It has often been seen that people are too excited and enthusiastic when they are about to venture into something new. But when it comes to finishing or ending that stuff, the enthusiasm suddenly vanishes away. All this is pretty similar to what happens in the case of business as well. When you are about to start a new business venture, you are pretty excited about it.
You make sure that you are going down the right path and crossing all the right check posts. Right from making the decision to start a Limited Liability Company to the process of filing formation documents with the state, you keep a close eye on everything. You do everything possible to avoid any mishap. LLC’s became so popular among people because of their uncanny similarity to a corporation. LLC owners have limited personal liability for the debts and actions of the LLC. With such benefits, it is pretty natural for you to be this excited.
However, once you are done with it and decide to get over with that business venture, your enthusiasm suddenly evaporates. But you must know that if the need arises and you are required to dissolve your LLC, you must work methodologically. You, as well as your partners, must do more than just liquidating or selling the LLC’s assets and informing the clients. It is expected out of you to legally dissolve your LLC.
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Though wrapping up things properly at that moment becomes a mere unwanted responsibility. You want to escape it at all costs. But this step is pretty important. According to the Internal Revenue Service, an LLC is a business structure allowed by the state statute. Filing paperwork with the state and notifying the creditors are essential steps. After all, doing this will help in limiting your potential liability. And at the end, it will allow you to move forward with the next phase of your career.
That too, without the chains of the past venture stopping you. Now, instead of thinking how to dissolve an LLC are you still more concerned about why should you dissolve an LLC? If your answer is yes, then don’t worry, we can understand your confusion and doubts. So, let us first clear your doubts before telling you how to dissolve an LLC.
Why Should You Dissolve an LLC?
As we earlier mentioned, wrapping up your LLC properly when you choose to get out of business is as equally important as your decision of properly setting up the LLC when starting the business. The reason is that when you first started your LLC, you would have filed documents with the state, the internal revenue service and possibly local taxing or licensing authorities. This step was taken in order to let them know that you were open for business.
So, logically when you informed them about you stepping in the business, then it only makes sense that you should tell them even when you plan to step out of the business venture. This is because until you tell them otherwise, they will assume and be under the impression that business is still active. They will even require you to do stuff such as file annual reports, pay minimum tax and pay annual fees as well.
However, formally dissolving an LLC also puts an end to the state fees, minimum taxes, and annual reporting requirements. So, if you want to escape all these responsibilities, it is better to wrap up the LLC in the right way.
Moreover, when you dissolve the LLC properly, it also gives the creditors a notice that your LLC can no longer take on debts. In short, other than saving you from all these additional requirements, if you go through the formal dissolution process, you are less prone to receive any shocks later.
Usually, when people leave the process of wrapping up their LLC unfinished, they, later on, get unpleasant shocks like a lawsuit for an unpaid debt, a fee or fine from a government agency. So, for completely closing the chapter of this LLC, it is better to get done with it once and for all. Now, that we have finally answered your question of why you should dissolve your LLC properly, we hope that all your doubts would be cleared.
What are the methods through which one can properly dissolve an LLC?
Now you already know why you should dissolve your LLC properly and probably also know its importance. At the moment, it may appear as a bit of hard work and an unnecessary headache. However, but you know it too how important it is. Especially, if you don’t wish to have any baggage of this business later on.
However, you must not worry much. The whole process of dissolving an LLC is not that cumbersome or chaotic as you are thinking. There are various ways through which you can do so. We have listed down the ways through which you can dissolve an LLC, with proper details. Let us look at them now!
Voting for Closing an LLC:
You can vote to dissolve your LLC. If you have a board of directors for your LLC, then most probably the Articles or Organisation would require a vote by the board to dissolve the LLC. Your LLC does not have a board of directors, don’t worry. In such a case, the principal members who are named in the Articles of Organisation can vote. You can even follow the rules set forth in the LLC bylaws, to begin with, the dissolution.
The members of the LLC must vote to dissolve the company. Once you have taken the votes, you should memorize the vote in a resolution so that you have a written record of the decision. Then keep this resolution with the official records of your LLC. If your LLC operating agreement already has a procedure for voting on dissolution, then you must follow that. Somehow, you don’t have any specific procedure? Or you are the sole member of your LLC? if yes, then you should follow the procedure for LLC dissolution as described in the LLC statutes of your state.
