Closing your Hawaii 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 Hawaii. Officially ending its existence as a state-registered business entity, and by extension 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, or for administrative reasons such as failing to file annual reports or pay required fees, here we are concerned with voluntary dissolution by the LLC members.
In order to voluntarily dissolve your LLC, look to your operating agreement. It should 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.
Unlike most other states, Hawaii's LLC Act does not explicitly allow for an alternative method to voluntarily dissolve an LLC independent of provisions in your operating agreement. Therefore, if your operating agreement does not provide for dissolution, you should seek the assistance of a local business attorney.
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 may choose to designate one or more LLC members or managers to handle the winding up.
Under Hawaii'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 creditors, including LLC members who are creditors. Note that it is particularly important that you pay all outstanding taxes. Then, each member is entitled to (a) a return of all contributions which have not previously been returned, and (b) a distribution of any remainder in equal shares.
One other key task is giving notice to creditors and other claimants of your LLCs intention to terminate. 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 Hawaii 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 of your intention to terminate to other (unknown) claimants by publishing at least four times in a newspaper. As with sending direct notice to individual claimants, there are specific rules for giving notice through publication. (For example, you must publish at least once a week for four consecutive weeks.) Generally speaking, claimants have two years after the date of last 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 intention to terminate, you should strongly consider getting assistance from a business attorney.
After dissolving and winding up your LLC, including paying and discharging all LLC debts, liabilities, and obligations, you should files articles of termination with the Business Registration Division of the Department of Commerce and Consumer Affairs ("DCCA"). Hawaii does not require you to file this type of final document, instead stating that an LLC "may" file the articles. However, it is generally advisable to file articles of termination. (If you have specific questions about whether to file, you should contact a local attorney.)
To complete the articles of termination, you must provide:
You may choose to make the termination effective up to 30 days after the filing date of the articles of termination.
There is a $25 fee to file the articles. Your filing usually will be processed within about 5 business days. An articles of termination form is available for download from the DCCA website.
Be aware that your business name will become available for use by others after your articles of termination are processed.
Hawaii does not require that you obtain tax clearance before dissolving your LLC. However, as noted above, you are required to state in your articles of termination that you paid and discharged all LLC debts, obligations, and liabilities, and that no lawsuits are pending against the 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 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.
You can find additional information, such as forms, mailing addresses, and filing fees, on the DCCA 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.