Closing your Iowa 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 Iowa. 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 failing to file a biennial report or pay fees or taxes, this article covers voluntary dissolution by the LLC members.
In order to voluntarily dissolve your LLC, you first should look to the company’s operating agreement. In most cases, it 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 more specifically 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 operating agreement contains any dissolution provisions, Iowa’s LLC Act allows for an alternative method to voluntarily dissolve an LLC: consent of all LLC members.
For either approach to dissolution of your LLC—relying on rules in the operating agreement or unanimous 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.
Statement of Dissolution
After dissolving your LLC, you have the option to file a statement of dissolution with the Secretary of State (“SOS”). The statement is a simple document containing the name of your LLC and a statement that it is dissolved. It is generally appropriate to file this statement, but if you are unsure whether to do so in your particular case, check with a local business attorney.
There is no form available from the state for the statement of dissolution so you will have to draft your own or have an attorney draft one for you. There is a $5 fee to file the statement. You can submit it by mail, fax, or in person. The SOS typically will process the statement within a few days. If you deliver the statement in person to the SOS, it can be processed while you wait.
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 may choose to designate one or more LLC members or managers to handle the winding up.
Under Iowa’s LLC Act, key winding up tasks include:
- preserving the LLC’s activities and 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 activities
- transferring the LLC’s property
- discharging the LLC’s debts, obligations, or other liabilities; and
- marshalling and distributing the LLC assets.
When it comes to the last two listed items, discharging liabilities and distributing assets, the LLC Act requires you to make payments in a particular order. First, you must pay creditors, including LLC members who are creditors. Note that it is particularly important that you pay all outstanding taxes. Next, you must make distributions to members for or others with a transferable interest in the LLC for any previously unreturned contributions to the company. Finally, any remaining assets are distributed to members and dissociated members, generally in equal shares. (Note that, unlike most other states, Iowa’s LLC Act does not explicitly allow for the possibility that an operating agreement may contain alternative provisions regarding member distributions.)
Notice to Creditors and Other Claimants
One other key task is giving notice to creditors and other claimants of your LLCs 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 Iowa law, one way to give notice is by sending a written document directly to known claimants after dissolution. Proper written notice must:
- specify the information required to be included in a claim
- provide a mailing address to which the claim is to be sent
- state the deadline for receipt of the claim, which may not be less than 120 days after the date the notice is received by the claimant; and
- state that the claim will be barred if not received by the deadline..
You also may give notice to other (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.
Statement of Termination
After dissolving and winding up your LLC, you must file a statement of termination with the SOS. The statement of termination simply needs to state the name of your LLC and that it is terminated. As with the statement of dissolution, there is no form available from the state for the statement of termination, so you will have to draft your own.
The fee to file the statement of termination is $5. You can file by mail, fax, or in person.
Be aware that your business name will become available for use by others after the statement of termination is filed.
Iowa 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 mailing addresses, filing fees, and references to relevant sections of the LLC Act, 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 part 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.