Closing your Massachusetts 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 Massachusetts. 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.” This article covers what needs to be done when LLC members want to voluntary dissolve their LLC. There are circumstances not addressed here when an LLC may be dissolved by the state for administrative reasons, such as failure to submit annual reports, or through a court decree.
In order to voluntarily dissolve your LLC, you first 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 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 about the meeting.
Regardless of whether your operating agreement contains any dissolution provisions, you can always choose to follow the Massachusetts LLC Act provisions for dissolving an LLC. Under those rules, you can dissolve your LLC by obtaining written consent of all LLC members.
Whether you dissolve the LLC based on rules in your operating agreement or on unanimous written consent, make sure you record the decision to approve the resolution in the official minutes of the dissolution meeting or on a written consent form.
After taking the necessary action to dissolve your LLC, your LLC continues to exist 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 the Massachusetts LLC Act, key winding up tasks include:
- prosecuting or defending any outstanding lawsuits
- disposing of or conveying LLC property
- discharging or making reasonable provision for the LLC’s liabilities; and
- distributing any remaining assets to LLC members.
When it comes to the last two listed items, discharging liabilities and making distributions to members, you are required to make payments in a particular order. Available assets first should be used to pay your creditors, including LLC members and managers who are creditors, to the extent permitted by law. More particularly, the law requires that you make reasonable provisions to cover all claims, including “all contingent, conditional or unmatured claims and obligations,” and even known claims for which the specific identify of the claimant may be unknown. (Also, keep in mind that it is particularly important to pay any outstanding taxes.)
Next, LLC members should be paid any distributions to which they are entitled under the operating agreement based on the member's withdrawal from the LLC. If any assets remain after that distributions, then further distributions should be made to members for (a) any contributions they previously made into the company; and then (b) in the proportions in which they share in distributions (unless the operating agreement provides otherwise).
Certificate of Cancellation
After you have voted to dissolve your LLC and completed winding it up, you must file a certificate of cancellation with the Secretary of the Commonwealth ("SOC"). You must be up to date with your annual reports and fees before the SOC will accept your certificate.
The certificate of cancellation will contain basic information about your LLC, such as:
- the filing date of its certificate of organization
- the reason for filing the certificate of cancellation; and
- the effective date for the certificate of cancellation if other than the filing date.
The certificate must be signed by an authorized individual, such as an authorized LLC manger or member. The SOC does not have a certificate of cancellation form available for download. However, there is an online filing system that you may be able to use to create and submit your certificate.
There is a $100 filing fee to file the certificate. It should take less than a week for the SOC to process your filing.
Be aware that your business name will become available for use by others once your LLC is dissolved.
Note on Tax Clearance
Massachusetts does not require you to obtain tax clearance from the Department of Revenue in order to dissolve your LLC.
You can find additional information, such as mailing addresses and filing fees, on the SOC website.
For information on dissolving and winding up LLCs formed in other states, check Nolo’s 50-state series on dissolving LLCs.
Note: 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.