If you and the other members of your limited liability company (LLC) decide to close your business, you have to understand the multi-step process that you have to complete and the cost to dissolve an LLC. Otherwise, you may end up facing administrative penalties and consequences. You may also face other legal issues.
The dissolution process depends on the state where you formed your LLC. The necessary paperwork and cost to dissolve an LLC will vary.
However, before the formal filing, you will need the approval of the dissolution. You have to review the operating agreement of your company. Check if there are any instructions on the process of closing the business.
In most cases, the rules for business closure requires a vote of the members on a resolution. It specifies the percentage or number of members vote necessary to finalize the resolution. Some may also include in their operating agreement the guidelines on how to schedule the dissolution meeting and how to inform the members about said meeting. Make sure your company follows the procedural requirements stated in your formational documents.
If your LLC formation documents do not have any provision about business closure, you can follow the LLC Act of the state. In Tennessee, the law allows an alternative method for voluntary dissolution. That is a majority vote of all members. You can also check out the LLC Act of Tennessee to know more about additional requirements.
No matter what approach you choose for your business, you have to make sure that you record the decision on the approval of the resolution in the official minutes of the meeting. Another option is to record the approval on a written consent form.
Dissolving a Tennessee LLC
The state requires all LLCs doing business in Tennessee to register with the Secretary of State. Thus, it is also necessary for you to inform the state if you are planning on ending your company’s existence. The process you have to go through is the dissolution.
Like in other states, closing a business entity in Tennessee requires you to file formal paperwork. It is called the Notice of Dissolution. You have to submit it to the Division of Business Services of the Secretary of State.
The cost to dissolve an LLC in Tennessee is $20. The division will process your filing within 3 to 5 business days. If you deliver the documents in person, you can have same-day processing.
Winding Up the Business
Even after getting enough votes to continue with the closing of your business, your company will continue to exist for the winding-up process. It includes various matters that you have to take care of. You can appoint one member or manager or create a team to handle this step.
Under the LLC Act of Tennessee, the winding-up process requires you to accomplish the following tasks:
- Collect or make a provision for the collection of all known debts due to the LLC. These include unperformed contribution agreements.
- Pay or make a provision for paying all known debts, liabilities, and obligations of the company.
- Sell, lease, transfer, or dispose of all or substantially all the properties and assets of the LLC.
- Distribute remaining properties, including money, to the members.
Keep in mind that debt payments and property distribution to members require you to follow a particular order.
- Pay the creditors, which include members who are also creditors, to the extent that the law permits. It is also important for your LLC to also pay all of its outstanding taxes.
- Take care of is the interim distributions to former and current members as stated in your company’s operating agreement. Usually, the interim distributions occur prior to the distribution upon dissolution.
- Make distributions to members if there are any company assets remaining.
Informing Creditors and Claimants
In Tennessee, giving notice is an optional step. However, doing so is highly advisable. It will help you limit your liability and ensure the safe distribution of assets to members.
Despite it being an optional task, state law provides two options in giving notice. The first one is to directly send a written notice to known creditors. When drafting a notice, take note of the following:
- You have to describe the pieces of information that they need to include in the claim.
- You have to state whether the claim is admitted or not. If it is admitted, you should include how much is admitted and any interest obligation in case an instrument of indebtedness is used to fix it.
- Include the complete mailing address where they can send a claim.
- Inform them of the deadline for submission of claims. It cannot be fewer than 4 months upon the effective date of the written notice.
- Let them know that claims will not be accepted after the deadline.
Another way to inform creditors is by publishing a notice to unknown claimants in a newspaper. In such cases, claimants will have up to 2 years after the date of publication to file a claim.
Submitting Articles of Termination
After the dissolution and winding up processes, your LLC should also submit the Articles of Termination with the Division of Business Services. Aside from the cost to dissolve an LLC, you should also prepare another $20 for the filing fee of this paperwork. If the Notice of Dissolution that you file has a delayed effective date, you cannot continue with this step until the set date.
Notifying the Department of Revenue
While Tennessee does not require LLCs to get tax clearance for the dissolution, you will have to notify the Department of Revenue about the closure of your business. In most cases, the department allows business entities to close business accounts through a phone call. If you have other tax and reporting obligations, you may need to go through a different process.
As for your federal taxes, you will only need to check the final return item on your Internal Revenue Service (IRS) form.
Proper dissolution of your Tennessee LLC will help make sure that you will not encounter any legal issues in the future. If you need help in ensuring compliance with the state requirements, contact DoMyLLC.
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