Closing your Alabama limited liability company (LLC) will involve a variety of tasks. Among the most important are what is known as dissolving and winding up the business.
Dissolving Your LLC
Your LLC is registered with the State of Alabama. Officially ending its existence as a state-registered business entity, and putting it beyond the reach of creditors and other claimants, begins with a formal process called “dissolution.” While an LLC may be involuntarily dissolved through a court decree, this article covers voluntary dissolution by the LLC members.
In order to voluntarily dissolve your LLC, you first should look to the company’s governing documents—the certificate of formation and the operating agreement. In most cases, one of these documents will contain a section with rules for how to dissolve the company. Typically the rules will require a vote of the LLC members on a resolution to dissolve and a requirement that some percentage of members vote in favor of the resolution. Make sure you follow any specific procedural requirements that may be part of the dissolution rules, such as setting a specific time to meet and vote and giving advance notice to all members regarding the meeting.
Also, regardless of whether your certificate of organization or operating agreement contain any dissolution provisions, Alabama’s LLC Act allows for an alternative method to voluntarily dissolve an LLC: written consent of all LLC members.
For either approach to dissolution of your LLC—relying on rules in governing documents or written member consent—you should make sure to record the decision to approve the dissolution in the official minutes of the dissolution meeting or on a written consent form.
Note that dissolution, alone, does terminate or suspend a legal proceeding by or against your LLC.
Following dissolution, your LLC continues to exist only for the purpose of taking care of certain final matters that are known as “winding up” the company. You will probably designate one or more LLC members or managers to handle the winding up.
Under Alabama’s LLC Act, key winding up tasks include:
- preserving the LLC’s business or property as a going concern for a reasonable time
- prosecuting and defending actions and proceedings, whether civil, criminal, or administrative
- settling disputes by mediation or arbitration
- settling and closing the LLC’s business
- disposing of and transferring LLC property
- discharging LLC liabilities; and
- distributing the assets of the LLC to creditors and members.
When it comes to the last two listed items -- discharging liabilities and making distributions to creditors and members -- you are required to make payments in a particular order. First, you must pay creditors, including LLC members who are creditors, to the extent permitted by law. Note that it is particularly important that you pay all outstanding taxes. Next, unless your governing documents provide otherwise, you should pay any required “interim distributions” to current or former members. (Interim distributions generally are approved payments to members independent of and separate from dissolution.) Finally, if any assets remain, and unless your governing documents provide otherwise, you should make distributions to members (a) to return their contributions to the company, and then (b) with respect to their interests in the company, in the proportions in which the members share in distributions.
Articles of Dissolution
After dissolving your LLC, you must files articles of dissolution with the office of the judge of probate of the county in which your certificate of formation was filed. The articles of dissolution must contain certain basic information about your dissolved LLC, including:
- the LLC’s name
- the date of filing your certificate of formation
- the reason for filing the articles of dissolution (such as the written consent of all members)
- the effective date for the articles of dissolution if other than the filing date; and
- any other information the members or managers filing the articles deem appropriate.
The articles must be signed by an authorized individual. You must file the original articles and two copies with the judge of probate. There is a $100 fee payable to the Secretary of State (“SOS”) to file the articles, as well as whatever fee the judge of probate’s office in your county charges. For information on how long it takes to process your filing, check with you local judge or probate’s office.
Be aware that your business name will become available for use by others 120 days after your articles of dissolution are recorded.
Alabama does not require that you obtain tax clearance before dissolving your LLC.
For federal tax purposes, check the “final return” box on your IRS Form 1065 (if your LLC is classified as a partnership for tax purposes) or IRS Form 1120 (if your LLC is classified as a corporation for tax purposes).
Is your LLC registered or qualified to do business in other states? If so, you must file separate forms to terminate your right to conduct business in those states. Depending on the states involved, the form might be called a termination of registration, certificate of termination of existence, application of withdrawal, or certificate of surrender of right to transact business. Failure to file the additional termination forms means you’ll continue to be liable for annual report fees and minimum business taxes.
You can find additional information, such as forms, addresses of judge of probate offices, and filing fees on the SOS website.
For information on dissolving and winding up LLCs formed in other states, check Nolo’s 50-state series on dissolving LLCs.
Final Advice: Dissolving and winding up your LLC is only one piece of the process of closing your business. For further, general guidance on many of the other steps involved, check Nolo’s 20-point checklist for closing a business and the Nolo article on what you need to know about closing a business.