Limited liability companies don’t last forever, and there will likely come a time when you, or you and your fellow members, want to stop running your Pennsylvania LLC. However, you can’t just stop doing business and walk away. There’s a specific process you have to follow to protect yourself and what remains of the LLC.
Below are some reasons for dissolving an LLC, the types of LLC dissolution, and the proper steps for ending the life of an LLC in Pennsylvania.
In Pennsylvania, the process and the terminology are slightly different from other states. The document that you file at the end of the process, the one that officially finishes your LLC, is called a Certificate of Termination. There is also an optional document called a Certificate of Dissolution, which is filed early in the process and declares your intent to dissolve.
Dissolution is the act that officially and legally ends the life of your LLC in the state where it’s registered. Once the process is done, your company no longer exists in the Commonwealth of Pennsylvania.
Before you can file a Certificate of Termination and complete the dissolution process, you must satisfy your creditors, notify several government agencies, and obtain a tax clearance, which is a document that confirms that you do not have any outstanding taxes owed. You must follow the complete process to get your LLC off the books and to protect yourself from future liabilities.
Dissolutions can be either voluntary or involuntary. The two categories of involuntary dissolution are administrative dissolution and judicial dissolution.
Administrative dissolution takes place when the Pennsylvania Secretary of State removes an LLC’s rights, powers, and authority because the LLC failed to meet its obligations. The reason for administrative dissolution could be failure to submit reports or pay franchise fees within the required time limit. Another reason could be the failure to maintain a registered agent on file with the Commonwealth.
Judicial dissolution is a legal process ordered by a court. It’s sometimes called the corporate death penalty. It might happen where there is fraud, mismanagement, or breach of fiduciary duty by a member. It might result from the death or incapacitation of a member. Sometimes the cause is internal disagreement between members. Often, judicial dissolution is initiated by a petition from one or more of the members.
Voluntary dissolution is when an LLC`s members simply decide to end the business, or when a triggering event as defined by the operating agreement takes place. A trigger example might be the death of a member.
If there is more than one member, this dissolution will require a vote. Depending on the operating agreement, the requirement could be for either a majority vote or a unanimous vote.
These are the steps to follow to voluntarily dissolve your LLC in Pennsylvania. You can also get a personalized checklist from the Commonwealth of Pennsylvania by answering a few questions.
A vote of the members can initiate a voluntary dissolution of a Pennsylvania LLC. The members could vote to dissolve because of disappointing business results or because of disagreement between themselves. Voluntary dissolution can also take place based on a dissolution trigger that was defined in the operating agreement. For example, the agreement could state that the LLC will voluntarily dissolve upon the death of one of the members.
A single-member LLC can choose to dissolve simply upon the decision of that member. However, a multi-member LLC will need to vote before it can dissolve. The operating agreement may specify that a majority vote is adequate or that a unanimous vote is required. If the operating is silent on this topic, Pennsylvania law requires the vote to be unanimous.
Before proceeding, the members must understand what the operating agreement says about dissolution. In addition to specifying whether a unanimous vote is required, it might dictate how debts will be discharged, how business activities will close down, and how the remaining assets will be distributed to the members.
A Certificate of Dissolution is not a required document, but it informs the public that a dissolution will take place, and it may establish clarity among the members and prevent disputes. Unlike a Certificate of Termination, you do not have to obtain a tax clearance or perform the other windup steps before you file.
The document requires basic information about the LLC, including the name, the address of the registered office, and a statement that the LLC is dissolving.
There are a number of tasks that are required to dissolve the LLC in an orderly manner. These might include:
The LLC should (but is not required to) formally notify its claimants of the dissolution. If you send notice to creditors, and they don’t submit claims within 120 days (or a longer period that you specify), Pennsylvania law allows you to dispose these claims. A notice in the newspaper will serve as notification for any claim that you’re unaware of.
Any pending lawsuits need to be resolved.
Pennsylvania law requires a dissolving LLC to settle all its debts, dispose of physical assets, and distribute what’s left to the members. The distribution will be carried out according to what’s defined in the operating agreement.
Your LLC must satisfy the filing requirements of the Pennsylvania Department of Revenue (DOR) and the Department of Labor and Industry (DLI). Once you have completed all required tax filings, including (if applicable) a business tax return, a withholding return, and a sales tax return, you must apply for a Tax Clearance. A clearance validates that you do not have any unpaid taxes.
You can use these instructions. You’ll need certificates from both the DOR and the DLI.
It can take a month or more to receive the clearance certificates from both agencies.
The final step is to file a Certificate of Termination. All windup tasks must be complete before you file. You can download the PDF and return it by mail to the address on the form. The form may be submitted online at the Pennsylvania corporations site.
You will have to provide the LLC name, the registered office address, and verification that debts and judgments have been paid or that provision has been made for them. You must sign and date the form and list your title. A fee of $70 is required.
You may request that the certificate be returned to you at either a street address or an email address.
Once you have voted to dissolve, two documents, the Certificate Dissolution and the Certificate of Termination, bookend the process. The former declares your intent to dissolve, and the latter makes your dissolution final. In between are all the tasks that wind down the business and satisfy the Pennsylvania tax and employment authorities.
Closing the LLC you formed, even if you’re dissolving a successful LLC for positive reasons, can be a hard thing to process. Take some time to celebrate the fact that you took a chance, started and ran a business, and gained experience that will be valuable in whatever you do next.
You might dissolve an LLC if the business is not doing well financially, but that is far from the only reason for dissolution. A member might have died. There could be internal disagreement between members. You might want to move your LLC to another state. It could simply be that you’re ready to retire or to move on to a new and different challenge.
Reasons members may choose voluntary dissolution include the following:
You must remit $70 with your Certificate of Termination.
You may download and mail a PDF, or you may submit you Certificate of Termination online at the Pennsylvania corporations site.
While it takes about a week to process your final certificate, the overall process takes longer. It can take over a month to obtain your tax clearance. It can take several months from the time you decide to dissolve until the final dissolution takes place.
Fees, taxes and penalties may continue to accrue, and you may have to pay someone to continue reporting. Having an inactive LLC can expose you to the personal liability that an LLC is meant to protect you from.
You will have to file dissolution papers in each state, and you will have to meet any tax and employment requirements for every state.
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.
Terry is a serial entrepreneur with over 25 years of experience building businesses across multiple industries – construction, real estate, e-commerce, hotelier, and now digital media. When not working, Terry likes to kick back and relax with family, explore Taoism’s mysteries, or savor the taste of fine Italian red wine.
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