Closing your Pennsylvania 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.
Pennsylvania has unique, tax-related requirements that you must fulfill before you can dissolve your LLC. In short, you cannot dissolve until you have paid all required state taxes and then received clearance from the Department of Revenue ("DOR") and the Department of Labor and Industry ("DLI"). To obtain the necessary tax clearance certificates, you must file DOR Form REV-181 (Application for Tax Clearance Certificate) with the DOR and DLI. You should complete, but not sign, the form, make one copy, sign each copy separately, and then mail one signed copy to each of the two agencies. You can find more detailed instructions, including mailing addresses, by downloading the informational document found at this DOR link. Be aware that it can take a month or more to receive your tax clearance certificates from the DOR and DLI.
Dissolving Your LLC
Your LLC is registered with the State of Pennsylvania. Officially ending its existence as a state-registered business entity and, by extension, putting it beyond the reach of creditors, requires a formal process called dissolution. While an LLC may be involuntarily dissolved through a court order, this article covers voluntary dissolution by the LLC members.
In order to voluntarily dissolve your LLC, you first should look to the company’s formational documents--its certificate or organization and operating agreement. In most cases, one of these 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 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 formational documents provide otherwise, Pennsylvania’s LLC Act allows for an alternative method to voluntarily dissolve an LLC: unanimous written agreement or consent of all LLC members.
Regardless of whether you dissolve the LLC based on rules in your certificate of organization or operating agreement or on unanimous member agreement, be sure to record the decision to approve the resolution in the official minutes of the dissolution meeting or on a written consent form.
After receiving your tax clearance certificates and taking the necessary action 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. Unless your operating agreement provides otherwise, the managers of the LLC should handle the winding up. If there are no managers, winding up will be handled by LLC members or a person approved by the members.
Compared to most other states, Pennsylvania’s LLC Act provides minimal information about tasks included in winding up and focuses mainly on how assets are to be distributed following dissolution. You are required to distribute LLC assets in a particular order. You first must pay or make reasonable provision to pay creditors, including LLC members or managers who are creditors, to the extent permitted by law. The LLC Act also specifies that you must pay or make reasonable provision to pay all claims and obligations of the LLC, including all contingent, conditional, or unmatured claims.
Then, unless your operating agreement provides otherwise, you should make any required distributions to current and former LLC members (for example, a distribution due to a member because he or she previously withdrew from the LLC). Finally, if any assets remain, and unless your operating agreement provides otherwise, you should (a) return to members any capital contributions they made to the LLC; and then (b) make distributions to members based on their share of the profits and other compensation by way of income on their contributions.
Certificate of Dissolution
After you have obtained tax clearance certificates from the DOR and DLI, taken the necessary action to dissolve your LLC, and discharged all LLC debts, liabilities, and obligations, you must file a certificate of dissolution with the Department of State ("DOS").
The certificate of dissolution will contain basic information about your LLC, including:
- its name
- a statement regarding discharge of debts, obligations, and liabilities (they have been discharged; or adequate provision has been made for their discharge; or there are insufficient assets to fully discharge but the available assets have been fairly and equitably applied)
- a statement that all remaining property and assets, if any, have been distributed to members in accordance with their respective rights and interests; and
- a statement regarding whether any court actions or proceedings are currently pending against the LLC.
Your tax clearance certificates must be attached to the certificate of dissolution. The certificate must be signed by a duly authorized LLC member or manager. There is a $70 fee to file the certificate (including the attachments). Your filing usually will be processed within about one week. The DOS has a certificate of dissolution form available for download.
For federal tax purposes, when you file your final federal tax return, make sure to check the “final return” box on your IRS Form 1065.
Note that your business name will become available for use by others once your LLC is dissolved.
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, including the application for a tax clearance certificate and a certificate of dissolution form, mailing addresses, and filing fees, on the DOS website and the DOR 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.