A limited liability company (“LLC”) is a type of business structure that offers owners the limited liability benefits of a corporation combined with the management and tax arrangements used in partnerships. However, unlike the members of a general partnership, the members of an LLC cannot be held personally liable for debts incurred by the business. Instead, creditor and/or legal claims must be brought directly against the LLC itself.
Another advantage of forming an LLC is that members can elect how to be taxed. For example, members may structure the LLC in a way, so that it will not have to pay federal taxes. Similar to S corporations and partnerships, members can then list any profits and losses from the LLC on their personal tax returns, which will help them avoid the double-taxation issue experienced by C corporations.
Alternatively, if members prefer to be taxed as a C corporation, they may choose this tax status instead. Thus, structuring your company as an LLC will not only give you the freedom to decide how you want to be taxed, but will also allow you to retain the protections of “limited liability”, regardless of which tax structure you select.
What is an Easy Way to Dissolve a Limited Liability Company?
In general, the process of dissolving a company typically involves filing specific paperwork with the same state agency that originally formed the company and making sure that all debts of the company have been satisfied.
When it comes to dissolving an LLC in particular, there are a variety of methods that members can choose from. The easiest of these methods is when a member dissolves an LLC by will. In other words, a member can trigger the dissolution of an LLC by voluntarily giving up their rights in the business. This means that the member will no longer be able to make decisions that affect the business and they will be stripped of any governance or management duties.
A member who voluntarily chooses to terminate their relationship with the LLC will also not be allowed to receive any financial or managerial benefits from the business. However, the actions of one member will not necessarily dissolve the LLC in its entirety. This simple method is only used by a member who no longer wishes to remain part of the LLC.
Thus, as long as no state laws or company bylaws say otherwise, the LLC can continue to exist without that member.
What are Some Other Ways You Can Dissolve a Limited Liability Company?
In addition to the above method, there may be several other ways and/or reasons for dissolving a company. For instance, members of an LLC can dissolve their entire company (as opposed to removing a single member of the LLC) by voluntarily electing to end their relationship with the business. This method happens to be one of the most common ways in which LLCs are dissolved.
Another way that an LLC may be dissolved is when an important member of the LLC either passes away, voluntarily withdraws from the business, or ends their relationship with the LLC for some other reason. If this occurs and no other members are capable of or willing to run the LLC, then the LLC may naturally dissolve on its own.
In certain states, it may be necessary to dissolve an LLC against the wishes of its members if the business goes bankrupt. To learn more about what happens when an LLC goes bankrupt, members can review relevant local and state laws, and/or speak to a local business attorney.
One final way that an LLC can be dissolved is through formal legal procedures. Some states may require the members to vote. However, many states will consider an LLC dissolved when its members file all of the necessary dissolution paperwork with the appropriate parties prescribed by state law (e.g., government agency that formed the company, various tax agencies, and creditors).
What are Some Things that are Included in the Filing to Dissolve an LLC?
As previously mentioned, each state has its own statutes that prescribe how to set up and dissolve an LLC. Although this generally means that the procedure will vary by state, the majority of states require that certain information be provided during dissolution. Thus, in order to properly dissolve an LLC, members must supply the following information and/or documents:
- A record of the vote to dissolve the LLC (note that some states may require members to sign and file a resolution of their intent to dissolve);
- Depending on the state, members must file an Articles of Dissolution with either the Secretary of State, the Department of Revenue, or some other state government agency. Regardless of where a state requires business paperwork to be filed, the members must file the Articles of Dissolution with the same agency that was used to file their Articles of Organization.
- Members must also give notice to any creditors that the LLC will no longer be doing business. The notification process may differ for each state, but generally the notice must state how to submit collection claims, the date of when creditors will be barred from filing claims, and a statement informing creditors that they will not be allowed to collect payment after the deadline expires.
- While state laws also differ on the amount of time that members have to give notice to creditors and to allow them to collect, it is usually around 90 or 180 days.
- A number of tax forms must be filled out and filed with both the Internal Revenue Service (“IRS”) and a state tax department, including a certification that says the LLC’s filings are current and taxes have been paid. Forms will vary depending on how the organization elected to be taxed (e.g., corporation, sole proprietorship, partnership, etc.). This may include filing Form 966 (Corporate Dissolution or Liquidation) with the IRS.
Some items that may be useful to have on hand before the dissolution process starts include:
- The registered name of the LLC;
- The name and contact information of all LLC members;
- The date of when the LLC was incorporated or organized;
- The reason or reasons for dissolving the business;
- The date of when dissolution becomes effective; and
- Any information regarding pending lawsuits, debts owed to creditors, why those debts have not been paid yet, and what taxes (if any) are still owed by the business.
What Happens to the Assets and Debts of an LLC When It Dissolves?
When an LLC dissolves, the members may still need to handle any remaining assets and/or outstanding debts. In regard to assets of a dissolved LLC, they may be distributed to LLC members in any manner that the members agree on and see fit, or alternatively, by the method that is provided in the terms of the LLC’s original operating agreement.
Although LLC members may request that a court distribute the business’s assets, this is an extremely rare occurrence. In general, members do not typically ask the courts to intervene since they usually already know the exact amount that has been invested by each member into the LLC. Additionally, members may also not ask courts to get involved because there may be no assets left once they are done paying off the LLC’s debts.
Before any funds or assets may be distributed to LLC members, they must first be used to satisfy any outstanding debts of the dissolved LLC, as well as to pay off taxes and other creditors. If these debts are not taken care of during the dissolution process, the law may not consider the organization to be dissolved.
Should I Hire an Attorney to Help with the Dissolution of My LLC?
Dissolving an LLC can sometimes be a stressful and emotional event. This is especially true in cases where your relationship with the other members has soured. Aside from this personal aspect, statutes that apply to LLCs often vary from state to state. This means that you will need to understand the exact laws and procedures used to dissolve an LLC in your area, which can be difficult to do without the help of a corporate attorney.
Accordingly, if you wish to leave an LLC or need assistance in dissolving an LLC, then you should speak to a local business attorney for further legal guidance. An experienced business attorney can explain and help you with the dissolution process. Your attorney can also make sure that your LLC is properly dissolved and that you have no outstanding requirements to fulfill.
Finally, if there is a dispute over matters connected to your LLC, your attorney will be able to represent you in court as well.