Closing your Kansas 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 Kansas. 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 your 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, unless your operating agreement provides otherwise, Kansas’s LLC Act allows for an alternative method to voluntarily dissolve an LLC: written consent of a majority of LLC members, or, if there is more than one class or group of members, written consent of a majority of members in each class or group.
For either approach to dissolution of your LLC—relying on rules in the 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 may choose to designate one or more LLC members or managers to handle the winding up.
Under Kansas’s LLC Act, key winding up tasks include:
- prosecuting and defending lawsuits
- gradually settling and closing the LLC’s business
- disposing of and conveying the LLC’s property
- discharging or making reasonable provision for 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 LLC members and managers who are creditors, to the extent permitted by law. Note that it is particularly important that you pay all outstanding taxes. Next, unless otherwise provided in your operating agreement, you must pay distributions due to resigned members. 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) respecting members’ LLC interests, in the proportions in which members share in distributions.
Also, regarding claims against and obligations of the LLC, Kansas’s LLC Act more specifically states you must pay or make reasonable provision to pay “all contingent, conditional or unmatured claims and obligations, known to the limited liability company and all claims and obligations which are known to the limited liability company but for which the identity of the claimant is unknown.” If you are unsure about the status of any potential claim or obligation, you should consult with a local business attorney.
Certificate of Cancellation
After dissolving and winding up your LLC, you should file a certificate of cancellation with the Secretary of State (“SOS”). The certificate of cancellation must provide:
- the name of your LLC
- your state business entity ID number
- the reason for filing the certificate (such as unanimous vote to dissolve per the operating agreement); and
- the effective date of dissolution if later than the filing date.
There is a $35 fee to file the certificate by mail. You can also file online for a fee of $30. Mailed-in filings usually are processed within 2-3 business days. Online filings are processed immediately. A certificate of dissolution form (Form KC 53-02) is available for download from the SOS website.
Note: If you want to submit your certificate of cancellation after the close of your LLC’s tax year, you must first file an annual report and fee to the SOS.
Be aware that your business name will become available for use by others after dissolution.
Kansas 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 the online filing system, 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.