How to Liquidate an LLC

By Salvatore Jackson

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.

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.

Ready to start your LLC? Start an LLC Online Now

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.

Ready to start your LLC? Start an LLC Online Now
Maryland's LLC Dissolution Law


Related articles

Legal Ramifications of Dissolving an LLC

A Limited Liability Company (LLC) is an organization that combines features of a partnership and a corporation. Like a partnership, the owners of the LLC pay tax on the business’s income. Also like a partnership, an LLC has few formal management restrictions. Like a corporation, an LLC protects its owners from being personally liable for the business’s liabilities. LLCs are governed by state law, so if an LLC dissolves the process is defined by the state where it was organized. While there are general trends that are consistent, regardless of where the LLC is located, the specific steps for dissolving an LLC will vary by state. Before dissolving an LLC, check the laws of the state where it is located.

How to Create an LLC for Investments

Limited liability companies, or LLCs, are flexible business entity structures that have characteristics of a corporation as well as a partnership. However, each state can impose different requirements to create a LLC, though in most jurisdictions, the formation process is similar. Moreover, most state laws allow you to form a LLC for any legitimate purpose, such as to hold and trade investments.

What Happens When a LLC Dissolves?

An LLC, or limited liability company, operates according to the statutory rules of the state where it is registered. Although each state has its own individual laws relating to the setting up and operation of LLCs, most apply similar rules when an LLC dissolves. In addition to the legal rules, the members of an LLC often enter into an operating agreement when they set up the company; this agreement usually contains specific provisions for dissolving the LLC.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Dismantle an LLC

A limited liability company, or LLC, is a business designation that allows its owners, known as members, to maintain ...

How to Undo an LLC

A limited liability company, or LLC, is a popular business structure among small business owners. An LLC is created ...

How to Collect a Judgment in Michigan if an LLC Is out of Business?

A limited liability company is a business entity that protects its owners, known as members, against personal liability ...

Can a Creditor Collect if an LLC Is Dissolved?

Circumstances might arise under which a creditor can collect debt from a dissolved limited liability company. As such, ...

Browse by category
Ready to Begin? GET STARTED