There are many reasons why the time may come when you need to dissolve your Iowa limited liability company (LLC). The LLC dissolution process is complex and requires planning, coordination and filings.
Understanding how to dissolve an LLC can make the process much easier and ensure that you are able to complete the steps in the right sequence and avoid additional costs.
Whether you are selling the business, closing it because it is no longer profitable or merging with another entity, knowing how to dissolve your LLC is critical. In this post, we discuss the legal implications of business dissolution, the legal steps to take and answer frequently asked questions about the process.
The process of LLC dissolution is an important step in the lifecycle of your business. Dissolution is the legal cessation of business operations. Once dissolution is completed, you will no longer be allowed to conduct business in Iowa under that entity.
Dissolution is important to complete in an orderly, systemic fashion. Completing the proper steps in order ensures that the business closes properly, that key parties are notified and that financial obligations are completed.
There are many different reasons why you may legally need to dissolve your LLC. You may need to dissolve the LLC due to a pending business transaction, due to a court order or due to a decision by a majority of owners (referred to as members).
There are several different types of LLC dissolution. The type that your business uses will depend on the circumstances related to your dissolution.
In an administrative dissolution, the state of Iowa determines that your LLC is no longer complying with state regulations and guidelines, The state has the authority to act on this lack of compliance and take steps to dissolve the business. The most common reasons for an administrative dissolution are a failure to pay state taxes, failure to file an applicable report, failure to maintain a registered agent or failure to comply with applicable Iowa state laws.
In general, states have broad latitude to act on LLCs that are not complying with laws or state regulations.
In some cases, the dissolution is issued by an Iowa state court. Such a decision is often referred to as a corporate death penalty as the action swiftly dissolves the LLC in question.
There are many reasons why a court could choose to act to dissolve an LLC. The most common is if one or more members of the LLC ask the court to intervene and disconnect their legal obligation to the business. This situation usually occurs when there is a business dispute that is not resolved or if the aggrieved members believe that other members are behaving illegally.
Other reasons that can prompt a judicial dissolution include:
A voluntary dissolution occurs when the member or members opt to shut down the LLC on their own accord. This self-dissolution process can be prompted by a particular action that triggers an action that’s laid out in the company’s operating agreement.
These guidelines could, for example, call for a voluntary dissolution upon the death of a crucial member.
In other cases, it can be prompted by a majority vote of the LLC’s members. Typically, this vote is weighted, based on the various membership stakes or percentages that members have and not a straight majority of the members.
In most cases, it’s the operating agreement that details the triggers, guidance and procedures that are used for a voluntary dissolution.
Here’s a closer look at the steps to take to dissolve your LLC. While this is the typical order of these steps, the process may differ for your LLC.
A vote is an important part of the LLC dissolution. Members will need to vote to dissolve. Note that typically, the vote is weighted, meaning those with larger ownership stake receive more votes. The weighted majority prevails.
The process for how to conduct the formal vote to dissolve your LLC is likely detailed in the operating agreement that’s created when you form your company. In some cases, a vote to dissolve may require not just a simple majority but a unanimous vote of all members.
When you conduct your vote, it’s important to take detailed records. These records should be maintained with other official and important paperwork related to your LLC.
Whether a vote occurs depends on the type of LLC you have. If it is a single-member LLC, then you are the only owner and do not need to conduct a formal vote to dissolve. Instead, you simply follow the other steps outlined here.
If you are a multi-member LLC, defer to the operating agreement to determine how to hold a dissolution vote.
The LLC operating agreement is essential to the nuts and bolts of your dissolution. The agreement will likely detail other specifics of how to finish the work of the company.
Operating agreements, for example, will likely determine how company assets are divided, how debts are handled and how contracts are canceled.
The process of closing the business involves “winding up” affairs. This is a multistep process and it’s important to factor in all components of your company that need to be halted before the business stops operations,
Completing these tasks helps ensure that your critical business processes stop and that legal and communications issues are resolved.
Among the core processes that are a part of winding up are:
Creditors and claimants need to know that you are closing the business. In such cases, there may be financial obligations you need to resolve to close the business. It’s important that anyone to whom you owe money is paid.
All your debt obligations, such as outstanding loans, card balances and invoices need to also be covered, too.
Often, companies will notify all known claimants and creditors with a deadline for when claims need to be filed. If there are suspected unknown claimants and creditors, your business may want to take out a legal ad in relevant publications.
While the Iowa Secretary of State does not require notification that taxes have been cleared, it’s still important to complete all your regulatory and tax obligations. Failing to complete your required returns and payments could lead to financial penalties or collection fees.
If your Iowa LLC sells goods or services, you will need to pay your final sales taxes. And if you paid employees you will need to file a withholding tax quarterly return.
Filing a statement of dissolution is simple in Iowa. There is no form you need to complete. Instead, you simply submit a Statement of Dissolution with the state’s Business Services Division. There is a $5 filing fee.
The statement is not reviewed and it can take 2-3 business days to process. The statement only needs to include the name of the LLC and that it is dissolved. It can be filed online, in person or by mail to the following:
Secretary of State
Business Services Division
Lucas Building, 1st Floor
Des Moines, Iowa 50319
The decision to dissolve your Iowa LLC is a complex one and requires important steps to complete. However, by taking the proper vote, informing key parties and filing a basic statement with the state, you can conclude your LLC’s operations quickly.
There are many reasons you may choose to dissolve your LLC. In many cases, the company is no longer financially viable. Other reasons include the death or incapacitation of a key member, a member dispute, or court or state mandate.
Filing a statement of dissolution costs $5.
Yes, you can file your statement of dissolution with the Business Services Division online.
It takes 2-3 business days for the state to process your application.
Owners who do not dissolve their LLC are subject to additional tax obligations, liabilities and regulatory fees.
You must dissolve your LLC in each state in which it is registered.
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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