Closing your North Carolina 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 North Carolina. 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 or for administrative reasons such as failing to file annual reports or pay fees or penalties, 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 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 contains any dissolution provisions, North Carolina’s LLC Act allows for an alternative method to voluntarily dissolve an LLC: written consent of all LLC members.
Whether you dissolve the LLC based on rules in formational documents or on unanimous member 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
After taking the necessary action to dissolve your LLC, you must file articles of dissolution with the North Carolina Secretary of State ("SOS").
The articles of dissolution will contain basic information about your LLC, including:
- its name
- the dates of filing the articles of organization and all amendments to those articles
- the reason for filing the articles of dissolution (such as written consent of all members); and
- the effective date for dissolution.
There is a $30 fee to file the articles. Your filing usually will be processed within seven to ten business days. You may pay additional fees for expedited processing. The SOS has an articles of dissolution form available for download.
Be aware that your business name will become available for use by others 120 after the effective date of dissolution.
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 North Carolina’s LLC Act, key winding up tasks include:
- collecting LLC assets
- disposing of LLC property that will not be distributed in kind to members
- discharging or making provision to discharge LLC 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 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 formational documents provide otherwise, you should make distributions to current and former LLC members based, for example, on withdrawal from the company or on previous agreement of company managers. Finally, if any assets still remain, you should distribute them to the members based on the terms of your articles of organization or operating agreement, or else proportionally based on each member’s contributions to the company after adjustments.
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 North Carolina law, one way to give notice is by sending a written document directly to known claimants after the effective date of dissolution. Proper written notice must:
- describe information that must be included in a claim
- provide a mailing address where claims may be sent
- state the deadline, which may not be fewer than 120 days from the date of the written notice, by which the dissolved limited liability company must receive the claim; and
- state that the claim will be barred if not received by the deadline.
You also may give notice to 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.
North Carolina does not require that you obtain tax clearance before dissolving your LLC.
For federal tax purposes, make 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.
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.