Deciding to close a business is never an easy process. However, if the right steps aren’t taken, this process can turn into a nightmare and have many unintended consequences. Practically speaking a business can be closed by simply shutting down operations. However, until a business is properly “dissolved,” it remains open legally. A failure to properly dissolve the business may result in additional taxes, penalty fees or even leaving the members susceptible to future legal liabilities.
Prior to beginning the process of dissolution, it is important to understand possible reasons for dissolution. In Minnesota, the owners or “members” of a limited liability company (LLC) have the option of voluntarily dissolving the LLC at any time after it is formed. This typically comes when the members decide that the business purpose has been completed or the business ceases to be economically sustainable. The members may also choose to dissolve the business because they’ve found themselves at a standoff with fellow members regarding necessary decisions concerning the business operations of the LLC and they think that they simply need to cease doing business. No matter the reason, if the members are in agreement, the dissolution process can begin.
The formal dissolution of an LLC is done in accordance with state law. In Minnesota, the basic stages of dissolution typically proceed in the following order. First, the approval of the members must be obtained. There are formalities which need to be followed. The voting method for this approval will typically be provided in the LLC operating agreement. Next, a statement of dissolution should be filed with the state. This can be a relatively easy step, but is critical to dissolving the business as it puts creditors and other interested parties on notice. Once the statement of dissolution is filed, the members of the LLC should begin “winding up” the business itself. This may include: selling of outstanding assets, collecting any outstanding debts, pay any outstanding liabilities, and finalizing other affairs of the business. Lastly, a statement of termination should be filed with the state. This statement provides the state with the proper contact information for the dissolved business in the event any further action is required. There are other requirements along the way.
Following these steps to formally dissolve and wind up the affairs of the LLC helps ensure that taxes, fees, and penalties do not continue to accrue against the LLC. Additionally, this process allows for continued member protections against personal liability for known and unknown liabilities of the business. Finally, by dissolving your business correctly, your future business interests remain protected.
To avoid legal challenges regarding dissolution, the LLC members should carefully follow the legal steps discussed as well as consult the articles of organization and operating agreement that was filed when the LLC was first created. It is for this reason that it is highly recommended that you consult an attorney when making the decision to dissolve your business and for assistance in doing so.
This article was sponsored by Vlodaver Law Offices, LLC, an experienced business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation, contact us.