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How to Dissolve an LLC
When you start an LLC business, you are usually excited about what lies ahead. You might even dream about all the possibilities of starting a new venture. However, when you close down your business, you might feel like you need to get rid of any unfinished projects before moving on to the next thing. However, several legal requirements must be met before officially dissolving your LLC. Filing paperwork with the state and informing creditors are two of those requirements. These steps will protect you from personal liability if something goes wrong during the closing period. A Denver business attorney has prepared this article to provide additional information on dissolving an LLC in Colorado.
Why Should You Dissolve an LLC?
To start a business, you must register your company name with the Secretary of State. You also need to file articles of incorporation with the state. If you are doing business in another state, you may need to file a similar document. Once you registered your company name, you must notify the IRS and other relevant tax authorities. You should also keep records of all payments made to yourself and the corporation. When you dissolve the company, you stop paying taxes and filing returns.
Dissolution is a legal procedure that ends the existence of a corporation. A company can dissolve itself if its owners agree to do so. Suppose the owners of a dissolved corporation wish to continue operating under another name. In that case, they must file articles of incorporation under the state’s general corporation law. Dissolving a corporation does not affect any contracts entered into before the dissolution. A corporation may also be dissolved voluntarily by filing Articles of Dissolution with the Secretary of State. Dissolution of a corporation does not mean that the corporation ceases to exist. Instead, it dissolves the corporate entity and returns all assets to the individual shareholders. When a corporation dissolves, the directors and officers remain liable for any debts incurred before dissolution.
Vote to Dissolve the LLC
The first thing you need to do when dissolving a company is to get all the members to agree to dissolve the company. You will then need to follow the procedures set out in the organizational documents. If there are no specific procedures, you must follow the general procedure outlined in your state’s business laws. Once the company is dissolved, you must keep track of any outstanding debts or liabilities.
File Your Final Tax Return
When you dissolve your corporation, you must notify your state tax agency of your intent to dissolve. If you fail to do so, you could face fines and penalties. Once notified, the state tax agency will send you a notice indicating whether you need to pay additional taxes. If you have already paid all of your taxes, then there is nothing else to worry about. However, if you have not yet filed your taxes, you should still contact the state tax agency to let them know you intend to dissolve your corporation.
You must file your final tax return at the end of every calendar year. You may need to file quarterly instead of annually if you are self-employed. You will also need to file an annual report with the IRS. You must file your final employment tax returns within 90 days after the end of each quarter. Failure to file timely means you could face penalties.
File the Proper Dissolution Forms
Next, go to your state’s Secretary of State or Corporations Division website to find the dissolution forms. You will need to provide basic information about yourself and your company. Some states require additional information, such as proof of payment of outstanding taxes. Fees vary by state but generally range from $10-$50. Check the form instructions for the exact requirements.
You need to get an official Certificate of Dissolution from the state. You can do this online at the Secretary of State website. Once you receive the certificate, you must file it in your LLC record books. Be sure to include your LLC number, name, and other information. Make sure you also include the filing fees, if any. There may be additional requirements depending on what type of entity you are forming. For example, you must pay taxes if you are forming a corporation. If you are forming a partnership, you must register with the IRS.
Settle Outstanding Debts
It would be best if you let your creditors know about the dissolution. You can send them a letter via certified mail and return the receipt requested. If unsure what kind of creditor you have, check with your attorney or contact your state’s Secretary of State’s office. Your state’s law will specify the proper procedure. Usually, you must provide notice within 30 days of the dissolution. Any claim filed against you after the deadline will be dismissed if you fail to provide notice.
It’s important to keep track of your debts and credit card balances. If you’re unsure whether you need to send out notices to creditors, check your credit report first. A free copy of your credit report can be found at annualcreditreport.com. You can also get one every four years through AnnualCreditReport.com. Once you’ve checked your report, you should consider sending out notices to creditors.
Distributing Assets
You may need to pay your creditors before distributing any money to your LLC members. You will also need to allocate assets among your LLC members. These allocations are usually based on an owner’s share of the company. For example, if you have three owners with a 40-30%-30% ownership split, each owner gets 30% of the company’s total value. However, you can change the distribution of your LLC’s assets at any time. Doing so will require a special meeting of your LLC’s board of directors.
Take Care of Your Employees
Employment taxes. If you have one employee, you must pay them any final wages or compensation owed. You also need to make final federal tax deposits. The trust fund recovery penalty may apply if you don’t deduct or deposit employee income, social security, and Medicare taxes.
You must pay quarterly federal income tax on all wages paid during the year. You also must pay the estimated tax if you expect to owe more than $1,000 at the end of the year. Failure to pay the required due amount may be subject to penalties and interest.
You must complete an annual return if you paid wages during the calendar year. Suppose you paid wages to any employee during the calendar year. In that case, you must report the total wages paid to all employees. You must also report the total amount of FICA taxes withheld from wages paid to all employees, including those who did not receive wages. You must attach a copy of Form W-2 to the return. For more information about reporting wages, see Publication 1546, Reporting Employee Compensation and Benefits.
If your company receives tips, you must file Form 8027, “Employer’s Annual Information Return,” to report the final tip income. You also need to allocate tips to each employee. If you don’t, you may face penalties.
Conduct Other Wind Down Processes
A proper conclusion to your business involves closing out your accounts, including your business bank account, federal employer identification number (FEIN), and any state tax ID number, if applicable. You should also cancel any contracts and leases that may still be active and let your customers know when your last day of business will be.
Further Steps
If you register an LLC, you will automatically get a tax ID number in many states. You need to keep track of this number and update it when you change your name or state of incorporation. If you fail to do this, you may not be able to claim certain deductions or credits.
When you close your LLC, you’ll file your federal and state income taxes. You’ll also need to file any employment taxes owed. The IRS has a checklist of tax-related actions you need to take when dissolving an LLC. You’ll help avoid future fees, obligations, and lawsuits when you dissolve your LLC.
Contact The McGuire Law Firm to discuss your business questions and issues with a Denver business attorney.
