Closing your Michigan 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 Michigan. Officially ending its existence as a state-registered business entity (and putting it beyond the reach of creditors) begins with a formal process called dissolution. While an LLC may be involuntarily dissolved through a court decree, this article covers how LLC members can voluntarily dissolve their LLC.
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 on 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.
You should also be aware that, regardless of whether your articles of organization or operating agreement contain any dissolution provisions, Michigan’s LLC Act provides an alternative method to voluntarily dissolve an LLC: a unanimous vote to dissolve by all LLC members entitled to vote.
Whether you dissolve the LLC based on rules in formational documents or on a unanimous member vote, make sure you record the decision to approve the resolution in the official minutes of the dissolution meeting or on a written consent form.
Certificate of Dissolution
After you have voted to dissolve your LLC, you must file a certificate of dissolution with the Michigan Department of Licensing and Regulatory Affairs ("LARA"). Your LLC must be in good standing with the state before you can file the certificate.
The certificate of dissolution will contain basic information about your LLC, such as:
- its name
- the reason for dissolution; and
- the effective date for dissolution if later than the filing date of the certificate.
The certificate must be signed by an authorized individual, such as an authorized LLC manager or member.
LARA has a certificate of dissolution form available for download. You may also draft your own so long as it includes all the required information. There is a $10 fee to file the certificate. Various types of expedited processing are available for a range of additional fees.
Be aware that your business name will become available for use by others once your LLC is dissolved.
Following the vote to dissolve your LLC, the company continues to exist 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 Michigan’s LLC Act, key winding up tasks include:
- paying any outstanding taxes
- paying, or making provision to pay, creditors (which may include LLC members) to the extent permitted by law
- making distributions to LLC members that may be triggered, for example, by dissolution or by a unanimous member vote; and
- distributing any remaining assets to members in accordance with the terms of the operating agreement or based on their respective, unreturned contributions to the company.
After paying outstanding taxes, you are required first to pay creditors, including LLC members who are creditors, to the extent permitted by law. Then, unless your operating agreement provides otherwise, you should make required distributions to current and former LLC members (for example, distributions based on previous agreement or vote, or on a member’s withdrawal from the LLC). Finally, if any assets remain, you should distribute those assets current and former members based on each member’s share in the company. Check your operating agreement to see if any provisions override or supplement the latter rule regarding member distributions.
Finally, note that under Michigan’s LLC Act, dissolution, alone, does not prevent your LLC from suing or being sued.
Notice to Creditors and Other Claimants
One other key task, generally considered part of winding up, 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 Michigan law, one way to give notice is by sending a written document directly to claimants after the effective date of dissolution. Proper written notice must contain certain information, including:
- a description of information that must be included in a claim against the LLC
- a mailing address where the claim may be sent
- a deadline for claims, which may not be less than six months after the effective date of the notice; and
- a statement that the claim will be barred if not received by the deadline.
You may also give notice to 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 one year 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.
Michigan requires that you submit a tax clearance request to the Department of Treasury ("DOT") within 60 days of filing your certificate of dissolution. A form for the request is available online from the DOT. However, it appears there is no specific penalty for failing to submit the tax clearance request.
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 Nolo article on what you need to know about closing a business.