How to Dissolve an LLC in Rhode Island

How to Dissolve an LLC in Rhode Island

Ending a business is often an emotional process. You’ve put time, money, and effort into building your company. But sometimes, closing up shop is the right move. If you have a Rhode Island LLC you no longer operate, dissolving it legally protects you from taxes and liabilities. This comprehensive guide will walk you through the basics of LLC dissolution and detail the steps to formally close your Rhode Island LLC.

Basics of LLC Dissolution

Dissolving an LLC means formally ending its existence as a registered legal business entity. It is more than just stopping operations and closing up shop – you must file articles of dissolution paperwork with Rhode Island’s Secretary of State to officially terminate your company’s legal status.

Without properly completing the dissolution process, your inactive LLC could continue accruing tax and legal obligations. You also want to officially dissolve so you no longer have to keep paying annual state registration fees and franchise taxes.

In essence, dissolution winds up an LLC’s legal affairs and formally takes it off the books. This provides a clean break between you and the closed business.

Types of LLC Dissolution

There are three main types of LLC dissolution: administrative, judicial, and voluntary.

Administrative Dissolution

The state can administratively dissolve an LLC if:

Administrative dissolution typically occurs when an LLC ignores annual compliance rules. Rhode Island’s Secretary of State monitors inactive LLCs and can dissolve those not meeting requirements.

Judicial Dissolution

A court can order the judicial dissolution of an LLC in certain legal disputes, like if:

Members, creditors, or plaintiffs can request a judicial dissolution. The court examines evidence to determine if dissolving the organization is appropriate.

Judicial dissolution is less frequent than voluntary or administrative dissolution. But courts can provide a resolution if members dispute dissolving an inactive LLC.

Voluntary Dissolution

Voluntary dissolution takes place when LLC members unanimously agree to wind down the organization’s business and legal affairs. Reasons often include:

  1. The business is no longer profitable or operating

  2. Members want to part ways and focus on new ventures

  3. Major disputes prevent the LLC from functioning properly

  4. The original business purpose has been fulfilled

Voluntary dissolution is the most common type – it’s when owners decide to close up shop on their terms. The operating agreement typically permits voluntary dissolution with a majority vote of members.

Dissolving Your LLC in Rhode Island

Now that you understand dissolution basics, let’s go through formally dissolving an LLC in Rhode Island step-by-step.

Step 1: Vote to Dissolve the LLC

To initiate dissolution, the first step is for LLC members to vote and approve winding down the company. The operating agreement outlines the voting process.

If there is just a single member, they can decide independently to dissolve the LLC. For multi-member LLCs, a majority or unanimous vote is usually required depending on the operating agreement.

Before voting, carefully review the operating agreement terms on dissolution. It may contain provisions on:

Following the operating agreement ensures the vote aligns with the rules members established. Unless specified otherwise, Rhode Island does not impose special state requirements beyond adhering to the operating agreement.

Once the vote is taken, document the decision in writing and have members sign a consent form indicating approval. This creates a record that dissolution was properly authorized.

Step 2: Wind Up All Business Affairs and Handle Any Other Business Matters

After the vote to dissolve passes, the next step is to “wind up” the LLC’s activities and business operations. This involves:

  1. Providing notice to your registered agent, creditors, suppliers, and customers that the LLC is dissolving
  2. Canceling licenses, permits, services, and any planned obligations
  3. Shutting down operations, liquidating inventory, and collecting accounts receivable
  4. Terminating any employees and providing them final payments plus notices
  5. Closing business bank accounts and credit cards responsibly
  6. Settling equipment leases, office space leases, and other major contracts

The goal is to cease all business activities so that no new legal or tax liabilities are incurred. Tie up loose ends to wrap up the company’s affairs.

Step 3: Notify and Pay Creditors and Members

You must provide notice of dissolution to any potential creditors, claimants, and LLC members.

To inform the public, publish a dissolution announcement in a local newspaper covering the areas where your LLC operated. This allows unknown creditors to come forward with claims.

Send direct notice to known creditors specifying claim deadlines they must respond by. Pay any outstanding business debts, loans, or obligations before finishing dissolution.

Finally, distribute remaining cash or assets to members according to the terms in the operating agreement and dissolution vote.

Step 4: Settle All Tax Obligations

Contact federal and Rhode Island tax agencies to settle any final tax obligations:

  1. File a final IRS Form 1120S to report income and pay final federal income taxes
  2. Pay any outstanding federal payroll taxes and file related returns
  3. File a final state income/franchise tax return and pay taxes
  4. Pay final state sales taxes if applicable and close sales tax permits
  5. Pay final state unemployment taxes and file any remaining reports
  6. File your last Rhode Island annual report and pay related fees

Step 5: File Articles of Dissolution with Secretary of State

The final requirement is preparing and filing Articles of Dissolution with the Rhode Island Secretary of State to legally terminate your LLC.

You will need to submit:

Form 122 requests your LLC’s name, ID number, jurisdiction, dissolution date, and other basics. It must be signed by an authorized member or manager.

You can mail Form 122 and the fee to the Commercial Recording Division. For faster processing, file online through the Corporate Database portal instead.

The Secretary of State will first review and approve the articles of dissolution. They will then issue a Certificate of Dissolution making the closure official. Keep this certificate for your records.

Final Steps to Complete the Dissolution

Even after filing dissolution articles, some other tasks can help wrap up loose ends:

Completing these last steps lets you tie up any remaining loose ends.

Conclusion

Closing the LLC you formed involves a multi-step process – voting to dissolve, winding up operations, settling debts, filing final tax returns, and submitting articles of dissolution. While it takes some time and effort to formally dissolve, it eliminates ongoing legal and tax liabilities related to an inactive LLC. This ensures you properly close your Rhode Island LLC and protects your limited liability as a member.

FAQ

You should legally dissolve any inactive or non-operating LLCs to end your ongoing compliance responsibilities and formalize ceasing business. This eliminates the LLC’s tax and legal liabilities from following you.

If you do not formally dissolve your inactive LLC, you will have to continue paying annual state registration fees, taxes, and filing requirements. You can also remain personally liable for any legal or tax issues.

The state can process your articles of dissolution within 1 to 2 business days. However, allow 3 to 4 weeks total to complete all dissolution tasks like settling accounts, distributing assets, and filing final tax returns.

Yes, you can file articles of dissolution directly with the Secretary of State online through the Corporate Database portal. This is faster than mailing in paperwork.

If your Rhode Island LLC is also registered in other states, you will need to complete the dissolution process separately using each state’s requirements. Dissolving in one state does not terminate your LLC status across the board.

And there you have it – a complete 1800 word guide on properly dissolving your inactive LLC in the state of Rhode Island.