Closing your Arkansas 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 Arkansas. 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 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, regardless of whether your articles of organization or operating agreement contain any dissolution provisions, Arkansas’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 formational documents or unanimous 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 are known as “winding up” the company. You will probably designate one or more LLC members or managers to handle the winding up.
Under Arkansas’s LLC Act, key winding up tasks include:
- prosecuting and defending lawsuits
- settling and closing the LLC’s business
- disposing of and transferring the LLC’s property
- discharging the LLC’s liabilities; and
- distributing to the members any remaining LLC assets.
When it comes to the last two listed items, discharging liabilities and making distributions to members, you are required to make payments in a particular order. First, you must pay creditors, including, to the extent permitted by law, LLC members who are creditors. Note that it is particularly important that you pay all outstanding taxes. Next, unless otherwise provided in your operating agreement, you must pay current and former members any required “interim distributions” and any distributions due to dissociated members. (Interim distributions generally are approved payments to members unrelated to the distributions required upon dissolution.) Finally, unless otherwise provided in your operating agreement, you must distribute any remaining assets to members and former members (a) for the return of their contributions to the LLC; and then (b) in proportion to the members' respective rights to share in distributions from the LLC prior to dissolution.
Notice to Creditors and Other Claimants
One other key task is giving notice to creditors and other claimants of your LLC's dissolution. Giving notice is optional. However, doing so will help limit your liability and also allow you to more safely make final distributions to members.
Under Arkansas law, one way to give notice is by sending a written document directly to known claimants after dissolution. Proper written notice must:
- describe information that must be included in a claim
- provide a mailing address where a claim may be sent
- state the deadline, which may not be less than 120 days after the later of the date of the written notice or the filing of articles of dissolution, by which the LLC must receive the claim; and
- state that the claim will be barred if not received by the deadline.
You also may give notice to unknown claimants by publishing in a newspaper. As with sending direct notice to individual claimants, there are specific rules for giving notice through publication. Generally speaking, claimants have five years after the date of newspaper publication to bring a claim.
There can be certain advantages to giving direct written notice to individual claimants. In any case, if you choose to give claimants notice of your LLC’s dissolution, you should strongly consider getting assistance from a business attorney.
Articles of Dissolution
After dissolving your LLC, you should files articles of dissolution with the Secretary of State, Business & Commercial Services (“BCS”). Arkansas does not require you to file this type of final document, instead stating that an LLC “may” file the articles. However, it is generally advisable to file articles of dissolution. (If you have specific questions about whether to file, you should contact a local attorney.)
To complete the articles of dissolution, you must provide:
- the name of your LLC
- the date of filing of the LLC’s articles of organization and all amendments thereto
- the reason for filing the articles of dissolution (such as written consent of all members); and
- the effective date of dissolution if other than the filing date.
In addition, you should include a final franchise tax report with your articles of dissolution (see below). Articles of dissolution will not be accepted without the report.
There is a $50 fee to file the articles. Your filing usually will be processed within 2 business days. An articles of dissolution form is available for download from the BCS website.
Be aware that your business name will become available for use by others after dissolution.
Arkansas does not require that you obtain tax clearance before dissolving your LLC. However, as mentioned in the preceding section, you do need to include a final franchise tax report when filing your articles of dissolution. The minimum final franchise tax for an LLC is $150. A final franchise tax report form is available for download from the BCS website.
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 BCS 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.