You may have started a business with the best intentions in mind. Unfortunately, the business world is risky and unpredictable. A lot of new companies fail to make it. When this happens, you need to have an exit strategy in place. If you started your business as an LLC, there are some important steps to take in the legal sense. Learn what you need to do to dissolve an LLC when you decide it's time to close up shop.
Know Your Options
First, you should be aware of the different manners of closing an LLC. There are three different options recognized by business law. An experienced lawyer can help you determine which of the following options is the correct course of action.
A voluntary dissolution can be used when each owner agrees to the dissolution. This can be done through a simple majority vote, or according to the conditions set in the operating agreement. Utah does not require LLCs to use an operating agreement, but many companies choose to create one to direct the organization. Be aware of any limitations set out in the agreement. In addition, it is always a good idea to work with an experienced lawyer to get assistance with business contracts.
In an administrative dissolution, the LLC can be dissolved if certain duties are not met. The members of an LLC must ensure that all of the administrative obligations are met on a timely basis. If they fail to do so (i.e. miss an annual report), it's possible that the state authority will automatically dissolve the LLC. Sometimes these administrative failures can occur due to an error. If this is the case, it is still possible to resolve the situation before the dissolution is imposed.
The final option is a judicial dissolution. As the name suggests, this is a court imposed dissolution usually related to some sort of legal matter. In the real world, this type of dissolution usually occurs in relation to a white collar crime. However, it may also occur when members are deadlocked in a vote. Overall, this is not a common way to close out an LLC.
Working With Creditors
Most businesses have relationships with a number of different creditors. It is crucial that you notify each creditor of your intent to dissolve the company. This will allow time for them to submit final claims. Under section 48-3a-70 of the Utah Code, you must allow at least 120 days for the receipt of such claims. After the set deadline, these creditors will no longer be able to make a claim against the dissolved LLC. However, there are some situations where owners may be held personally liable for a debt. Thus, it is important to get advice from an experienced lawyer to protect yourself from future legal action.
In addition to the above, there are a few other things to keep in mind during the dissolution process. The state will require you to file dissolution documents to complete the process. You will also need to contact the appropriate licensing authority and tax agency. Finally, the members of your LLC will need to determine how to distribute the assets of the company. Again, this may be controlled by any operating agreement in existence. State law may also provide rules regarding the distribution of assets. In Utah, these rules can be found in sections 48-3a-404 and 48-3a-405 of the Utah Code.
A Final Piece of Advice
When dissolving an LLC, you want to make sure that you close out the business without any further liabilities. If you find that the process is too difficult or time consuming, you may want to consult with an experienced attorney. Business law matters can get complicated, and mistakes can be costly in the long run.
For more assistance with business law or contract litigation, get in touch with us at TR Spencer and Associates.