It was finally over after a good long run. Gert had kept up her LLC through thick and thin. Her LLC had been her one constant. It had provided her with not only a modest stable income but also with a reason to get up in the morning. But she was now on Social Security and had neither the need nor the energy to continue her LLC. How, though, was she to wind it up?
Grounds
Your LLC may conclude its operation for any number of reasons. Your state’s LLC act and your LLC’s operating agreement should provide for the voluntary and involuntary grounds for winding up your LLC’s affairs and dissolving the LLC. Those grounds may include that your LLC had only a defined period of duration in its articles of organization, although such a clause would be unusual. Most LLCs choose perpetual duration. More likely, the LLC or one or more of its members may reach the point of insolvency or bankruptcy. One of the members may die, fall ill, or insist on withdrawing for other reasons, leaving the other members unwilling or unable to continue. Your LLC’s operating agreement should provide for dissolution under those circumstances, while permitting remaining members to continue the LLC only if they wish to do so and are able.
Agreement
Perhaps the likeliest ground for dissolving your LLC is that your LLC’s members have all agreed that the time for dissolution has come. If all members agree, they don’t have to give any reason. Dissolution by member agreement is enough. Your LLC’s operating agreement may provide for dissolution not only by all members’ consent but alternatively by the vote of a majority of the membership sharing ratios. Better that all agree. You wouldn’t want to force a dissolution on a member with whom you have a valued relationship. But if the operating agreement so provides, and circumstances so compel, then a vote of majority interests is enough.
Winding Up
To wind up your LLC’s affairs is to follow the legal process for proper dissolution. Orderly dissolution of businesses is important to the vitality and dependability of business markets. If businesses can just irresponsibly disappear, with their owners absconding with business assets, then other businesses may suffer significant losses. Suppliers go unpaid. Customers don’t get their paid-for products, clients don’t get their contracted-for services, and lenders don’t get their loans repaid. Accordingly, your state’s LLC act and your LLC’s operating agreement will likely together require that you take steps to properly wind up your LLC, especially as to the satisfaction of its remaining obligations, out of LLC assets. Your failure to follow the mandated steps may even create personal liability for you and other members.
Cessation
Ceasing your LLC’s business is ordinarily a first step toward dissolution. You may be able to abruptly stop your LLC’s operations without undue adverse effect on customers, clients, suppliers, lenders, landlords, or your LLC’s own personnel. But cessation should itself follow an orderly process. Finishing up contracts the LLC has promised to perform may be possible and appropriate. Terminating other contracts with proper notice may likewise be the right course. Laying off sales personnel before laying off personnel delivering promised products or services may be appropriate. Give thought to how best to end your LLC’s operations without harming others and while preserving LLC assets and avoiding LLC liabilities. But don’t dawdle. Your state’s statute and your LLC operating agreement may require cessation as soon as practicable on the occurrence of certain involuntary-dissolution events.
Creditors
Your intent on ceasing LLC operations should indeed be to preserve LLC assets, first to pay the LLC’s creditors. You may be unable to cease LLC operations without breaching contracts. Under your state’s LLC act and your LLC’s operating agreement, your LLC’s assets would first go to creditors on tax, contract, and other obligations. Notify creditors of your intent to pay those obligations out of the LLC’s assets. Let creditors account to you for the amount of the LLC’s obligation to them. Try to resolve all obligations to the satisfaction of creditors, and with a release of creditor claims, so that you may distribute remaining LLC assets to members. Don’t distribute remaining assets to members while disputes remain as to outstanding debts. You may end up paying the debts yourself for your out-of-order distribution. And don’t let things just crash and burn, especially if the LLC has assets in excess of obligations. Preserve the excess for members.
Distributions
Your state’s LLC act and your LLC’s operating agreement will likely permit and require you to distribute to members the excess of the LLC’s assets over its debts. The distribution, though, should first go to satisfying liabilities to members. Members may have loaned funds to the LLC rather than or in addition to making contributions of money or services. The LLC should repay member loans before distributing the remainder according to membership interests. If the LLC promised distributions to members before dissolution but did not make those distributions, then the unpaid distributions should precede distribution of remaining assets in dissolution. Your state’s LLC act and your LLC’s operating agreement may require final distributions to members within a period such as 90 days.
Certificate
Your state’s LLC act likely requires that you file a certificate of dissolution with the state’s corporations bureau, like the one in the LLC forms at the end of this book. The certificate may be due when you commence dissolution, not when you complete dissolution. The purpose is to alert the public to your LLC’s new status, to allow the public to protect interests against the dissolution. The certificate will likely require you to disclose the reason for the dissolution and its effective date, and state that a majority of the members or membership interests have voted to approve dissolution. You may also have to state that the LLC is not commencing new business, issuing any new membership interests, or incurring any new liabilities or debts.
Assistance
The process for a sound dissolution can be complex and perilous enough to benefit from skilled attorney representation. Your LLC’s notice to creditors, termination of supplier, customer, or client contracts, negotiation with creditors over satisfaction of obligations, and communications and mediation among members may all require thoughtful planning and execution, using diplomatic communication skills. An attorney representing the LLC could smoothe the dissolution, limit liabilities and expenses, and help preserve net assets for member distribution. Get the help you need to make a sound exit. Don’t let issues linger.
Key Points
You may have to, or wish to, dissolve and wind up your LLC.
State law and the operating agreement determine dissolution.
Cease LLC business activities in an orderly fashion limiting losses.
Pay LLC creditors before distributing net assets to members.
Get skilled attorney assistance to reduce liabilities and risk.