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So, you have decided to call in quits and dissolve your limited liability company (LLC), so how do you do this legally, ensuring that you are not personally liable for future taxes, penalties or interest?
There may be many reasons to dissolve a LLC; maybe the idea that kicked off the enterprise was better on paper than in practice. Perhaps the actual running of the company brought out irreconcilable differences in the owners, maybe it wasn't profitable, or maybe the global pandemic forced your hand. Whatever the reason, legally closing a business requires that certain steps be taken; it is not one where you can throw away the key.
To formally close an LLC, you must file a certificate of cancellation with the Secretary of State. You may also need to file a certificate of dissolution. The dissolution process also includes sending a notice to your LLC's creditors, winding up the company business and filing a final tax return. If that seems overwhelming right now, it's okay because we have got it nailed down, step by step.
Formal Vote on Dissolving the LLC
The owners( members) of the LLC should vote on whether to dissolve the company. Your LLC's operating agreement may have a section that describes how the votes should happen and the percentage of members who must vote in favour of dissolution. However, your operating agreement may not specify a procedure. An LLC Act allows you to dissolve an LLC if 50% of more members favour doing so. Document the vote in a resolution of meeting minutes and note whether it was unanimous.
2. File a Certificate of Dissolution
Suppose the vote to dissolve the LLC was not unanimous. In that case, you must file a certificate of dissolution with the secretary of state, listing the LLC's name, Secretary of State filing number, and the event (such as a vote of the members) that led to the dissolution. If the vote was unanimous, you do not need to file the certificate.
3. Send a Notice to your Creditors
The law requires that you mail a notice to your business creditors, inform them that you are dissolving the LLC, and wind up the business. This gives the people you do business a chance to submit bills, invoices and claims and get paid before you close your business for good. It may be an excellent idea to get an attorney to help you prepare for this and to include the proper wording.
4. Wind up the business
After the dissolution, an LLC needs to pay debts to creditors and distribute the remaining money and other assets to the LLC's members to make sure the business is officially wound up
5. File a Certificate of Cancellation
To end your LLC's existence, you must file a certificate of cancellation after completing the winding-up process. The certificate must be signed by the LLC's managers and include a statement that the LLC has filed or will file a final tax return with the tax board; it should also indicate that all LLC members approved it. Once the certificate is filed, the LLC is cancelled and no longer has any powers, rights or privileges.
6. File Final Tax Returns
You can file your final tax return before filing your certificate of cancellation; you need to file your last tax return on time and make sure it is indicated that it is a final return.