Most businesses do not last forever. You may come to a point where you must dissolve your LLC, and this process can occur for many different reasons. In some cases, the owner/operator of the LLC may feel it is best to end the business. In others, you may be obligated to shutter your LLC by an external force. Regardless of the underlying reason, most LLC dissolutions fall into one of the following three categories. Knowing why and how dissolutions occur will ensure you are prepared should the time come.
Administrative dissolution
LLCs are beholden to certain state laws, which vary based on which state you live in. The Secretary of State is responsible for ensuring business owners are compliant with these laws, and in the event this office feels compliance is insufficient, they have the authority to terminate your business. Along with non-compliance, an LLC can also be dissolved after failing to file the proper annual report. This illustrates the importance of following all relevant rules and regulations for LLCs in your state.
Judicial dissolution
Along with the Secretary of State, a court can also mandate that your LLC be dissolved for legal non-compliance. Failure to remit taxes as mandated by the IRS is another reason why a court may intervene in your business. A lawsuit can also be brought against the LLC by its members. If the court determines that the members’ lawsuit has merit, the business may be dissolved and the proceeds distributed according to the orders of the court.
Voluntary dissolution
Of course, members and owners of an LLC can also call for dissolution on their own. Most operating agreements have certain rules which establish when it is necessary for an LLC to be dissolved. This is often the case when a member dies, at which point the LLC would begin the dissolution process by filing an Articles of Dissolution in its specific state. However, members can also take a vote on whether an LLC should be dissolved.
