed with the IRS and potentially with state governing agencies, if required. You will need to report earnings, losses and detail how the LLC’s assets were distributed among members. All outstanding taxes must be paid before the LLC can be officially dismantled.

Notify Appropriate Governing Agencies

Once a final date of business has been established, notify local, state and federal business licensing agencies of your closure. Cancel business licenses and notify the U.S. Internal Revenue Service about discontinuing use of your tax identification number.

File Articles of Dissolution

Articles of dissolution officially cease the existence of your LLC. Articles are typically filed with the secretary of state. An LLC member can file the articles or a legal representative or document services company can file the articles on the LLC’s behalf. A copy of filed documents should be provided to each LLC member.

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Maryland's LLC Dissolution Law
 

References

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Can I Use a Bank Account After Dissolving an LLC?

Using your limited liability company's bank account after dissolution is essential to wind up the affairs of the LLC, but you cannot use it to enter into new business. An LLC is an independent business entity formed under state law, which also controls how an LLC comes into existence and how it goes out of business. By following the correct steps for dissolution, you will ensure that you have satisfied all the debts and obligations of the company.

How to Liquidate an LLC

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.

How to Divide an LLC

Even if you’ve only been in business a short time, dividing your limited liability company can be complicated, since there is no one-size-fits-all solution. An LLC is a hybrid type of business entity that mixes features of a corporation and a partnership, which makes it flexible. LLCs are formed under the authority of state law, and each state’s LLC law has its own provisions to govern breaking up an LLC. States even have different terms to describe this event – winding up, termination, cancellation or dissolution.

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