Entity selection – the process of determining which entity to use when establishing a business – is one of the critical areas when starting a business. If a business owner chooses the “wrong” entity, it can have significant ramifications in the future. Similarly, there are also important considerations when closing – or dissolving – an existing business. When an entity is dissolved, numerous steps have to be completed, including document filing and creditor notifications, among others. The same is true when someone creates a new entity.
In this post, we’re going to focus on the basic dissolution procedure for LLCs, and also the various considerations which are part of the “wind up” phase. While LLCs are the most popular small business entity, the process is similar for corporations and other types of entities.
The Steps for Dissolving and Winding Up a Florida LLC
The basic steps for dissolving a LLC are as follows: (1) the members of the LLC authorize the dissolution, (2) Articles of Dissolution are filed with the State of Florida, (3) conduct all “wind up” activities, including notifying creditors and discharging liabilities, and (4) filing a termination statement. Typically, the dissolution authorization procedure for an LLC is included in its operating agreement; in other words, the members of a LLC usually decide how the entity will be dissolved at the time the business if formed. In most cases, a formal vote is required. If no pre-established dissolution procedure exists, then the members can simply give their written consent. This is provided for in Florida’s Revised LLC Act, Chapter 605 of the Florida Statutes.
As mentioned, the Articles of Dissolution are filed with Florida’s Division of Corporations. Within the Articles of Dissolution, the members need to provide certain information: they need to identify the reasons for the dissolution, they need to substantiate debts and liabilities which have been paid, provide a status update on all unpaid debts and liabilities, and identify any legal entanglements involving the LLC.
Like the Articles of Dissolution, the termination statement must also include specific information. The following information must be provided: (1) the name of the entity, (2) the date on which the entity’s Articles of Organization were filed, (3) the date on which the Articles of Dissolution were filed, and (4) a statement indicating that the winding up activities have all been completed.
Considerations for Winding Up the LLC
In the State of Florida, LLCs which dissolve have three primary winding up considerations to think about:
(1) settling debts and liabilities,
(2) giving proper notice of the dissolution to employees, vendors, creditors and others, and
(3) distributing property to members and non-members (i.e., liquidating the assets of the LLC).
Settling debts, liabilities, actual claims and contingent claims are among the most important wind up activities.
Florida LLCs can deal with their actual and contingent claims in different ways. One way has a shortened “claims period,” but allows the LLC to comply with statutory notice requirements and rejection procedures. The other way is to either pay or make reasonable arrangements to pay all of the LLCs claims.
Whatever method the LLC uses to resolve its claims, the main point readers should take away is that the LLC must settle these obligations first, and then whatever assets remain can then be distributed to the members. In other words, LLCs need to settle their financial obligations first before they can send assets to members. If the LLC does not follow proper procedures in resolving known and unknown claims, and distributes assets to members, those transfers can be challenged by creditors and liability can attach to the member(s) receiving improper distributions.
Contact The Frazer Firm For Help Dissolving and Winding Up Your Business
The State of Florida has similar dissolution procedures and considerations for other types of entities like corporations and partnerships. If you are considering closing your business due to retirement, following an asset sale, or other consideration, schedule a consultation with the experienced business attorneys at The Frazer Firm today.
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