Closing Down an LLC: Everything You Need to Know
When closing down an LLC, it's important to know all the proper steps to take.3 min read
When closing down an LLC, it's important to know all the proper steps to take.
The Importance of Officially Dissolving an LLC
Failing to follow the proper procedure for dissolving an LLC can cause the managers to be liable personally for any unpaid taxes and debts. The majority of states charge LLCs a fee each year, which will continue if the company isn't properly dissolved. There may be a fee for not filing a tax return if an LLC is still open, which will be an additional charge.
Any property that's in the LLC's name won't be transferred back to the owners until the LLC dissolution officially happens, so it's crucial that ownership is correctly transferred back. Closing out all permits also needs to happen in addition to giving up the name of the company. Personal ownership cannot be claimed of the business property as part of the owner's net worth if the business isn't properly closed.
If an owner tries to sell their business property like it's a personal asset, the buyer may be confused about the ownership of the property. This will also break the rules of owning assets in an LLC. If the property assets are left active and not monitored, it's easy for someone else to use them. This can put the owners in legal jeopardy.
Why Should You Dissolve an LLC?
Documents are filed with the state, local taxing authorities, and the Internal Revenue Service when a business forms their LLC to tell them they're ready for business. Unless they're told otherwise, they will continue to think the business is active and will require them to pay yearly fees, file annual reports, and pay taxes.
When an LLC is formally dissolved, this puts an end to multiple requirements, including:
- Minimum taxes.
- State fees.
- Yearly reporting.
This also lets creditors know that the company can't take on debts any longer. Formally going through the dissolution process leaves little room for surprises, such as a fee from the government or a lawsuit due to an unpaid debt. Future obligations, fees, and litigation can be reduced when an LLC is dissolved.
Agree to Dissolve
The first step in dissolving an LLC is formally deciding as a company to do so. A meeting should be held with all the members to officially hold the vote to dissolve the LLC. Every state has a different requirement for the voting process. Some states require a two-thirds vote, while others need a unanimous written agreement, so it's important to check the state's specific rules.
There may be closing procedures already listed in the LLC's operating agreement, so make sure to check that also. Once the vote has been taken, it should be memorialized in a resolution so there's a written record of the decision. This should be kept with the official records for the LLC.
Make It Official
The form to file the closure of the LLC can be found on the Secretary of State's website for each state. Fill out the form and follow each instruction regarding how to file it with the state. This will officially shut down the name of the LLC.
Many states have a requirement of LLCs filing reports on a yearly basis. If a business is stopped without notifying the state, they'll be fined for not filing the reports. They may also have to go in front of a state official to explain why they didn't do the appropriate filings.
Once the company decides to shut down, all the creditors they work with need to be informed. This is so they know the time frame they have left to file a lawsuit if needed. Every state has individual requirements for the official notice, so check how much is needed. It may also need to be published in a newspaper.
The LLC statures for each state will say what the deadline is for submitting the claims, but it normally is around 90 to 180 days from the day notice is given. The notice should also state that any claims they get after the deadline will be barred so there is no confusion.
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