Limited liability companies (LLCs) exist in the United States as a business structure option. This type of entity protects its owners from the company's debts or liabilities. There are a variety of other benefits as well such as choosing the method of taxation, and having a flexible structure.
LLCs are typically known to have both the characteristics of a corporation as well as those of a partnership or sole proprietorship. If you allow your LLC to dissolve, you will need to reinstate the company. There are a few methods in which you can avoid dissolution, or work to reinstate your LLC should it be necessary.
Reinstating an entity such as an LLC means that it was dissolved for one reason or another. If your entity was not in "good standing", then you may be dissolved without a choice. The most common reasons to have your LLC dissolved are by failing to file a Secretary of State annual report (along with paying fees) or failing to pay taxes.
There are various compliance regulations and it can be easy to miss deadlines. Despite this, typically you are given warnings before dissolution. If you were to lose your good standing and be dissolved, this would reflect very poorly on your business. This is why you want to avoid this at all costs because it can damage your business’ credibility and prevent you from doing business in another state. It can also remove your personal liability protection.
Two Types of LLC Dissolution
The most common reason an LLC would be dissolved involuntarily is that it did not pay its taxes. In this case, it would be forced to shut down essentially due to noncompliance. Despite this, there are other reasons why you might dissolve your own LLC.
If you are not making enough money to generate an actual profit then you are running a hobby not a business. In this case, there would be no reason to continue paying the annual compliance fees.
Not every LLC needs to exist for a long period of time and some LLCs have expiration dates from the beginning. Some LLCs are created for business, but for one specific purpose. For example, if you form an LLC in order to build a series of homes, you might want to dissolve the LLC once this is completed. This would be the end of the LLC's business purpose and therefore require voluntary dissolution.
Another reason you might dissolve an LLC is due to member disagreement. Although you never wish to have problems between members, things do happen. Examples of disagreements might be those of which each member is committing to the business, how profits are distributed, or what business opportunities the LLC should take advantage of. When it comes to serious disagreements, sometimes they cannot be resolved. In this case, the only answer may be to dissolve the LLC.
All LLCs have their own formation requirements based on the state they are formed in. In most states, you can form an LLC with a planned expiration date. This can be after a date, or a specific event in the future (such as the death of a member). If there is no planned date, then the LLC will be considered perpetual. If it does have an expiration date and you decide to reinstate the LLC, you will need to go through the process to do so.
Reinstating an LLC means you need to file with the Secretary of State, and sometimes with the IRS. Each state has different requirements, but in general, it is similar to the original steps of filing for an LLC, including paying a fee and giving all of your information.
What are the steps into the reinstatement of an LLC?