Closing your Texas limited liability company (LLC) will involve a variety of tasks. Among the most important are what is known as winding up and terminating the business.
Texas is different from pretty much every other state in the country in that, for almost all practical purposes, it has no separate LLC Act. Instead, as of January 1, 2010, Texas limited liability companies are mainly governed by the Texas Business Organization Code (BOC), as are all Texas corporations, non-profit corporations, and partnerships.
Also, portions of the BOC covering the winding up of domestic entities have been revised, with the revisions becoming effective September 1, 2013. This article is based on the revised statute.
Because of the particular complexities of Texas law regarding the termination of Texas business entities, you should not rely solely on this article, but instead are advised to seek expert assistance from a knowledgeable Texas business attorney.
Triggering the Winding Up of Your LLC
By way of officially closing your Texas LLC, you will need to initiate a series of final tasks that collectively are known as “winding up” the company. While an LLC may be required to wind up involuntarily by a court decree, or may be involuntarily terminated by the Secretary of State for failure to file annual reports, here we are concerned with voluntarily winding up of the LLC through formal actions by LLC members. In states with LLC Acts, the action that directly precedes, and leads into, winding up a company, such as a formal vote by the LLC members, is routinely called “dissolution.” The BOC, however, tends to avoid the word “dissolution,” as well as references specifically to LLCs, and instead speaks more generally of various possible events that would “require” the winding up of a Texas business entity.
To initiate the process of voluntarily winding up your LLC, you first should look to your company’s organizational documents—the certificate of formation and the operating agreement. In most cases, and notwithstanding the BOC’s avoidance of the term, one of those two documents will contain a section with rules for how to “dissolve” the company, or otherwise take action to require winding up. One typical approach would be to require a vote of the LLC members on a resolution to start winding up, and a requirement that some percentage or number of members vote in favor of the resolution. Make sure you follow any specific procedural requirements that may be part of these 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 certificate of organization or operating agreement contains any “dissolution” provisions, the BOC allows for an alternative event that would require winding up: a majority vote of all of the LLC members.
If and when you do initiate the winding up process, based either on rules in organizational documents or on majority member vote, you should make sure to record the decision in the official minutes of the relevant member meeting or on a written consent form.
Under Texas law, after taking action to trigger the winding up of your LLC, the company must cease carrying on business except to the extent necessary to wind up. Various sections of the BOC mention various winding up tasks applicable to an LLC, including:
- sending a written notice of the winding up to each known claimant against the LLC
- collecting and selling LLC property to the extent the property is not to be distributed in kind to LLC members
- applying and distributing LLC property to discharge, or make adequate provision for the discharge of, all of the LLC’s liabilities and obligations (this includes liabilities and obligations owed to LLC members other than distributions)
- after discharging, or making adequate provision to discharge, all LLC liabilities and obligations, distributing the remainder of the LLC’s property to the members according to their respective rights and interests
- prosecuting or defending lawsuits; and
- performing any other act required to wind up the LLC’s business and affairs.
Regarding the fourth listed item, distributing to LLC members any remaining assets after paying off all debts, you should review your operating agreement to learn about members’ “respective rights and interests.” More generally, if you have questions about any of these tasks, you should seek assistance from a qualified attorney.
When you have completed winding up your LLC, you must file a certificate of termination (discussed just below). However, you must first obtain a certificate of account status (Form #05-305) from the Comptroller of Public Accounts (“CPA”) indicating that all necessary taxes have been paid and your LLC is in good standing for the purpose of termination. To obtain the required certificate, you must file Form 05-359 (Request for Certificate of Account Status) with the CPA. You can find the request form, along with other relevant information, on the CPA website. It will take 4-6 weeks for the CPA to process your request. Once you receive your certificate of account status, you will need to attach it to your certificate of termination.
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).
Certificate of Termination
After you have wound up your company and obtained your certificate of account status from the CPA, you must file a certificate of termination with the Secretary of State (“SOS”). According to the BOC, the certificate must include:
- your LLC’s name
- the name and address of at least one LLC manager if manager-managed, or each managing member if member-managed
- your LLC’s file number assigned the Secretary of State
- the nature of the event requiring winding up (such as approval of a voluntary decision to wind up the LLC); and
- a statement that your LLC has complied with the provisions of the BOC governing its winding up.
In addition, the instructions for the certificate of termination form available from the SOS state that you should provide the effective date for the certificate, which may be: (a) the filing date; (b) a date not more than 90 days from the date the certificate is signed; or (c) the date of the occurrence of a specified future event. The SOS instructions also state that the form should be signed by an authorized manager if your LLC is manager-managed, or an authorized managing member if your LLC is member-managed. Remember: you must attach your certificate of account status to your certificate of termination (see the SOS instructions for more details).
There is a $40 fee to file the certificate. Your filing usually will be processed within 3-5 business days. The certificate of termination form (Form 651) including instructions is available for download from the SOS website. There is also an option to file the certificate of termination online (this requires that you have an image of your certificate of account status saved on your computer that you can upload to the SOS website).
Be aware that your business name will become available for use by others once your certificate of termination is processed.
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, instructions for online filing, 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.
Winding up and terminating 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.
Finally, as noted above, if you have any detailed questions about the winding up and termination procedures in Texas, you should consult with a local attorney.