Dissolving an LLC? Here are the steps Involved

Napoleon

Feb 28, 2024 — 6 min read

Closing a business can be triggered by numerous reasons. It could be due to the death of the owner, disagreement between stakeholders, economic failure or government imposed. Whatever the reason may be, the process of dissolution can be daunting.

In this article, we will explain the reasons to dissolve an LLC and the steps involved in the dissolution.

What is LLC Dissolution?

In the United States, every business undergoes a legal process to be established as a business entity. This process may include acquiring permits and licenses for your business, meeting LLC compliance, business registration, and several others.

Now, when dissolving an LLC as well, owners need to notify the important authorities, legal experts, business partners, state government including all stakeholders involved, This process is called LLC Dissolution. LLC dissolution is the official process of winding down the activities of an existing Limited Liability Company.

What are the Possible Reasons For LLC Dissolution?

Loss of Business Viability: Dissolution may be an option if business is no longer viable. Many products or services are no longer in vogue and only new updated versions are patronized. Such businesses will have to close down to stop paying taxes as little or no profits have been made. For some businesses, maintaining operations is more consuming than profits. Owners would have weighed their options before attempting to dissolve an LLC.
End of Deal: Some contracts are based which means all involved parties will part ways after the deal has been sealed. It is advisable to close up the business to avoid incurring debts on services that are no longer in existence.
Bankruptcy or Fraud: Bankruptcy is a major reason why companies opt for dissolving the company. When there is no sufficient finance to operate the business, dissolution may be the best option. When a business is subject to fraud, the owners may decide to dissolve the company. It helps to maintain a good standing with trusted authorities.
Disagreement Between Partners: This happens in cases of multiple-owned businesses. Partners may no longer share the same values with the company which may lead to the fall of the company. Rather than experience a huge fall of the organization which may attract legal charges and incur debts, the proper dissolution may be advised.
The company is no longer permitted to operate in the US: Business is subjected to lawsuits and judgment from the authorities within which your business operates. Cime-related issues or compliance failure may attract state judgments to dissolve your business.

Steps To Dissolve an LLC

The decision to dissolve your business is the first step to business closure. It is important to follow proper measures for LLC dissolution to avoid legal debts and tax filing from the government.

During the establishment of the business, you filed for LLC Compliance and underwent the necessary process to get registered, it is wise to inform the government (both state and federal) of your dissolution.

1. Review and Organize

For multiple-owned LLCs, dissolving may be due to disagreement about unpleasant situations that may arise among stakeholders. Reviewing the dissolution decision over again is important to know if the situation can be managed.

If the dissolution is involuntary due to charges filed against the company by a client, suppliers, or government, stakeholders may have to review the situation and seek how best to manage it. This is because dissolving an existing organization is never a smooth and easy process, so all possible angles must be considered.

After considering all sides and you still want to proceed with the decision to dissolve the company, then you need to organize all necessary documents and prepare them for the process ahead.

2. Stakeholders Vote

A Voluntary LLC dissolution requires that all stakeholder agrees to the decision. As a company with two or more partners, all members need to cast a vote and follow the guidelines of dissolution outlined by the state for LLCs.

Once all members have cast their vote, if the majority votes for dissolution, then dissolution it is. This then leads to the next decision:

3. Informing The Rest of The Stakeholders:

Here is who the stakeholders are:

Employees: Employees are people who will be greatly affected by this decision. The need to notify them early cannot be overemphasized. You have to pay off debts and wages worked till the day of closure.
Suppliers: It is important to inform your supplier about your LLC dissolution so they will be aware and not produce materials in excess. Once they are aware of your business closure, supply of materials will stop and it would reduce their tax pay.
Insurance: If you work with an insurance company, they need to be notified, to dissolve all contracts and agreements you both share. This will help smoothen the dissolution process without a pending deal.
Government authorities: Notifying your state and federal government is as important as the dissolution process. You don’t want to experience business with debts and legal charges piled up for you.

