Closing your Connecticut 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 Connecticut. Officially ending its existence as a state-registered business entity, and putting it beyond the reach of creditors and other claimants, begins with a formal process called dissolution. While an LLC may be involuntarily dissolved through a court decree, this articles covers 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 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, unless your articles of organization or operating agreement states otherwise, Connecticut’s LLC Act allows for an alternative method to voluntarily dissolve an LLC: affirmative vote, approval, or consent of at least a majority in interest of the LLC members.
For either approach to dissolution of your LLC—relying on rules in formational documents or majority vote, approval, or consent—you should make sure to record the decision to approve the dissolution in the official minutes of the dissolution meeting or on a written consent form.
Following dissolution, 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 may choose to designate one or more LLC members or managers to handle the winding up.
Under Connecticut’s LLC Act, key winding up tasks include:
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. First, you must pay, or make adequate provision to pay, creditors. This includes, to the extent permitted by law, LLC members who are creditors. Note that it is particularly important that you pay all outstanding taxes. Next, unless otherwise provided in your operating agreement, you must pay current and former members any required interim distributions and any distributions due to dissociated members. (Interim distributions generally are approved payments to members unrelated to dissolution.) Finally, unless otherwise provided in your operating agreement, you must distribute any remaining assets to members and former members (a) for the return of their contributions to the LLC; and then (b) in proportions in which the members share in interim distributions.
One other key task 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 Connecticut law, one way to give notice is by sending a written document directly to known claimants after dissolution. Proper written notice must:
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 three 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 your LLC, you must files articles of dissolution with the Commercial Recording Division of the Secretary of the State (“SOTS”). The articles will include basic information about your dissolved LLC, including:
There is a $50 fee to file the articles. Your filing usually will be processed within 3-5 business days. You can get expedited processing if you pay an additional $50 fee and use the requisite expedited service request form. Both an articles of dissolution form and the expedited service request form are available for download from the SOTS website.
Be aware that your business name will become available for use by others after dissolution.
Connecticut does not require that you obtain tax clearance before dissolving your LLC. However, the Department of Revenue Services (“DRS”) does advise you to notify them after you have filed your articles of dissolution and received notification from the SOTS that the dissolution has been processed. You should mail a copy of the SOTS notification letter to the DRS.
In addition, the DRS also advises you to log on to the Taxpayer Service Center to close relevant state tax accounts. More particularly, while you cannot close your business entity tax account until your LLC has been dissolved, remember that until you close the latter account, you will remain subject to a minimum business entity tax of $250.
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 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.
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.