Closing your New York 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 New York. 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 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 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 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.
Unless your operating agreement provides otherwise, New York’s LLC Act allows for an alternative method to voluntarily dissolve an LLC: the vote or written consent of at least a majority in interest of LLC members. (If there is more than one class or group of members, then a majority vote or consent of each class is required.) Regardless of whether you dissolve the LLC based on rules in your operating agreement, a majority member vote, or majority written consent, you should make sure to record the decision to approve the resolution in the official minutes of the dissolution meeting or on a written consent form.
Articles of Dissolution
Within 90 days of taking the necessary action to dissolve your LLC, you must file articles of dissolution with the New York Department of State ("DOS").
The articles of dissolution will contain basic information about your LLC, including:
- its name
- if its name has changed, the name under which the LLC was originally organized
- the date the articles of organization were filed; and
- the event giving rise to the filing of articles of dissolution (such as vote or written consent of a majority interest of members, or an event specified in the operating agreement).
The articles must be signed by an authorized individual. There is a $60 fee to file the articles. Your filing to be processed within seven business days. You may pay additional fees for expedited processing. The DOS has an articles of dissolution form available for download.
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 New York’s LLC Act, key winding up tasks include:
- prosecuting and defending civil, criminal, and administrative lawsuits
- settling and closing the LLC’s business
- disposing of and conveying the LLC property
- discharging the LLC’s liabilities; and
- distributing any remaining assets to LLC members.
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, or establish adequate reserves to pay, creditors (including LLC members who are creditors) to the extent permitted by law. It is particularly important that you pay all outstanding taxes. Next, unless your operating agreement provides otherwise, you should make distributions to current and former LLC members based, for example, on their withdrawal from the LLC. Finally, if any assets still remain, and unless your operating agreement provides otherwise, you should (a) return to members any contributions to the LLC not previously returned; and then (b) make distributions to members in accordance with each member’s respective membership interests.
New York does not require that you obtain tax clearance before dissolving your LLC. However, the New York Department of Taxation and Finance ("DTF") does urge you to file:
- final business tax returns
- if you have employees, a final Form NYS-45 (quarterly withholding); and
- if you sell goods, a final sales tax return.
For federal tax purposes, be sure to check the “final return” box on your IRS Form 1065 when you file your final federal tax return.
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.
For information on dissolving and winding up LLCs formed in other states, check Nolo’s 50-state series on dissolving LLCs.
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.