Notifying the Creditors of your LLC for Dissolution:
Once you have decided that you surely want to close your LLC, then it is essential that you notify your creditors. You should inform them that you are going out of business. You must even tell them how to submit claims and the deadlines for doing so. Usually, the deadline for submitting the claims generally lies between 90 and 180 days from the date of the notice.
However, for exact knowledge, you can get it in the LLC statutes of your state. It is better to be on a safer hand and be clear. For this, you must mention in your notice that any claims received after the deadline would be automatically barred. This will prevent any kind of extra and unnecessary confusion.
In some states, you are required to notify the creditors of your LLC even before filing the dissolution papers. However, even if it is not mandatory in your state but you must follow it. This is because it is considered a good business ethic. Moreover, notifying your creditors will even help you take care of the remaining financial obligations of your LLC before dissolution.
It will also help in limiting the possibility of late fees or litigation over unpaid obligations. Thus, giving notice to creditors and debtors is concerned with a great practice. You can mail your clients letters for informing them that you are dissolving your LLC. In this letter, you can even mention your intention of paying the full balance owed by the LLC, a settlement offer or the intention to file bankruptcy.
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Notifying the Taxing and Licensing Authorities:
Have you made up your mind of dissolving your LLC? If yes, then you should also contact the state as well as the other local taxing authorities. You may ask, why one should do that now. In answer to that, you should contact them in order to determine and confirm whether your LLC owes any taxes or not. Once you are done with it, you should even contact any agencies or the government agencies from which you received licenses.
You should inquire them how can you cancel those licenses and permits. At the same time, you must also take care of any outstanding fees. Are you planning to enter into another business structure or LLC? If yes, then in some cases you are allowed to transfer the licenses and permits of your previous LLC to that business entity as well. In some cases, however, it may not be possible too.
However, if you are done paying all outstanding financial obligations of your LLC, you can also choose to distribute the remaining assets of your LLC to the LLC members. For doing so, you can follow the law of the state in addition to the bylaws of LLC. In case of distribution of assets, you must ensure to equitably distribute any LLC assets to all of the members.
Filing Dissolution Papers of your LLC:
Initially, when you would have firstly decided to begin with your LLC venture, you would have filed paperwork with the state in order to form your LLC. In a way more or less similar manner to the way in which you began, you must follow the procedure when deciding to get over with your LLC.
Even now you must file articles of dissolution. You are expected to file either an article of dissolution or a similar document to dissolve the LLC. For writing the Article of Dissolution for your LLC, you can visit any of the online legal document websites and use their services. It is important for these documents to legally separate each of the members of the LLC from the entity. However, in case of filing the articles of dissolution, it is essential that you do so with the appropriate state agency.
In some of the states, it is required that they must obtain a certification from the state taxing agency. In this certification, they have to confirm that your LLC is current in all of its state taxes. Once you have it, then you must file this along with dissolution papers. You must also ensure that you file the documents along with any of the state-required paperwork.
For instance, imagine that your LLC is located in Houston, Texas. In that case, you would have to file your dissolution articles with the state secretary in the way set forth by the Texas Business Corporation Act. You must know that these papers are filed with the same state agency which handed you your original LLC formation. It is usually the secretary of state. The process of filing, fees, and forms may vary from one state to another.
The Internal Revenue Service has an already prepared checklist of tax-related actions. You must take care of which when you decide to close down a business. Closing an LLC can sometimes get as stressful and cumbersome a task as starting one. For instance, if you had registered your LLC to do business in other states too, then you must file documents with those states as well. You must withdraw or cancel your right to do business in those states.
If you fail to do this thinking it to be something unnecessary, then you could still remain liable for submitting annual reports, minimum taxes and fees, no matter even if you haven’t done any businesses. You can also be considered responsible for filing the final income tax return of your LLC.
If applicable, then you may also be expected to file the final employment tax returns. Has your LLC gone out of business and you plan to shut it down permanently? If yes, then you must do it the right way. Merely shutting it down is not really enough. You need to properly dissolve an LLC, unless you don’t want to minimize future fees, litigation and obligations.
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