Limited liability companies (LLCs) exist in the United States as a type of business. They are set up to protect owners from the company's debts or liabilities. Although they are somewhat similar to a corporation, there are differences that also make them similar to a partnership or sole proprietorship.
If you have decided to stop using or operating your LLC, then there are specific steps you will need to take in order to maintain your limited liability. After you have decided you want to dissolve your LLC, you will need to send a notice to your creditors to notify them. Not only will you need to settle debts, but you will also need to dissolve the business with the secretary of state in Delaware. If you do not go through this process properly you will run into issues down the road.
What is Dissolving an LLC?
The act of dissolution occurs when an LLC no longer wishes to operate, or the business purpose of the LLC is completed. Should the LLC no longer be generating revenue, it is common for the owners to dissolve it. In some situations, members may decide to dissolve an LLC if they cannot agree on important decisions regarding operations.
Reasons for Dissolving an LLC
Dissolution is most common when a company is going out of business. This may be because the LLC no longer makes income, or because members are unable to get along. It could also be because of retirement.
In severe cases, an LLC may dissolve because they have not paid their taxes, or properly followed laws. This is called an involuntary dissolution, meaning not on their own accord.
How to Dissolve an LLC
Vote to Dissolve the LLC
All LLC members must agree to dissolve an LLC, which means the first step to dissolving your company is to vote on it. The vote should follow the procedure dictated in the articles of incorporation (or LLC operating agreement), originally written when the LLC was formed. The vote should be placed into the LLC records book.
File Articles of Dissolution
The state of Delaware has specific dissolution documents that must be filled out and filed with the Secretary of State. It is called the certificate of cancellation in Delaware. In these articles, you will need to identify you and your company, as well as showcase that you have paid all debts and liabilities. If there are assets, you will need to show proof of distribution. You will also need to include a cover letter and pay a $200 filing fee.
The cover letter should include your business name and LLC number as well as your name, return address, and telephone number. You can submit this electronically, but if not you should send the form by certified mail, and with the return receipt requested. Expect a certificate of dissolution to be sent back for safekeeping.
Get a Tax Clearance
Although in some states you will need to obtain a tax clearance before you dissolve your LLC, this is not the case in Delaware.
Cancel Permits and Licenses
If you are not planning to create another business using the permits and licenses you have already applied for, then they will need to be canceled. Otherwise, you will be required to pay compliance fees without a purpose.
Cancel EIN and Pay off Debts
The final stage of dissolving an LLC is to pay off debts, cancel your EIN and distribute the assets. These are important because you do not want to be tied to a business or fees unnecessarily. You will also need to notify creditors, pay off debts, sell inventory and equipment, as well as liquidate and distribute assets.
How Long Does it Take to Dissolve an LLC?
The length of this process varies depending on the state that your LLC resides in. If your LLC is filed with the Delaware Secretary of State this process should take about three to four weeks. By making sure you have all of your paperwork in order and properly filled out the first time the process will be a bit quicker.
What Happens after you dissolve your LLC
After dissolving your LLC you can reopen it, but you will need to go through the same process to form it, than you originally did. You will not be liable for anything as long as you dissolve your business properly.