When an LLC closes its doors, properly dissolving it is a critical step that protects the company owner from potential liabilities
When you first established your business, you were undoubtedly enthusiastic about the opportunity and made certain that everything was done correctly, from deciding to create a limited liability company to completing formation paperwork with the state.
When you decide to close your firm, you may not be as eager to take the time to properly close things up. However, submitting documentation with the state and alerting creditors are critical actions that will assist reduce your possible obligation and enable you to continue on with your career.
Why Should You Dissolve a Limited Liability Company?
Documents were submitted with the state, the Internal Revenue Service, and potentially local taxing or licencing authorities when the LLC was founded. These paperwork informed the authorities that the LLC was ready for operation. They will presume the company is open unless instructed otherwise.
The owner is obligated to produce yearly reports, pay annual fees, and pay minimal taxes as long as the LLC is functioning. These criteria are removed when an LLC is formally dissolved.
It also informs creditors that the LLC is no longer accepting debts. Going through a legal dissolution procedure reduces your chances of being startled in the future by a lawsuit for an unpaid debt or a charge or fine from a government agency.
Voting to Dissolve an LLC
An LLC must be dissolved by a vote of its members. You should follow the method outlined in your LLC operating agreement for voting on dissolution. If it does not, you must follow the process for dissolving an LLC outlined in your state’s LLC legislation.
Once a vote has been held, commemorate it in a resolution as a written record of the decision. Keep the resolution with the official documents of your LLC.
Notifying Creditors of the Dissolution of Your LLC
Once you’ve decided to shutter your LLC, you must tell your creditors that you’re going out of business. Tell people how to make claims and when the deadline is in the notification.
The timeframe for making claims in your state will be specified in your state’s LLC legislation, although it is typically between 90 and 180 days from the date of the notification. Any claims received after the deadline will be disallowed, according to your notification.
Before filing dissolution documents in several states, you must inform creditors. Even though it is not legally mandated, it is excellent business practise.
Notifying creditors allows you to take care of your LLC’s outstanding financial commitments prior to dissolution, reducing the chance of late fines or litigation over unpaid debts.
Notification of Taxation and Licensing Authorities
You should also check with state and local taxation authorities to see whether your LLC owes any taxes.
Finally, contact any authorities from whom you obtained licences to revoke those licences and pay any outstanding payments.
After you have satisfied all of your LLC’s existing financial commitments, you may distribute any residual assets to the members of the LLC.
Dissolution Papers Must Be Filed
To dissolve your LLC, you must submit articles of dissolution or a similar instrument with the state, just as you did when you formed it.
These paperwork are normally submitted with the same state entity that handled your initial LLC formation—the secretary of state. Forms, filing methods, and costs vary by state.
In certain states, you must receive a certification from the state taxing agency stating that the LLC has paid all of its state taxes on time, and you must include this with your dissolution paperwork.
If you registered your LLC to do business in other states, you must submit paperwork with those states to withdraw or revoke your right to do so. Though you fail to do so, you may be obligated to pay yearly reports, fees, and minimum taxes even if you haven’t done any business.
You will also be in charge of submitting the LLC’s final income tax return as well as, if required, final employment tax returns. The Internal Revenue Service maintains a checklist of tax-related tasks that are commonly required when terminating a company.
The choice to close an LLC is usually a tough one. If your LLC goes out of business, it is critical that you do not just close the doors. By dissolving an LLC, you may reduce future expenses, responsibilities, and lawsuits.