For whatever reason, you may find yourself in the position of needing to end your limited liability company (LLC). It is important to realize that it is not as simple as just closing the door and walking away. Just as there was a formal process for forming the LLC, there are formal procedures that must be taken to end the LLC.
The process of ending a business is called dissolution, which officially ends the existence of the entity. It is important to complete this process because it takes the business out of the reach of creditors. While the focus here is voluntary dissolution, it is possible for a business to be involuntarily dissolved through a court order.
In order to dissolve, the LLC must obtain clearance from the Department of Revenue (DOR) and the Department of Labor and Industry (DLI). Before this clearance is granted, all required state taxes must be paid. LLCs must file DOR Form REV-181 (Application for Tax Clearance Certificate) with both the DOR and DLI.
For most LLCs, dissolution requires a vote of all members. Unless specifically prohibited by the formational documents, under the Pennsylvania LLC Act (Act), dissolution may be accomplished by a unanimous written agreement or consent of all LLC members. The decision to dissolve should be recorded in the official minutes of the dissolution meeting or on a written consent form.
The LLC will continue even after receiving tax clearance and going through dissolution. This is because the LLC still has certain matters that need to be resolved. The process of winding up takes care of these final matters, which, under most circumstances, is handled by the LLC’s managers. A large issue that needs to be taken care of is the distribution of any LLC assets. The Act requires LLC assets to be distributed in a specific manner and orders that:
- Reasonable provision must be made to pay creditors;
- Required distributions must be made to current and former LLC members; and
- Payment must be made to members in respect of their capital contributions and their share of the profits and other compensation by way of income on their contributions.
In addition, reasonable provision must be made to pay all claims and obligations of the LLC. If there are insufficient funds, claims are to be paid in order of their priority.
The final step is for the filing of a certificate of dissolution with the Department of State. This certificate must include the tax clearance certificates and be signed by a duly authorized LLC member or manager. A $70 fee must be paid and the filing is typically processed in about one week.
Help with your LLC
Dissolving your LLC is a very important part of the operation of a LLC, but many people do not give it much thought. For information about the formation, operation, or dissolution of LLCs, speak with an experienced attorney at the Philadelphia Small Business Law Center. We provide legal help related to all aspects of developing and running a small business. Contact us today for a free consultation.