If you are operating an LLC and no longer wish to engage in such business, you cannot simply walk away or stop operations to limit your liability. Rather, you must properly dissolve your LLC to ensure that you will not be held personally liable for claims down the road. This process of terminating the LLC is better known as dissolution. This article has been prepared by a Denver business attorney to provide additional information to dissolving an LLC in Colorado.
The first step to a dissolution in the state of Colorado is to file a Statement of Dissolution with the Secretary of State. This formally terminates the LLC. Note, even after you have dissolved your LLC, the LLC may still exist for purposes of winding up, but not doing normal business operations. In other words, this allows the members of the LLC to take care of any remaining issues necessary to closing the LLC after the process has formally started with dissolution.
One major aspect of dissolving your LLC requires giving notice to creditors of the dissolution. This allows creditors a fair chance to bring any claim that they may have before it is too late and all of the LLC’s assets are gone. If you know of a specific creditor to your business, you may notify them directly of the entity’s termination. However, if you want to cover all you bases, then you should also provide notice to unknown creditors. How would you do this if you are unsure who may have a claim? A common way is to post notice of the entity dissolution in the local newspaper.
Another consideration is personal liability after an LLC has dissolved. In general, if the LLC has been properly dissolved (i.e. by filing the proper paperwork with the Secretary of State and addressing creditors’ claims, etc.), the owners of the LLC will not be personally liable. However, as with any rule, there may be exceptions.
One of the biggest concerns arises when a person has a claim after the LLC has dissolved that would allow the creditor to assert a piercing the veil claim. In other words, this allows the creditor to hold you personally liable due to your failure to separate the entity from your personal matters. Basically, where there is not a clear distinction between you and the business, you may be personally liable, even if the entity no longer exists. Piercing the veil claims are common in closely held entities and several indicators include undercapitalization, sharing personal finances with the business bank account (“commingling”), and treating business assets as your own to name a few.
This exception is allowed to prevent members of an LLC who saw a potential claim from simply dissolving the entity to avoid liability. Even if you have properly dissolved your LLC, if you have known claims or are aware of a potential claim before you dissolved the company, you may still be personally liable. This also hints at a fraud claim, which does not prevent you from personal liability even upon dissolution.
Another issue arises when a member enters into business transactions during the winding up process that are not in fact related to the dissolution of the LLC. The whole purpose of the winding up process is to tie up the loose ends. Rather, if a member engages in transactions that are related to continuing relations, this could result in personal liability. Its is recommended you discuss the dissolution of your LLC with your business attorney.
Contact The McGuire Law Firm to discuss your business questions and issues with a Denver business attorney.