Closing your Maryland 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 Maryland. Officially ending its existence as a state-registered business entity and, by extension, putting it beyond the reach of creditors, begins with a formal process called dissolution. While an LLC may be dissolved by the state for administrative reasons, such as failure to submit reports or tax returns, or through a judicial 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 formation documents-- the articles of organization and operating agreement. In most cases, one of these 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.
Maryland’s LLC Act contains a method that anyone can use to dissolve their Maryland LLC, even if the LLC has its own rules for dissolution. This alternative method is to obtain unanimous consent of the LLC members.
Regardless of whether you dissolve the LLC based on rules in your articles of organization or operating agreement, or by unanimous member consent, make sure you record the decision to approve the resolution in the official minutes of the dissolution meeting or on a written consent form.
Articles of Dissolution
The LLC members may choose to file articles of dissolution with the Department of Assessments and Taxation ("SDAT"). While no articles of dissolution form is available online, the LLC Act states that the document should contain:
- the name of your LLC
- the date its articles of organization were filed (and the filing dates of any amendments)
- the date of dissolution; and
- any other information the members decide to include.
Filing articles of dissolution is optional. If you have questions about whether to file, consult with a local business lawyer.
Revocation of Dissolution
The LLC Act does allow you to revoke the dissolution of your LLC if—after filing articles of dissolution but prior to filing a certificate of cancellation (see below)—you choose to continue doing business. However, certain conditions must be met for revocation, including unanimous agreement of LLC members. Additionally, you must file articles of continuation with SDAT. The basic filing fee for articles of continuation is $100. There is no online form for this document.
Regardless of whether you file articles of dissolution or whether your LLC technically is terminated, it still exists 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 Maryland’s LLC Act, key winding up tasks include:
- distributing assets to creditors to fully satisfy LLC liabilities; and
- distributing remaining assets to LLC members in proportion to their capital contributions to the company.
Creditors, including LLC members who are creditors, must be paid first, to the full extent permitted by law. Then, unless otherwise agreed, members will be paid in proportion to their respective capital contributions to the company, after adjustments for any shares of losses and all previous distributions received. You should check your operating agreement to see if any provisions override or supplement the latter rule regarding member distributions.
Articles of Cancellation
After you have voted to dissolve your LLC and wound it up, you must file articles of cancellation with SDAT. If your LLC has known creditors, you must notify those creditors of your LLC’s impending termination at least 19 days before filing the articles. If there are no known creditors, you may file immediately.
The articles of cancellation will contain basic information about your LLC, such as:
- its principal office address
- the name and address of its resident agent
- the name and address of each member designated to wind up the company; and
- a statement regarding whether notice of termination was given to creditors.
There is a $100 filing fee to file the articles. It will take about 8 weeks for SDAT to process your filing. For an additional $50, you can get expedited service, which means your filing should be processed within 7 business days.
Under Maryland law, when SDAT accepts your articles of cancellation, or, if later, on the effective date of those articles, your LLC is considered terminated.
Be aware that your business name will become available to others as soon as SDAT processes your articles of cancellation.
Note on Tax Clearance
Maryland does not require you to obtain tax clearance from the Comptroller in order to dissolve your LLC.
You can find an articles of cancellation form, as well as information on mailing addresses and filing fees, on the SDAT website.
For information on dissolving and winding up LLCs formed in other states, check Nolo’s 50-state series on dissolving LLCs.
Note: 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 article on what you need to know about closing a business.