June 7, 2020  
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LLC Dissolution

All good things eventually come to end, including your LLC. But LLC dissolution has a few twists and turns that differentiate it from the dissolution of a corporation or general partnership. We've got the information you need to emerge from the LLC dissolution process with your assets (and your sanity) intact.

Like any other business, Limited Liability Companies (LLCs) have a finite shelf life.

Sooner or later, it will be time to call it quits and formally dissolve the LLC. If LLC members have planned for the dissolution, the transition process will be smooth and hassle-free. If not, be prepared for the LLC equivalent of absolute chaos.

LLCs are highly unique business entities hybrids between corporations and general partnerships (or sole proprietorships). The key to successfully dissolving an LLC is to understand its special features and how they impact the LLC dissolution process. Entrepreneurs who were ill-informed when they entered LLC ownership are usually the ones who are surprised when it's time to exit the business later on.

Since LLCs are regulated on a state by state basis, you'll need to research your state's laws for details about LLC withdrawal and dissolution.

But in general, here are some of the most common issues regarding dissolving an LLC.

Continuity vs. No Continuity

A lot of LLC members get tripped up in the area of continuity of life. Corporations are continuous business entities when an owner or major shareholder dies, the corporation continues because it has a legal life of its own. Sole proprietorships and general partnerships, on the other hand, have no continuity of life. When the owner dies, the business ceases to exist. But what about LLCs? Since LLCs aren't corporations, they have no continuity of life and are usually dissolved following the death, disability, bankruptcy, or withdrawal of a member.

Member Withdrawal

Although most LLCs dissolve when a member withdraws, it's possible for the LLC to survive member withdrawal if provisions have been made for it in the operating agreement. Members who leave an LLC are entitled to a return of their capital investment in the business or other benefits described in the operating agreement. The process for member withdrawal is regulated and the rules vary from state to state.

Requirements for LLC Dissolution

LLCs dissolve for a variety of reasons. In addition to the previously described dissolution circumstances, the life of the LLC can be limited to a specific term (usually thirty years). Each state dictates its own LLC dissolution process, including the forms that need to be filed, the fees that need to be paid and the manner in which assets are distributed. Count on the fact that LLC owners won't receive their share of the company's assets until all of the company's debts and liabilities have been paid in full.

Related Articles

Want to learn more about this topic? If so, you will enjoy these articles:

How to Form an LLC
Limited Liability Companies

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