There are many reasons why one may choose to dissolve their LLC in Texas. Perhaps the LLC has become unprofitable. Maybe the members of the LLC decide to retire. Whatever the reason, taking the right steps to close an LLC in Texas is essential. Failure to do so correctly may open up your LLC to liability in the future.
Additionally, if your Texas LLC dissolution is due to the fallout of the relationship between the members, proper dissolution prevents any lawsuits between you and other members. Utilizing an experienced business law attorney’s services ensures the correct dissolution of your Texas LLC dissolution.
Initial Steps to Dissolve an LLC in Texas
The process of closing an LLC in Texas is different than in all other states. The dissolution of an LLC in Texas is subject to the Business Organizations Code of Texas. The Business Organizations Code governs all legal entities, not just LLCs. Initiating the dissolution process begins first with the process of “winding up” the LLC affairs. Winding up includes the following tasks.
Vote to Terminate the LLC
The operating agreement of your LLC should outline the termination procedure for your LLC. If required, hold a meeting with all members and take an official vote to terminate the LLC. Record all actions voting to end the LLC in writing. Preserve the meeting minutes detailing the vote with other relevant LLC documents.
Cease Business Affairs
Wrapping up includes ceasing the carrying on of business affairs. Stopping business activity includes various activities. For example, you will need to prosecute or defend any ongoing lawsuits involving the LLC.
Wrapping up also includes collecting and selling property belonging to the LLC not set for distribution to LLC members. Additionally, it’s essential to discharge all LLC liabilities and obligations. The business of the LLC ceases when the last remaining member of the LLC terminates its LLC membership.
Notify anyone who has a claim against the LLC. The notification you send to creditors should include information about the LLC dissolution and where creditors can submit claims.
Notify Tax and License Authorities
In addition to providing notification to creditors, providing notification to local, state, and federal taxing authorities is required. One task is determining whether the LLC owes any state or federal business taxes. If so, those must be paid in full before dissolution can proceed.
Furthermore, winding up includes the cancellation of any business licenses. Local government agencies typically handle the issuance and cancellation of business licenses.
Contact the Internal Revenue Service to alert them of the dissolution of the LLC. Contacting the IRS will also prompt the cancellation of the LLC’s Employer Identification Number (EIN). If your LLC has a DBA or fictitious business name, these must also be canceled.
Settle Creditor Claims
Once it receives claims submitted by creditors, the LLC may accept or reject them. If the LLC agrees with the creditor’s claims, repayment of those liabilities may be completed in full or through an agreed-upon payment plan with the creditor. Notification in writing is required to reject any creditor’s claims. If you haven’t already, this is an excellent time to contact a Texas business law attorney familiar with LLC dissolution.
Distribute Remaining Assets
Completion of the above steps prompts distribution of any remaining assets to the LLC members. Conduct distribution according to members’ respective rights and interests. The LLC operating agreement outlines this information. All members must report any distributions on their tax returns for the year.
Filing Dissolution Papers
Texas operates differently from most states by requiring completion of wind up procedures before closing an LLC in Texas. Once you complete the winding up of all business affairs, Texas requires certain filings.
First, file a certificate of account status with the Texas Comptroller of Public Accounts. Upon receipt, the Texas Comptroller determines whether any tax obligations exist for the LLC under the Tax Code.
Once the Comptroller determines that all you have fulfilled all your obligations, then you can file your certificate of termination—sometimes known as articles of dissolution—with the Texas Secretary of State. The certificate of termination legally ends the LLC’s existence in Texas.
The certificate of termination includes the following information:
- Name of the filing entity;
- Name and address of the LLC’s governing members;
- The LLC’s filing number assigned by the Secretary of State;
- The nature of the event requiring dissolution;
- A statement that the LLC has complied with the Texas Business Organizations Code; and
- Any other information required by the Texas Business Organizations Code.
Filing the certificate of termination requires a $40 payment. Once the certificate is processed, the dissolution of your LLC is complete. At this time, other entities may apply to use your LLC’s business name.
What Happens If I Don’t Dissolve Properly?
Failure to properly dissolve your LLC in Texas opens your business up to liability and possible penalties. Texas requires LLCs to file an annual franchise tax report. If this report becomes delinquent for more than 45 days, the LLC loses the ability to conduct business in Texas.
After 120 days, the registration of the LLC is forfeited. Additionally, a delinquent report prompts the imposition of a 5% penalty. After 30 days, Texas imposes an additional 5% penalty. If the report is delinquent more than 60 days, interest accrues at a rate of 1% over the prime rate.
More importantly, the LLC is not liable for the penalties imposed. Instead, the entity’s members are personally responsible for the debt imposed by the delinquent annual report.
It’s also important to properly dissolve registration of your LLC in any other states according to those states’ regulations. Failure to properly terminate in other states obligates you to continue paying annual report fees and minimum business taxes. If you fail to comply, your LLC may be subject to penalties.
Therefore, it’s important to contact a qualified business law attorney to guide you through the LLC dissolution process in Texas. An attorney ensures no remaining obligations exist and that your dissolution is completed correctly.
Whether you run a small or large business, dissolving an LLC in Texas can be complicated. Dissolve your LLC in Texas properly by relying on the qualified legal professionals at The Curley Law Firm.
Attorney Adam Curley has extensive experience counseling both large and small business clients through complex business law matters. With over a decade of legal experience, Adam has formed a practice centered on building relationships with clients and deep ties within the surrounding community.
The Curley Law Firm is ready to answer any questions you may have about dissolving an LLC in Texas. Give yourself peace of mind and dissolve your LLC correctly the first time with the counsel of The Curley Law Firm. Contact us today!