Uncertainty is part of running a business. Some things are out of a company’s control no matter how hard its owners plan for the future. While there are some circumstances that companies can easily overcome, there are those that can eventually lead to failure. In such cases, the most obvious option is deciding how to dissolve an LLC.
How to Dissolve an LLC
Whether it is due to external factors or internal decisions, a company has to follow a proper procedure in order to dissolve a limited liability company (LLC). The details may be different depending on the state where the company is registered. However, the process generally involves the submission of formal paperwork and payment of the corresponding fees to the Secretary of State or the governing agency.
In most states, the form is called the Certificate or Articles of Dissolution. If the company is registered in multiple states, then it will have to go through the dissolution process in all of them.
The Next Steps to Consider
One common misconception on how to dissolve an LLC is that the submission of documents is the last step in closing a company. That is far from the truth. It is only the start.
The LLC will also have to file a final tax return with the state agency in charge as well as the Internal Revenue Service (IRS). Check the requirements with the appropriate state agency. As for the federal tax forms, check the Final Tax Return box on them to inform the IRS. Companies with employees will have to pay final payroll taxes too. It is important to settle all tax liabilities and penalties to prevent any issues.
Even though the dissolution documents will terminate the legal status of the LLC, the company will continue to exist so it can complete its winding up affairs. Those include the settlement of debts and disbursement of assets.
One of the first things an LLC has to do after it dissolves is to liquidate its assets. This may refer to the selling of physical and intangible business assets. For instance, the company can sell off all equipment, furniture, and office supplies. Meanwhile, intangible assets may refer to patents and the like.
· Claims Settlement
In most states, LLCs are required to send a notification to creditors about the dissolution. The notification will include the deadline for submitting claims and the requirements for them. The time frame often ranges from 90 to 180 days but is usually 120 days.
Some states require the publication of a dissolution notice in a newspaper. That will provide extra notice to all creditors. Possible creditors include the following:
- Secured And Unsecured Creditors
- Insurance Carriers
- Service Providers
Aside from the settlement of claims, an LLC will have to pay off other forms of debt. That may include outstanding governmental fees. The notice of business dissolution will not only inform creditors of the closure of the company but also prevent the accrual of further debts.
· Asset Distribution
After paying off creditors, the LLC will have to distribute any remaining assets to the members. Those refer to profits, financial investments, and physical properties.
Generally, the allocation will depend on the percentage of ownership. Some companies may have also included the rules for disbursements in the LLC operating agreement.
· Cancellation of Licenses and Permits
All businesses that have gone through dissolution should cancel the business licenses and permits that they hold with the state, city, or county. Doing this can help protect the company owners. For instance, it can prevent someone else from using the LLC’s seller permit or business name to conduct business that could lead to taxes and fines.
Make sure to contact the governing agencies that issued your licenses and permits to cancel them. Companies using fictitious business names, also known as doing business as (DBA) or assumed names, may need to file an abandonment of the name.
· Other Actions
If the LLC leases property for the business, it also needs to contact the owner of that property. In most cases, the lease agreement may require the company to pay out the remainder of the contract. However, there are property owners who may be willing to negotiate.
Of course, it is also important to inform employees and clients about the closure of the business.
Understanding how to dissolve an LLC and what a company has to do after the dissolution can help owners handle the entire process well. But hiring DoMyLLC can ensure compliance and prevent any issues. Contact us to find out more.