Dissolving your LLC is a challenging decision, but when the time comes, for whatever reason, there’s a wind-up process you must follow and complete to ensure you implement this process correctly.
In this post, we’ll examine the reasons for dissolving your Texas LLC, the different types of LLC dissolution, and the steps and requirements for doing so in Texas.
Dissolution is the act of officially closing your LLC with your registered state. LLC dissolution removes your LLC’s independent legal status by canceling it voluntarily or involuntarily with the Texas Secretary of State.
To ensure your state accepts your dissolution application, you must follow certain steps such as notifying your creditors and any applicable government (local and federal) agencies, paying any existing debts, and including a certificate of account status proving you’ve paid all outstanding taxes and your entity is in good standing.
Only when you follow these dissolution procedures can you dissolve your LLC and protect yourself from future liabilities.
Dissolution falls into three categories: administrative, judicial, and voluntary. And the procedure you must follow to dissolve your LLC depends on which dissolution type applies to you.
Administrative dissolution is when the State removes an LLC’s rights, powers, and authority because of failure to comply with its LLC obligations.
Reasons for administrative dissolution include:
Judicial dissolution (also called the corporate death penalty) is a legal process in which a court orders the dissolution of a limited liability company (LLC).
Reasons for judicial dissolution include:
Voluntary dissolution is when an LLC`s members vote to end the business. Depending on the number of members, this could require a majority vote.
Voluntary dissolution can happen in 2 ways.
Below are the steps you need to follow if you choose a voluntary dissolution for your Texas LLC:
LLC members (owners) who choose to dissolve their business are implementing voluntary dissolution.
Voluntary dissolution requires all members to vote in favor of it and requires a majority decision.
Voluntary dissolution can also occur if a pre-agreed dissolution trigger, as per the LLC operating agreement, occurs, such as the death of an LLC member.
LLCs without an operating agreement or those with one that doesn’t address voluntary dissolution, stating when why, and how it will take place, must follow the Texas state statute’s default provisions.
The difference between a single-member LLC dissolution and a multi-member LLC dissolution is that the multi-member partners must cast a majority vote in favor of dissolving the LLC.
An LLC operating agreement contains the internal rules for running and dissolving an LLC.
Before members trigger their LLC dissolution, they must refer to the operating agreement to ensure the reason for the dissolution complies with its terms.
Operating agreement rules can include:
LLC dissolution in Texas differs from most U.S. states because members must follow the Texas Business Organization Code (BOC) requirements.
When voting to dissolve your Texas LLC, all members must agree to and sign the dissolution documentation before closing the business to avoid legal roadblocks later.
LLC members must:
Winding up your business affairs means preparing for the closure of your business by taking the following actions:
Notifying your registered agent (if you have employed one).
Informing suppliers and customers that your business is closing.
Canceling any Texas recurring business licenses and permits.
Handling employee matters.
Stopping planned sales or services.
Plan to close the LLC business bank accounts.
An LLC provides its members with liability protection in cases of debts accrued by the business, and you may close your LLC if it is experiencing financial difficulties.
However, dissolution doesn’t remove any debts the LLC may owe. Before you can dissolve your LLC, it must meet its financial obligations by allowing claimants the opportunity to collect any money owed.
Those obligations include:
To dissolve your LLC in Texas, you must prove it has paid all taxes at a state and federal level.
Steps to take:
The Texas Secretary of State requires an LLC to file a Certificate of Termination of a Domestic Entity (Form 651) and submit two copies to the Texas Secretary of State online, by mail, or in person. As mentioned above, you are also required to submit a Certificate of Account Status from the Texas Comptroller to prove the entity is in good standing.
The fee for Texas LLC dissolution is $40.
The Certification of Termination form requires the LLC to provide the following business and member details:
Once the Texas Secretary of State approves your request, a certificate of dissolution will be sent to your registered agent.
Those are the legal requirements to dissolve an LLC in Texas, and once you file your Certificate of Termination, the process is straightforward.
Most of the work to dissolve your Texas LLC happens before you file your request, such as agreeing with fellow LLC members, investors, or family in the case of a single-member LLC.
Closing your business can be heartbreaking, but it can also be an opportunity for new beginnings.
You learned a lot by starting your LLC and can use that knowledge to create something new.
Remember, knowledge and experience are never wasted if you use them!
Several reasons exist for why you might dissolve an LLC; a few of the most common are:
Internal disagreements and disputes between members.
Moving your business to another state (some states allow this without dissolving your LLC).
Rising material costs or increased market competition.
Merging your LLC with another business.
Poor accounting or cash flow problems.
Suppose you don't dissolve your Texas LLC. In that case, you may still be liable to pay annual fees, including franchise tax, file tax returns, and pay accountants to submit them on your LLC's behalf.
It costs $40 to dissolve your LLC in Texas.
To dissolve your Texas LLC online, file a Certificate of Termination with the Secretary of State.
Generally, it takes 3-5 days to dissolve your Texas LLC after you have submitted your Certificate of Termination.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness. It also does not indicate any affiliation between Tailor Brands and any other brands, services or logos.
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