Closing your Kentucky 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 Kentucky. 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, here we are concerned with 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 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, Kentucky’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.
Be aware that dissolution, alone, does not prevent the commencement of a legal proceeding by or against your LLC, nor does it abate or suspend a pending 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, 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 Kentucky’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 provision for discharging LLC liabilities, including as appropriate entering into agreements with creditors for the satisfaction of liabilities; and
- distributing the LLC’s remaining property among the members and assignees in proportion to their rights to share in that property.
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. Second, unless otherwise provided in your operating agreement, you must pay to current and former members any required interim distributions. (Interim distributions generally are approved payments to members unrelated to dissolution.) Third, unless otherwise provided in your operating agreement, you must make distributions to members and assignees for the return of their contributions to the LLC. Finally, unless your operating agreement provides otherwise, any remaining assets must be distributed to members and assignees in proportion to their 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 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 Kentucky 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 fewer than 120 days after the later of the date of the written notice or the filing of articles of dissolution (see below), 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 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.
Articles of Dissolution
After dissolving your LLC, you must file articles of dissolution with the Secretary of State (“SOS”). The articles of dissolution must provide:
- the name of your LLC
- a statement of the statutory basis under which your LLC was dissolved (such as per KRS 275.285(3), written consent of all LLC members); and
- the effective date of dissolution if later than the filing date.
The articles of dissolution should be signed by a manager or member of your LLC.
There is a $40 fee to file the articles. Your filing usually will be processed within a few days. An articles of dissolution form is available for download from the SOS website.
Be aware that your business name will become available for use by others after dissolution.
Kentucky 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 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.