Closing your South Dakota 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.
Your LLC is registered with the state of South Dakota. 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 an annual report or pay fees, taxes, or penalties, here we are concerned with voluntary dissolution by the LLC members.
In order to voluntarily dissolve your LLC, you 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 more specifically a requirement that some number or 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. Also make sure to record the decision to approve the resolution in the official minutes of the dissolution meeting or on a written consent form.
Unlike most other states, South Dakota’s LLC Act provides no explicit, statutory method for voluntary dissolution, such as unanimous member consent or a majority member vote, if your operating agreement does not contain provisions for dissolution. Consequently, if your operating agreement lacks dissolution provisions, you should seek the assistance of a business attorney.
After taking the necessary action to dissolve your LLC (such as by a vote by LLC members), the company continues to exist only for the purpose of taking care of certain final matters that, collectively, are known as “winding up” the company. You may choose to designate one or more LLC members or managers to handle the winding up.
Compared to most other states, South Dakota’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 creditors, including LLC members who are creditors. Note that it is particularly important that you pay all outstanding taxes. You should then distribute any remaining assets to members (a) in return for all contributions to the company not previously returned; and then, if any assets remain, (b) in equal shares. Unlike many other states, South Dakota’s LLC Act does not explicitly allow for the possibility that your operating agreement may have alternate rules for member distributions.
One key task generally considered part of winding up is giving notice to creditors and other claimants of your LLC's 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 South Dakota 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:
You also may give notice to other (unknown) claimants by publishing in a newspaper. As with sending direct notice to known 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.
After dissolving and winding up your LLC, you have the option to files articles of termination with the Secretary of State (“SOS”). South Dakota does not require you to file this type of final document, instead stating that an LLC “may” terminate its existence through these articles. However, it is generally advisable to file articles of termination in order to officially terminate your business. If you have specific questions about whether to file, you should contact a local attorney.
Articles of termination will contain basic information about your dissolved LLC, such as:
The articles of termination must be signed by an LLC member or manager. There is a $10 fee to file the articles. Your filing usually will be processed within about two business days. Expedited processing is available for an additional fee. An articles of termination form is available for download from the SOS website.
Be aware that your business name will become available after your LLC is dissolved.
South Dakota does not require that you obtain tax clearance from the state before dissolving your LLC.
For federal tax purposes, check the ‘final return’ box on your IRS Form 1065 (if your LLC is classified as a partnership for tax purposes), or on your IRS Form 1120 (if your LLC is classified as a corporation for tax purposes).
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.