Ending a Limited Liability Corporation (LLC) can happen for a variety of reasons. Life can take a new direction, unexpected events like illness or death occur, or partners decide that collaborating no longer works. However, exiting a legal commitment does require specific steps.
Officially dissolving a Texas LLC should be initiated thoughtfully. A Houston business litigation attorney can efficiently walk you through the steps, ensuring a Texas LLC appropriately ends while representing your best interests. Feldman & Feldman brings the skill and determination your business needs to create and complete an exit plan for a business.
Texas LLC Dissolution Differs From Other States
Unlike most states with LLC Acts, Texas LLCs follow the guidance of the Texas Business Organization Code (BOC). Texas’s approach to LLC dissolution is mentioned in terms of winding up a business rather than dissolving an organization. Whether a governmental agency or the members dissolve your business, the appropriate paperwork must be completed.
Even in amicable dissolutions, having your interests represented is crucial. The Texas BOC explains the elemental procedures of LLC dissolution, which include these steps:
Get Approval
You must obtain and document approval from all members of an LLC before finalizing the shutdown of a business. Documentation creates a clear pathway through the winding-up process, preventing potential legal roadblocks while providing essential information for the state. You must secure approval through the following avenues:
- Specifying the dissolution process in the Certificate of Formation-Limited Liability Company
- Following dissolution provisions outlined in the Company Agreement
- Voting or agreeing by a majority of members or managers to dissolve the LLC
You must record the action in the meeting minutes or through a consent form.
Obtain a Tax Clearance
Under BOC guidance, Texas requires an LLC to get a tax clearance and a Certificate of Account Status before dissolution. Tax clearances are available online or can be submitted in hard copy with the Texas Comptroller. All LLCs must be able to prove their taxes are up to date.
There are no filing fees for the tax certificate. However, allow time for the paperwork to process as processing times may exceed a month or longer.
Cease Business Operations
The time for a business to begin the winding up and termination of the domestic entity process begins now. A business must prepare for the cessation of operations by the following actions:
- Cease creating binding contracts
- Stop sales
- Desist recruiting new customers or clients
Depending on the size of a company, it may choose to contract with a business that facilitates the winding-up process by completing existing contracts or moving a business out of its space. A Houston business litigation attorney can ensure this process is completed according to law, relieving you of some of the legal burden while you focus on your future.
Put Creditors on Notice
An LLC’s financial obligations must still be met before a business is dissolved. If a company is experiencing financial difficulties or legal challenges, it may shut down as a proactive step to remedy damages. However, dissolution does not end the debts that are owed. Claimants and creditors should have the opportunity to collect any outstanding debts before a Texas LLC closes completely.
Inventory Assets and Liquidate
The income earned from asset liquidation is a significant way to cover outstanding debts. Selling any assets should be a top priority. Members then split the remaining assets based on their interests and rights in the LLC. Under the Texas BOC, all creditors must be paid before members distribute the remaining assets.
Finalize Remaining Business
LLC members should address outstanding issues and finalize paperwork before the final winding-up process. They must file final business tax returns and sales tax returns. To do so, check the “final return” box on the federal tax return for LLCs on the IRS Form 1065 (G(2)) if you are a partnership or the IRS Form 1120 (E(2)) if you are considered a corporation. Complete cancellations for the following documentation of the LLC:
- Licenses
- Permits
- Registrations
Close out any banking accounts belonging to the LLC and finalize all contractual obligations.
LLCs Registered Out of State
Any LLC that qualifies or is registered to do business in another state should file the forms those states require to terminate the LLC’s right to do business there. The forms that must be submitted can vary but may include:
- Certificate of termination of existence
- Termination of registration
- Application of withdrawal
- Certificate of surrender of right to conduct business
A general business license is not required in Texas. However, the type of business an LLC conducts may require varying licensing, permitting, and registrations. Terminating these business documents is addressed when you finalize any remaining business.
Submit a Certificate of Termination
The Secretary of State requires a Texas LLC to file a Certificate of Termination as the final step. Include the tax certificate from the Comptroller. A termination certificate will include:
- The LLC name
- A file number issued by the Secretary of State when forming the LLC
- A detail of the events requiring the winding up, which would state the dissolution was voluntary and approved according to the BOC guidelines
- A final statement that the LLC met provisions for winding up under the BOC
- Effective date
- Authorized signatures
Costs Associated with Dissolving a Texas LLC
Currently, filing the Certificate of Termination requires a $40 fee. This fee may change over time. Other costs vary depending on an LLC’s unique business needs. Be aware of additional fees that may apply for early termination of contracts or other costs associated with your business.
Removing an LLC in Texas
Once an LLC finishes the winding-up process, pays the final taxes for the LLC, and receives the Certificate of Termination from the Texas Secretary of State, an LLC in Texas is removed. Once the LLC is dissolved, the business’s name becomes open for use by other entities.
Allow the Appropriate Amount of Time for Dissolution
Determining how long it takes to dissolve a Texas LLC is not simple. The length of time will depend on the complexity of the business. There is no one straightforward approach that works for every company. The best way to pursue a less stressful and timelier dissolution of a Texas LLC is to work with a Houston business litigation lawyer.
LLCs require creative individuals to bring their ideas together to inspire business. While members may excel at business operations, the legal aspect of operations often gets left by the wayside or ignored until complications arise. Working with an attorney keeps members on track, providing a smoother dissolution transition.
The Requirement of a Majority to Dissolve a Texas LLC
As mentioned above, an LLC with multiple members or partners will require a majority vote to continue with a business dissolution. This voting process prevents one member from dissolving a business on their own. When a majority agrees to the dissolution, they may give one partner signing permission for legal documentation. Rare exceptions permit one partner to dissolve an LLC for the remaining partners.
A member of an LLC in Texas cannot withdraw voluntarily or be expelled as a member under Texas law (§101.107). Provisions for removing an LLC member are best addressed when the business is being formed. Acquaintances, friends, and married partners going into business should discuss and establish the withdrawal or removal process on good terms before conflict arises. Below, we’ve listed how the withdrawal or expulsion of a member of a Texas LLC works.
Operating Agreement
The daily operations of a business are defined in an operating agreement. These agreements are usually created at a business’s formation. In this agreement, it is helpful to specify the removal process for a member. An operating agreement establishes these and other significant guidelines to address conflicts before they arise. Expulsion by a voting majority and withdrawal may be permitted in the agreement.
Voluntary Dissolution
As discussed above, voluntary dissolution of an LLC must occur, especially when an operating agreement does not exist or the agreement does not address instructions on the expulsion or withdrawal process for members. Ideally, the agreement will clearly state the process of how the majority of members must vote to remove a member or dissolve the LLC.
Involuntary Dissolution
When an operating agreement does not exist, and a majority of voting members cannot reach voluntary dissolution, a court order is required for involuntary dissolution. A Houston business partnership dispute lawyer can offer invaluable guidance throughout a dispute process, especially when a judge is involved.
Work With a Houston Business Litigation Attorney
Advanced planning is essential to dissolve a Texas LLC. However, complications and disagreements mean you and your LLC members may not always be able to determine the most appropriate exit strategy. Untangling the issues and how to resolve them requires experienced and knowledgeable guidance from a seasoned professional.
Be prepared for success going into and getting out of a Texas LLC by contacting a business litigation attorney in Houston at Feldman & Feldman today.