Closing your Tennessee 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 Tennessee. 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 order, or for administrative reasons such as failing to file an annual report, 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 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.
You should also be aware that, regardless of whether your articles of organization or operating agreement contains any dissolution provisions, Tennessee’s LLC Act allows for an alternative method to voluntarily dissolve an LLC: majority vote (or greater vote, if required by the operating agreement) of all LLC members. (Note that the LLC Act lays out additional requirements for taking the majority vote, including how much advance notice members need of the meeting to vote and what information the meeting notice must contain.)
For either approach to dissolution of your LLC—relying on rules in formational documents or on majority (or greater) member vote—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.
Notice of Dissolution
After taking the necessary action to dissolve your LLC, you must file a notice of dissolution with the Secretary of State’s Division of Business Services (“DBS”). The notice of dissolution will contain basic information about your dissolved LLC, including:
- the name of your LLC
- the date of the meeting at which the resolution to dissolve was approved, and a statement that the requisite vote of the members was received, or that members validly took action without a meeting; and
- the effective date for the notice if other than the filing date (not later than 90 days after filing).
There is a $20 fee to file the notice. Your filing usually will be processed within 3-5 business days. You may also receive same-day processing if you deliver the notice in person. The SOS has a notice of dissolution form available for download.
Following the vote to dissolve your LLC, 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 find it appropriate to designate one or more LLC members or managers to handle the winding up.
Under Tennessee’s LLC Act, key winding up tasks include:
- collecting or making provision for the collection of all known debts due or owing to the LLC, including unperformed contribution agreements
- paying or making provision for the payment of all known debts, obligations, and liabilities of the LLC
- selling, leasing, transferring, or otherwise disposing of all or substantially all of the LLC’s property and assets; and
- distributing any remaining property, including money, to LLC members.
When it comes to paying debts and distributing property to members, assets must be distributed in a particular order. First, you must pay creditors, including LLC members who are creditors, to the extent permitted by law. Note that it is particularly important that you pay all outstanding taxes. Next, unless your formational documents or a majority member vote provides otherwise, you should make any interim distributions to current and former LLC members as required under your operating agreement. (Interim distributions are distributions that normally occur prior to, and separate from, distributions required upon dissolution.) Finally, if any assets still remain, and unless your articles of organization or operating agreement provides otherwise, you should make distributions to members (a) to return their contributions to the company; and then (b) respecting their membership interests, in the proportions in which the members share in distributions.
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 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 Tennessee 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
- state whether the claim is admitted or not admitted, and if admitted include (a) the amount that is admitted (which may be as of a given date) and (b) any interest obligation if fixed by an instrument of indebtedness
- provide a mailing address where a claim may be sent
- state the deadline, which may not be fewer than 4 months from the effective date of the written notice, by which the dissolved LLC must receive the claim; and
- state that, except to the extent that any claim is admitted, the claim will be barred if written notice of the claim is 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 two years after the date of newspaper publication to bring a claim.
There can be certain advantages to giving direct written notice to individual claimants. However, some of the details of giving notice, including those relating to whether or not a claim is admitted, can be confusing. Therefore, if you choose to give claimants notice of your LLC’s dissolution, you should strongly consider getting assistance from a business attorney.
Articles of Termination
After dissolving and winding up your company, you must file articles of termination with the DBS. The articles must at least include:
- the name of your LLC
- the date of filing of the LLC’s articles of organization
- the reason for filing the articles of termination (such as member vote to dissolve in accordance with your operating agreement); and
- an indication of whether known and potential creditors and claimants have been notified of the dissolution.
If you file your notice of dissolution with a delayed effective date, you cannot file the articles of termination until that date. There is a $20 fee to file the articles. Processing time should be the same as with the notice of dissolution.
Be aware that your business name will become available for use by others upon filing of the articles of termination.
Tennessee does not require that you obtain tax clearance before dissolving your LLC. However, the Department of Revenue (“DOR”) does state that you are required to notify them if you close your business. In most cases, you can close your business’s account by calling the DOR. There are also additional actions to take for specific taxes, such as business tax, and sales and use tax. For more details, check the DOR website.
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).
Note on Out-of-State Registrations
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.