Closing your Arizona 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 Arizona. 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, or for administrative reasons such as a failure to notify the state of a change in place of business or to pay state fees or penalties, this article covers voluntary dissolution by the LLC members.
In order to voluntarily dissolve your LLC, you first should look to the company’s formational documents—the articles of organization and operating agreement. In most cases, one of those two 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, unless your operating agreement provides otherwise, Arizona’s LLC Act allows for an alternative method to voluntarily dissolve an LLC. The method requires that you obtain written consent to dissolve from:
- more than one-half of the LLC members; and
- one or more LLC members who, upon dissolution and liquidation of the assets of the LLC, would be entitled to receive assets valued at more than one-half of the value of all assets distributed to all members on liquidation.
For either approach to dissolution of your LLC—relying on rules in your operating agreement or majority written 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.
Following dissolution, your LLC continues to exist only for the purpose of taking care of certain final matters that, collectively, are known as “winding up” the company. You will probably designate one or more LLC members or managers to handle the winding up.
Under Arizona’s LLC Act, key winding up tasks include:
- collecting LLC assets
- disposing of LLC properties that will not be distributed in kind to members
- discharging or making provisions for discharging LLC liabilities; and
- distributing remaining LLC property among members according to the interests of the members.
When it comes to the last two listed items, discharging liabilities and making distributions to, 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) for liabilities other than distributions to members. Note that it is particularly important that you pay all outstanding taxes. Next, unless your operating agreement provides otherwise, you should pay members for “interim distributions” and any distributions due to members who have withdrawn from the company. (Interim distributions generally are approved payments to members unrelated to dissolution.) Finally, unless your operating agreement provides otherwise, any remaining assets should be distributed to members (a) in proportion to their contributions to the company not previously returned; and then (b) in equal shares among the members.
Articles of Termination
After dissolving and winding up your LLC—including distributing all LLC assets—you must file articles of termination with the Arizona Corporation Commission (“ACC”). The articles of termination will contain basic information about your dissolved and wound up LLC, including:
- the LLC’s name
- the LLC’s ACC file number
- a statement that all known LLC property and assets have been applied and distributed pursuant to statute; and
- an authorized signature.
An articles of termination form and an instruction sheet for the form are both available for download from the ACC website. The form includes a place to indicate if the signature is from a manager, a member, or someone signing on behalf of a named manager or member.
An ACC cover sheet, available from the ACC website, must be included with your filing. There is a $35 fee to file articles of termination. Your filing usually will be processed in about 20 days. Expedited processing is available for an additional fee.
Arizona 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, mailing addresses, and filing fees, on the ACC 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.