Dissolution is the only way to eliminate an LLC’s legal obligations to file and pay taxes to New York State, as well as pay any other fees required – even if the LLC is not doing any business or conducting any transactions with capital or property. To dissolve an LLC, you must fulfill a number of steps to ensure that business affairs are terminated properly with no loose ends. If an LLC is not properly dissolved, it will continue to exist as a business entity in New York and is subject to actions by creditors and the state.
This is what you need to know about dissolving a for-profit LLC in the state of New York.
Different Types of Dissolution
Every corporation and LLC has tax and reporting obligations, which are to be fulfilled by certain deadlines. Failure to do so will prompt the state to send a deficiency note outlining what requirements have not been done and what actions the LLC must perform to remedy the deficiencies – and in what time period (usually 60 days). The most common deficiencies are failure to file an Annual or Biennial Report in time, not filing or paying taxes for two or more consecutive years, and not maintaining a Registered Agent or Office in the state. If the LLC does not comply with the instructions in the deficiency note, the state can effect an involuntary dissolution of the company by the Secretary of State – making it illegal for it to conduct business until it is reinstated. Involuntary dissolution does not, however, absolve an LLC from filing and paying taxes and fees.
Judicial dissolution is a drastic remedy that occurs when a court finds that it is not “reasonably practicable” for an LLC to do business in accordance with its operating agreement or articles of organization. It is usually a petition brought on by a member on the basis that:
- The LLC’s purpose was frustrated (if technology the LLC was to develop has become obsolete, or it is deprived of an operative asset, for example).
- Another member has breached the operating agreement or has failed to live up to their bargain – or has committed serious misconduct or fraud.
- The other members have abandoned the business, or business has otherwise ceased.
- The members can’t break a deadlock in relation to management of the company, and business can no longer be conducted.
- There is internal discord and dissension among LLC members about strategy, operations, or other crucial actions, and, as a result, the LLC won’t be able to conduct business.
The type of dissolution discussed in this article is voluntary dissolution, the process through which an LLC’s members decide they no longer want the company to exist. This type of dissolution allows the membership to “break up” as they see fit and provides the most freedom for members to decide how the LLC is going to deal with outstanding liabilities and properties.
Steps to Voluntary Dissolution of an LLC in New York
1. Follow the Dissolution Procedure in the Operating Agreement
Most LLC operating agreements set out the rules and procedures for the LLC’s dissolution, as well as what “triggering events” can start the dissolution process. A triggering event could be something like the death of an LLC member, bankruptcy, a particular violation of the operating agreement, illegal business activity or management, or the membership no longer wants to continue with the enterprise. Some companies are created only to do business for a specified time, so a certain date could be the triggering event.
The most common triggering event is a members’ majority vote to dissolve the company. If there is a quorum requirement or the decision must be unanimous, it should be delineated in the LLC operating agreement. If, for some reason, a process is not outlined in the operating agreement, the New York LLC Act allows dissolution of an LLC by way of written consent of the majority of the members. As with any important corporate decision, it should be clearly reflected in meeting minutes or record.
2. Wind Up the LLC
There are many components in the winding-up process.
Notification of Interested Parties
Interested parties include creditors, lenders, suppliers, vendors, service providers, and employees, insurance company, and landlord.
- Creditors, lenders, suppliers, vendors, service providers. Notification allows the LLC to finalize whatever debts and outstanding payments are owing and to prepare a settlement itinerary.
- Employees. Final payment of wages and benefits (if applicable) should be given with the notification. The length of time you have to complete this depends on the size of the business under New York law.
- Any other entity with which the LLC has a business relationship, such as insurance companies and landlords. At this time, you should be making final arrangements to close out contracts.
You should start the notification process as early as practicable to allow enough time to resolve matters in time.
Settlement of Legal Claims
Through the notification process, you will have signaled to certain parties that whatever claims are being made against the company – or that the company is making – are going to be dealt with. This includes bringing or defending lawsuits under administrative and civil law – or defending against criminal charges if they have been brought – or negotiating settlements. If there are outstanding receivables, it is important that these are collected before dissolution takes place. It would be much more difficult for LLC members to collect against debtors on behalf of a company that no longer exists in law.
Discharge of Tax and Other Liabilities
The LLC should pay whatever they owe, whether they are debts to creditors or outstanding taxes and fees. This should be done before distributing any assets to members. Until the LLC has settled its taxes, it will not be able to dissolve – even if the LLC is no longer conducting any business activity. On the tax return form for the latest company taxes, there is a box that says “Final,” which should be ticked to indicate that this will be the last return filed on behalf of the LLC. Note that the LLC may still have to file quarterly withholding taxes for employees, as well as final sales tax returns. Within a few weeks – longer if there are still franchise taxes to be paid – the LLC will be issued a Consent of Dissolution from the New York Department of Taxation and Finance.
Distribution of LLC Property
Property can be distributed or sold through liquidation sales or auctions so that the money can be distributed to members after paying off creditors. Unless the operating agreement states otherwise and provides a different instruction, assets or money should be made to members upon their withdrawal from the company and in proportion to each member’s interest in the LLC. Member contributions that have not been previously returned should go back to the appropriate members. There are usually no tax ramifications attached to distributing an LLC’s remaining cash and property to members because for the purpose of federal taxes, the assets are already deemed to be owned by the members. Unless the operating agreement says otherwise, the LLC doesn’t have to distribute property in a form that is not cash. But if the operating agreement does not address how contributions of property will be valuated, there may be some disagreement as to the worth.
Administrative Business Closing Tasks
All business financial accounts, credit cards, permits, and licenses the LLC has obtained should be canceled and closed. Additionally, if the LLC did business outside of New York State, all out-of-state-registrations should be terminated – you will need to follow the rules and requirements of every outside state your LLC is registered in. Failure to do so means that the LLC will continue to receive assessments for minimum business taxes as well as annual reporting fees.
3. File Articles of Dissolution
Articles of Dissolution signed by an authorized individual – containing information such as the LLC name and any historical name changes, date of the filing of the Articles of Organization, what gave rise to the dissolution (triggering event or majority vote or consent) – must be filed with the New York Department of State (sent to its office in Albany) within 90 days. There is a $60 filing fee – with additional fees if you need to expedite – and the Articles of Dissolution are usually processed within 7 business days. The template is available on the Department of State’s website. Note that once Articles of Dissolution have been filed and processed, the LLC will cease to exist, and its business name becomes open for use.
Is There an Easier Way?
Currently, there is no easy way to dissolve an LLC in New York online. However, with ClickDissolve, you can file the dissolution completely online. Rather than trying to navigate all the paperwork and procedural requirements on your own or expend money on business attorney fees, you can talk to the ClickDissolve specialists and let them take care of the dissolution paperwork, including filing with the appropriate state and federal agencies. Contact us today to find out more about how ClickDissolve can help with the voluntary dissolution of your LLC.
