In these tough economic times, I get as many inquiries about the dissolution of LLCs as the initial organization. Some business owners find it somewhat surprising when presented with the steps required to legally dissolve their US-based LLC.First, the basic steps for dissolution of the LLC:

1. Members vote to dissolve;
2. Adoption of the dissolution plan;
3. Real liquidation of the business;
4. Obtain a tax clearance letter from your state tax authority and
5. File a certificate of dissolution with the Secretary of State’s office (for the state where your LLC is organized).

Step 1 seems simple enough at first glance, but what if fewer than all the LLC members agree to dissolve? First, check the LLC’s operating agreement to see what percentage of member votes it requires for dissolution. Typing “Sample LLC Operating Agreement” into Google (TM) will return a list of sample agreements that must contain language for the dissolution of the LLC. If your operating agreement is silent on the subject, then LLC state law controls. Most require the unanimous consent of the members to voluntarily dissolve the LLC with the notable exception of California. See Cali. Corp. Section 17350 (b) of the Code (“majority vote in the interests of the members”). If the unanimous consent of the members is required in the operating agreement, is there still a way to dissolve the LLC with less than unanimous consent? Yes. Most states allow legal action by dissident members to dissolve an LLC when they have reached a management standoff. It’s costly and time-consuming to go to court on such an issue, so try to resolve it with your peers before going down that road.

The dissolution plan basically sets out the methodology under which the LLC’s business operations will be suspended, assets will be sold, creditors will be paid, and what will happen to the remaining funds. If the LLC is insolent (meaning its assets are less than its liabilities), then the plan must address the allocation of the LLC’s assets among creditors. One suggestion on this front: pay all government tax authorities before private creditors, if possible. The plan must be adopted by the members of the LLC. After the adoption of the plan, the next step is the actual liquidation of business affairs. The law requires that the LLC’s creditors be notified that a dissolution plan has been adopted. Once the LLC’s business affairs have been settled, the LLC requests a tax settlement letter from the appropriate state tax authority. Once purchased, the tax settlement letter is filed with the certificate (or notice) of dissolution at the Secretary of State’s office. In most cases, you can find a pre-printed Certificate of Dissolution form on the Secretary of State’s website. I suggest obtaining this form at the beginning of the dissolution process and reading the instructions carefully. The instructions should list all steps for dissolution in your state.

There is a simplified procedure for dissolving an LLC that has not yet started business operations. Better yet, the website of the secretary of state (or equivalent office that makes incorporations) often has a pre-printed form to use in dissolving LLCs that have not yet started business.