Many entrepreneurs dissolve their LLCs either because they go out of business or have personal reasons for closing. However, they don’t always stay shut forever. The time may come when they want to reopen and start again.
Understanding the fees, benefits, and requirements involved in this process is crucial. Additionally, having a comprehensive operating agreement and being aware of taxes and annual report obligations is essential for maintaining compliance and asset protection.
This article explains why you might reinstate an Illinois LLC. Whether you're seeking to preserve brand equity or explore new opportunities, the decision to reinstate an LLC or instead form a new LLC structure, such as an anonymous LLC, warrants careful consideration and strategic planning.
LLCs are company structures in the U.S. that protect owners from personal liability if they go out of business or can’t afford credit repayments. The rules state that creditors and other claimants cannot go after members’ personal assets to recoup their losses (except under certain circumstances). They can only liquidate the business’s assets or take money out of its bank accounts.
The U.S. created LLCs as a way to encourage free enterprise. Entrepreneurs are considerably more likely to launch firms if they can protect their personal assets, such as their car or house.
As such, limited liability companies are halfway between corporations and sole proprietorships. The IRS taxes them the same way as sole traders (depending on the arrangements you choose), but they get all the liability protections of an incorporated organization.
Dissolving an LLC means formally notifying the Illinois state authorities you intend to close the business. Completing the process means you no longer need to file annual accounts.
There are two types of company dissolution:
Voluntary – where you and other members agree to close down the company Involuntary – where creditors and liquidators choose to close the company on your behalf.
The following section lists both voluntary and involuntary reasons for dissolving a business:
Businesses that fail to pay taxes risk being shut down involuntarily. State authorities may strike the firm off the register if it cannot meet its financial obligations.
Companies only pay corporation taxes on profits they earn. Therefore, your business should always be able to meet this obligation.
You should also be able to pay relevant sales taxes. That’s because you get money from consumers every time they purchase a good or service.
Illinois state officials will not dissolve your company immediately if you fail to pay taxes on time. However, they will take action if you repeatedly violate the tax code.
Going out of business is another involuntary reason for business dissolution. Ending unprofitable enterprises is a prudent financial move.
You may also want to close a business for personal reasons. These could include:
You can close an LLC for any reason in Illinois as long as you gain the agreement of other members. Dissolution of LLCs requires you to pass a majority vote at a board meeting.
Illinois law distinguishes between administratively dissolved and voluntarily dissolved LLCs. You can never reinstate an LLC dissolved voluntarily. However, you can reinstate one dissolved administratively.
Here are the steps you need to follow:
Apply for articles of reinstatement. These documents provide state authorities with the information they need to reopen your firm. In Illinois, you must complete Form LLC-35.40, also called the Reinstatement Following Administrative Dissolution form.
Update your information. You will then need to inform the authorities of your LLC’s old name, new name if applicable, the date you dissolved it, and the name and address of your registered agent. You will also need to sign a statement confirming you corrected the issues that led to the administrative dissolution.
Submit your application. When submitting your application, you will need to pay a small fee. This payment covers official administrative costs.
You must pay various state fees and penalties to reinstate an administratively dissolved firm. The latter applies when you lose your Certificate of Good Standing (perhaps because you mismanaged your firm in the past). If you reopen without consulting a qualified attorney, you may also expose yourself to personal liability from business bureaus, creditors, and contractors. Third parties may see reinstatement as an opportunity to continue pursuing you for damages.
There are no limits on the number of annual reports Illinois LLCs can miss and still be reopened. However, you may need to get tax clearance from the Illinois Business Services Department first, particularly if you closed your firm with tax debt still on the books. Taking this action helps you achieve good standing with the state. Tax clearance states you paid your LLC’s outstanding or overdue taxes according to state law.
Illinois reinstatement rules are different from other states. You can only reinstate a company after dissolution if you:
File all due reports with the Secretary of State Pay all penalties due Pay relevant franchise taxes to the Secretary of State Pay all corporation taxes Pay any additional fees coming due Meeting these criteria lets the Secretary of State rule your business to be in a continuing capacity without the dissolution causing an interruption.
You will need to pay several fees when reopening an Illinois LLC.
You must pay a $200 filing fee when you submit your reinstatement application. You must also include all past-due reports and pay fees associated with them.
After you submit your Reinstatement Following Administrative Dissolution form, you will also need to pay a $150 fee for filing articles of organization. Officials will check these documents before entering the relevant information into their company database. These articles should contain all relevant information about your firm.
If you change your registered agent, you will need to pay an additional $50 filing fee.
If you are short on time, you can pay a $100 fee to expedite in-person processing. You may receive reinstatement in less than 24 hours if you use this service.
In Illinois, you can reinstate an LLC with the Secretary of State’s Department of Business Services online, by mail, or in person. Payment options vary according to the filing method. If you use the mail or in person, you can use a certified check, Illinois attorney’s check, or money order made payable to the Secretary of State. Online, you can pay by credit card.
You cannot reinstate a voluntarily dissolved LLC in Illinois, so your only choice is to start a new one. However, even if you administratively dissolved your firm, you can reopen it.
This section explores the pros and cons of reinstating an LLC compared to starting a new one.
Reinstating your Illinois LLC provides limited liability protection, helping you keep your personal assets safe. Even if your firm owes money to creditors, they cannot come after your house or car.
Reinstatement also lets you continue deriving value from your business. You can access the same customer pool as before and leverage your brand capital and USP. It’s a way to avoid sunk costs: all the time, money, and effort you put into building the LLC in the first place.
Reopening also lets you keep your company name along with all your historical records and paperwork. You can leverage existing awareness instead of choosing a new name and starting from scratch.
Of course, there are some downsides to restarting an LLC. For example, you may need to pay various fines, taxes, and penalties associated with your old business. You will also need to file reports stating the non-activity of your company during the closure period. Past creditors may take the opportunity to pursue you for debts owed before you dissolved your firm.
Finally, your old firm and brand might be unviable. Therefore, setting up a new company and starting from scratch could be the better option.
If you are considering reinstating an LLC in Illinois, schedule attorney time with us. Our team can guide you through the process and provide professional advice on what you should do next.