The state authorities must be involved to stop ongoing taxes to properly dissolve your company. That way you’re in good standing with the authorities in your jurisdiction in case you want to start another business soon.

4. Get Tax Clearance

Tax clearance means that you have been affirmed by the government to have paid all business taxes and filed all tax returns. Not all states request for tax clearance but if your state does, you have to receive a tax clearance before the proper dissolution of your company.

For example, states like Michigan and Tennessee, require you to submit your tax clearance request before dissolving your business.

5. File an Article of Dissolution:

An article of Dissolution can also be called a certificate of dissolution or Certificate of Cancellation. It is a document that informs the state of your decision of dissolution and a request to grant your decision.

To obtain this form or documents, visit your state corporate division website.

6. Publication Requirements

You may be required to publish a notice of dissolution in local newspapers. Check your state's requirements to see if this step applies to you.

7. Distribute Assets

Once all debts have been paid, every other asset remaining including investments, profits, or any tangible goods must be shared among LLC members. Your operational agreement should be a guide in asset distribution.

Sometimes asset distribution may involve the presence of an accountant, especially for businesses with multiple shareholders.

8. The Close-Down Process

Close all bank accounts, licenses, state tax identification numbers and Federal Employer Identification Numbers.

Importance of Seeking Professional Advice To Dissolve an LLC

Seeking professional advice is crucial before embarking on LLC dissolution. At Foundeck, our teams have equipped professionals to guide you with your dissolution process.

Here are a few reasons why you need the supervision of a legal expert:

For Legal Complexities

Dissolving an LLC involves several legal processes which may require the expertise of a professional. The professional helps with necessary paperwork, incorrect tax filing and proper sharing of profits and assets between partners.

Hiring a lawyer seeking professional advice from Foundeck to enable you to navigate through the process of dissolving an LLC.

Financial Implications

Dissolving an LLC involves settling debts, paying off employees and sharing assets. To avoid errors in disbursing transactions, a professional can walk you through the process.

Many LLC owners may be ignorant of the proper filing of tax returns which may eventually incur debts for a business that no longer exists. Professional advice from our professionals at Foundeck helps ensure that the dissolution process is conducted properly to minimize personal liability risks or financial implications for the members or owners of the LLC.

Dispute Resolution

Professional advisors can offer advice on dispute resolution techniques if there is a misunderstanding among LLC members or creditors during the dissolution process, potentially assisting in averting expensive judicial fights.

Asset Distribution

To divide the LLC's assets properly after dissolution, several issues must be carefully taken into account, such as tax implications, creditor claims, and contractual responsibilities. The distribution of assets among members or owners can be made more just and equitable with the assistance of qualified consultants.

FAQs About Dissolving an LLC

Can one member dissolve an LLC?

Dissolving an LLC involves the agreement of all partners before taking the bold decision. In situations where only two partners own the company, this automatically means each partner owns 50% which is sufficient grounds for one of the partners to make an LLC dissolution request.

It is important to find out what works best in your state if your operating agreement and articles of organization don't include any restrictions or guidelines. To find out whether one member can dissolve an LLC, check your state's LLC laws.

Can a dissolved LLC be reinstated?

Most Definitely. A dissolved LLC can be reinstated depending on the reason for dissolution and state requirements in filing for reinstatements. If your reason for dissolution is voluntary, the process may be slightly different.

What will happen if I don’t file an article of dissolution?

The penalty for not filing the article of dissolution at the close of your business results in the accumulation of debts and taxes. For each day the business is in operation, taxes, penalties, and other costs could be incurred for failing to file the necessary paperwork.

Conclusion

There are Some reasons that could trigger the close of a business. It could be due to the death of the owner, disagreement between stakeholders, economic failure, or government imposed. Whatever the reason may be, the process of dissolution in this post shows you all you need to know about company dissolution. Do you have a question on company dissolution? kindly contact Foundeck today.