What Happens to Assets When an LLC is Dissolved (Texas Law)

what happens to assets when an LLC is dissolved

An LLC in Texas must complete specific procedures before it dissolves. Paying creditors and business debts among other important tasks are all part of this process. Following certain integral steps in a  Texas business dissolution is critical to financial and legal aspects.

A Houston business lawyer at Feldman & Feldman can walk you through the essential steps of dissolving a Texas business to ensure you manage its assets according to legal specifications. A commercial litigation attorney with our team can discuss the impact of various decisions on the dissolution and what happens to assets.

Review Business Agreements Detailing Asset Division

review business agreementThe creation of Company Agreements and contracts during a business’s inception likely holds key evidence about each member’s interest in the business. Assets are distributed based on each member’s contributions to the company. For example, as a member in a Texas LLC, suppose you contribute 60% to the assets of starting a business, while another member contributes 40%. A review of the Company Agreement and Organizational Meeting Minutes usually reflect these contributions and determines the assets’ distribution according to each member’s percentage, but other language in the Company Agreement may cause the distribution to be different.

Establishing business agreements through sound business contracts is essential in establishing any Texas LLC. No matter the size of your business, your investments cost you. Failure to protect that investment can have long-term financial impacts. In addition to the Company Agreement, other Contracts that may play a critical role in determining what happens to an LLC’s assets when it dissolves include:

  • Dissolution agreements
  • Purchase and sale agreements
  • Partnership contracts
  • Master services agreements
  • Company Agreement or Operating agreements

Working with a Houston business lawyer at Feldman & Feldman will provide you with a legal advocate who will strive to ensure your contracts include the required legal elements and protections. Our work can minimize your risk should your business dissolve.

By providing the essential elements in your business agreements and having those agreements and contracts properly executed, you create documentation showing all parties in a business agree to the terms of a contract.

Business contracts are an essential part of business planning, regardless of your familiarity with the other members in a business. No one enters a business expecting it to end in legalities and contentious business feuds, but business agreements and contracts can help ensure a smoother dissolution process when necessary.

Ensure Your Taxes Are Up to Date

Before distributing assets, it is imperative to follow the steps for winding up a Texas LLC according to the Texas Business Organization Code. You must obtain a tax clearance letter from the state, proving that all taxes have been filed and all taxes have been paid and are up to date. The company can use its assets to settle any delinquent or unpaid business taxes.

Obtain a Business Asset Valuation

Once business operations have ended, you should perform a valuation of the business’s assets. While some assets may increase in value, others can depreciate. Depending on the financial standing of a Texas LLC when it begins the dissolution process, assets can be a vital tool in paying off debts for financially unstable companies.

A formal valuation may benefit a business by ensuring the accounting of all assets and their correct value and providing documentation for any tax challenges when selling a business. Valuations benefit your business during the dissolution process and may help protect the value of your assets. Valuations are detailed and can account for specific aspects, such as a business’s location and any unique qualities it may hold.

Pay Any Outstanding Debts

Paying outstanding debtsBefore dissolving the business, an LLC must notify creditors of its intent to close. In Texas, creditors have the legal right to collect what they are owed by an LLC before it completely ceases operations. An LLC’s assets may be useful in closing out outstanding accounts and paying any balances due to its creditors.

When adequate funds do not exist in a business’s accounts,  selling assets provides an option to gather the funds to pay creditors. As a company begins selling its assets, it is vital to track the transactions to understand what a business’s remaining assets will be. Tracking the sale of assets will also benefit you in tax season.

A Houston business lawyer with our firm can provide guidance on asset organization. These tools will help you identify the optimal time to sell assets and how the sale should occur. Who you sell assets to can also impact a business’s final financial outcome. Ultimately, we strive to ensure the liquidation of assets occurs within the limits of Texas business law.

Filing Bankruptcy and an LLC’s Assets

When it becomes apparent your LLC is heading for bankruptcy, what happens to your assets next is legally significant. Taking an LLC’s assets can result in charges of fraud or stealing from creditors. A court may dismiss your LLC’s bankruptcy case or file criminal charges against you if you take a company’s assets. Our business litigation lawyers can offer guidance to protect you from unintended legal outcomes.

When Members Disagree on What Happens to Assets When a Texas LLC is Dissolved

Without viable contracts, business members must agree to the distribution of remaining assets once the LLC meets all pending financial obligations. Deciding how to divide assets can be challenging even under amicable circumstances. Commercial disagreements often require court intervention to determine how to divide assets after an LLC dissolves.

A judge will consider specific details about the business and apply Texas business laws. Appointing a third-party entity to oversee the division of assets may be necessary.

Our Houston business litigation lawyers can provide experienced legal representation, helping you understand your rights. Our focus is protecting your best interests to ensure your share of a business’s assets is protected when the business is dissolved.

Dissolving a Texas LLC and Protecting Its Assets Takes Time

Dissolving a business in Texas should take as much consideration as starting an LLC. Ultimately, the remaining assets can support future financial stability and the means to pursue other business ventures after dissolving a business.

Contact the Houston business litigation and transaction attorneys at Feldman & Feldman to begin the planning stages of winding up business in Texas. Our legal experience in dissolving a business and protecting its assets may provide critical benefits to you at any stage of the business’s life.