Choosing to dissolve a Limited Liability Company (LLC) does not necessarily reflect a business failure. There are many legitimate reasons to dissolve an LLC that have nothing to do with the success or a business failure. For example, an LLC may be created with a defined timeline, while other LLCs are developed to meet a specific need, and when the need is met, the need for the LLC no longer exists.
Despite the reasons an LLC may need to be dissolved, there are appropriate processes in place to dissolve a Limited Liability Company – or, an LLC. The legal processes required to dissolve an LLC will vary among states; however, the law’s broad brushstrokes are essentially the same. There are three approaches to dissolve an LLC.
3 Approached to follow for dissolving an LLC.
1. Judicial Dissolution
Judicial dissolution is court-ordered. There are a variety of reasons an LLC can be ordered by a court to be dissolved. These include –
2. Administrative Dissolution
The Secretary of State’s office, from the state in which the LLC was formed, has broad authority in its ability to impose administrative dissolutions; however, the following are typical causes of administrative dissolutions of LLCs, as so ordered by the Secretary of State –
3. Voluntary Dissolution
A voluntary dissolution occurs when the LLC members collectively agree to close the business. Voluntary dissolution of an LLC typically happens two ways –
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How to Dissolve an LLC?
Preliminarily, it is imperative to note that the LLC’s dissolution occurs at the state level. The LLC’s representative must file a Certificate of Dissolution (sometimes known as the Articles of Dissolution, depending on the jurisdiction) with the Secretary of State’s office. The Articles of Dissolution addresses the LLC’s assets’ disposition, if applicable, per local ordinances/state law.
When the Secretary of State approves the Certificate/Articles of Dissolution, technically, the LLC is dissolved in that state. Note, though, when the LLC’s dissolution is approved, the LLC is no longer permitted to engage in new business.
However, there are still additional steps to consider if the Limited Liability Company conducts business in other states. Remember to –
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Additional Procedures – After the Dissolution’s Approval
Settling Creditor Claims
Certain states require LLCs, by law, to notify outstanding creditors upon dissolution, while other states legally prescribe that a dissolved LLC publish a notice in a local publication or newspaper. Creditors of the LLC are given a specified amount of time to register new debts – which generally ranges from 90 days to 180 days, depending on the laws of the jurisdiction.
Distributing Assets
A dissolved LLC must distribute the remaining assets (property, profits, investments, etc.) in accordance with each member’s ownership percentage. Although, the distribution assets may be addressed differently, by rule, in the LLC’s operating agreement.
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The Take-Away
Prudent business professionals typically understand that the best way to ensure an LLC’s dissolution is smooth and seamless is to set forth a plan before it happens. If an LLC does not explicitly address its dissolution procedures in its operating agreement, the LLC dissolution will be dictated by the relevant state law, which may or may not suit the LLC’s dissolution needs. Almost all states impose fines for LLC members choosing to walk away and failing to dissolve the LLC properly. Fines accrue quickly over time.
To avoid a messy legal/financial circumstances (when merely trying to dissolve a business entity), it is prudent to reach out to legal professionals at the Weisblatt Law Firm – with the knowledge and experience to help you dissolve your business legal entity entirely and legally.