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First Steps

At some point, LLC members vote to dissolve an LLC. Before you take that step, however, you'll likely want to get tax and legal advice for your particular situation and you'll need to be armed with data — lots of it.

One of the first things you need to check on is your Buy-Sell Agreement. This agreement sets out the rules for LLCs when they dissolve or when an LLC member chooses to move on. Your Buy-Sell might have pertinent information for this process. If not, you might consider making one before dissolving in earnest.  

Past that, if you have employees, you need to follow proper procedures for notifying them. Investigate whether you have any financial obligations regarding employment contracts or employee benefits.

Get an accurate picture of your real estate holdings. Dissolving the LLC will mean that you have to divide up assets. Is your real estate liquid? Can you realistically sell your property? If not now, when? If you cannot sell it, what does that mean for the dissolution of the LLC? If you sell it at a loss, how does that affect the basis for your LLC members? What are the terms of leases you have and what is required if you vacate the property?

If you have any contracts with customers, you'll need to come up with a plan for how to fulfill those contracts. What will it cost if you can't fulfill them?

Work with your tax expert to anticipate what you will owe in taxes and make sure you have enough money to cover any final amount due. You'll need to file the appropriate form with the IRS at the right time, usually within a specified number of days of your dissolution date.

When you have the answers to these questions, along with other specifics pertinent to your particular LLC, you will be ready to present the data to the members. 

Next Steps

Typically, a dissolution procedure is outlined in your operating agreement or other formal organizational documents. Usually, it requires a vote by your members or shareholders. The dissolution procedure will probably also specify how the assets are to be distributed. In an LLC, assets are generally divided on a pro rata basis, but your operating agreement may call for some other distribution method. If no procedure is specified by your LLC documents, then consult your Secretary of State or the corporations division of your state, who can provide you specific guidance based on state regulations.

The effective date of the dissolution is important, and the selection of the date may be based on constraints such as when you can liquidate assets. You may want to find a lawyer to help you analyze the factors outlined above, among others, and present the best options to the members. Remember that the vote may not be instantaneous or unanimous. If losses are involved, members may have differing opinions and demand more information. Getting a final vote can be a slow process.

Once the members or shareholders have voted, record the results in your formal meeting minutes.

One of the most important steps in dissolving an LLC is to properly notify your creditors. This is a formality and must be done in writing in order to limit your liability to them.

Wrapping Things Up

Finally, when dissolving an LLC, file the proper paperwork with the Secretary of State or corporations division of your state. It's usually not complex, but it's a formality that you must attend to, and the effective date on the paperwork may provide a defense against debt or liability.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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