Closing your Washington 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 Washington. Officially ending its existence as a state-registered business entity 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, here we are concerned with voluntary dissolution by the LLC members.
In order to voluntarily dissolve your LLC, you first should look to the LLC 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 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.
Also, regardless of whether LLC agreement contains any dissolution provisions, Washington’s LLC Act allows for an alternative method to voluntarily dissolve an LLC: written consent of all LLC members.
For either approach to dissolution of your LLC—relying on rules in the LLC agreement or unanimous written 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.
Certificate of Dissolution
After taking the necessary action to dissolve your LLC (e.g., obtaining unanimous written consent), you may file a certificate of dissolution with the Secretary of State (“SOS”). While filing the certificate technically may be optional, it’s generally a good idea. (If you have specific questions about whether to file, you should contact a local attorney.)
If you use the certificate of dissolution form available from the Secretary of State, you will need to provide:
- the name of your LLC
- a mailing address to return the processed certificate
- the original date of your LLC’s certificate of formation
- the reason for dissolution (e.g., unanimous member vote per your LLC agreement)
- the effective date of dissolution (which must be within 90 days of filing the certificate of dissolution); and
- the signature of an LLC member or manager.
There is no fee to file the certificate. If you file by mail it can take the Secretary of State a month to process. Expedited service is available upon request. A certificate of dissolution form is available for download from the SOS website.
Be aware that your business name will become available for use by others after dissolution.
Following dissolution, your LLC continues to exist only 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 Washington’s LLC Act, key winding up tasks include:
- preserving the LLC’s business or property as a going concern for a reasonable time
- prosecuting and defending actions and proceedings, whether civil, criminal, or administrative
- transferring the LLC’s property
- settling disputes
- discharging the LLC’s liabilities; and
- marshaling and distributing LLC assets.
When it comes to the last two listed items, discharging liabilities and making distributions, you are required to make payments in a particular order. First, you must pay creditors, including LLC members and managers who are creditors, to the extent permitted by law. Note that it is particularly important that you pay all outstanding taxes. Next, unless your LLC agreement provides otherwise, you must make any required “interim” distributions to current and former LLC members (for example, a distribution might be due to a member because he or she previously dissociated from the LLC). Finally, if any assets remain, and unless your LLC agreement provides otherwise, you should (a) return to members any contributions they made to the LLC; and then (b) distribute assets to members in the proportions in which the members share in distributions.
Notice to Creditors and Other Claimants
One other key task 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 Washington law, if you have filed a certificate of dissolution, 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:
- specify the information required to be included in a known claim
- provide a mailing address to which the known claim must be sent
- state the deadline for receipt of the known claim, which may not be fewer than 120 days after the date the notice is received by the claimant; and
- state that the known claim will be barred if not received by the deadline.
According to the LLC Act, known claims include claims that are “unmatured, conditional, or otherwise contingent but may subsequently arise under any executory contract to which the dissolved limited liability company is a party, other than under an implied or statutory warranty as to any product manufactured, sold, distributed, or handled by the dissolved limited liability company.”
There can be certain advantages to giving direct written notice to individual claimants. In any case, if you have specific questions about possible claims against your dissolving LLC, or if you are considering giving claimants notice of your LLC’s dissolution, you should consult with an attorney.
Washington does not require that you obtain tax clearance 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.
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.