In Virginia, there are various legal and administrative tasks necessary for dissolving a Limited Liability Company “LLC”, to ensure that the business is effectively terminated. However, due to financial struggles, a business strategy aimed at restructuring or even simply shifting focus to something else, it is crucial to remain compliant with the Virginia state laws regarding the LLC dissolution process.
Not following the required procedures may result in complications such as incurred liabilities not being settled, discrimination penalties, or legal disputes. Understanding the necessary procedures is essential as it facilitates easy and effective closing of the business and ensures that all partners are safeguarded from potential issues.
This guide offers insight into the applicable steps, how to merge and avoid common problems, and the means through which EasyFiling can alleviate some of the load: how to dissolve an LLC in Virginia.
Step 1: Review Your Operating Agreement
The operating agreement of your LLC is your roadmap for the dissolution process. While a lot of LLCs do not necessarily have a legal operating agreement, most businesses have one in place and it usually has the procedures for:
- Member voting requirements
- Distribution of assets
- Handling of outstanding debts
If your LLC does not have an operating agreement, Virginia’s LLC Act will provide the default rules. It is better to make sure that you have stricter or looser provisions than the default ones with many members.
Step 2: Obtain Member Approval
To obtain consent to dissolve the LLC, dissolution must be voted in favor of by the members of the LLC. The following steps are taken to ensure this member consent is correct:
- Schedule a Meeting: Arrange for a meeting to discuss and vote on whether to dissolve the voting
- Meet Voting Requirements: Ensure that the decision taken is by the voting requirements of the operating agreement, for example, the majority must vote yes to this.
- Document the Decision: This will have the decision recorded in the minutes and all members sign this to show that they together agree to this.
This documentation is crucial as it ensures that if any boundaries are crossed or if consent is required, it is available and ready.
Step 3: File the Articles of Dissolution
This process, the compilation of the Articles of Dissolution to be submitted to the Virginia State Corporation Commission (SCC) is a requisite for dissolving the LLC. Here’s how to proceed:
Obtain the Form: Articles of Cancellation (Form LLC-1050), Available on the website of SCC
Complete the Form: The following information needs to be uploaded:
- Name of the LLC as per records from SCC
- Dissolution effective date
- Dissolution reason.
Pay the Filing Fee: A $25 filing fee must be paid, however always make sure to check the SCC’s website for the most up-to-date fees as they can change.
Submit the Form: You have three ways for submitting this form:
- Online: Through the SCC’s online portal.
- Mail: Provide the filled form along with the fee to SCC’s registering address
- In Person: Visit the office of SCC and submit the required documentation.
All submissions are to be vetted first and once approved for dissolution SCC will let you know.
Step 4: Settle Outstanding Obligations
Once you are set to permanently close down the LLC make sure to remove any debts and agreements in contracts:
Inform Creditor: Let debtors, vendors, and other interested parties know about the dissolution.
Pay off Debt: All debts and payments need to be settled however make sure to keep records of them for your documentation.
Canceling Business Licenses: Reach out to local and state authorities to revoke any licenses, permits, or registrations that are previously linked to the LLC in question.
Closing Bank Accounts: Close business bank accounts to prevent unauthorized transactions.
Accomplishing these obligations averts incurring lawsuits or financial claims against the LLC after it has been dissolved.
Step 5: Handle Final Taxes
Final tax payments are central to ensuring that you do not have any problems with the Internal Revenue Service or the Virginia Department of Taxation. Here’s what you need to do:
Completing Final Returns:
- Submit the final federal return for an LLC: Form 1065 for a partnership or Form 1120 for a corporation.
- On the tax return form, tick the box that says “Final Return”.
Pay State Taxes: All state tax dues are to be cleared as well, including:
- Employers tax dues(if applicable)
- Sales and service tax payments
- Franchise fee dues
Request Tax Clearance: Where necessary, get a clearance certificate from the Virginia Tax Department. This shows the tax obligations of the taxpayer have been cleared.
Step 6: Distribute Remaining Assets
After settling all debts and outstanding taxes, leftover assets may be handed over to the people who are members of the LLC. Take care of the following:
Identify Who Receives What Assets: Consult the operating agreement to identify guidelines for the distribution of assets. If there is no agreement, by Virginia laws, assets are generally distributed in a percentage relative to ownership.
Note the Distribution: Loss of physical assets is a major concern to a business. They should be explicitly noted. The following should also be included in the written record:
- Cash distributions
- Allocation of physical assets or intellectual property
Members who are concerned with transparency will be concerned with proper documentation as it minimizes potential disputes among members.
Step 7: Notify Relevant Parties
Once you have dissolved your LLC, send corresponding notifications to other relevant entities.
Internal Revenue Service (IRS):
Inform the IRS of the dissolution and close your Employer Identification Number (EIN) account if the LLC will no longer be operating.
State Agencies:
Inform the Virginia Department of Taxation and other relevant state agencies to prevent them from sending compliance notices aiming at filing requirements and payment of fees in the future.
Business Partners:
Keep business partners, contractors, and clients informed of such changes to ease the closure of accounts.
Common Pitfalls to Avoid
Ignoring Member Consent: Ensure all members are on board and proper voting procedures have been followed.
Ignoring Tax Obligations: Ignoring to file final tax returns can result in getting fined or penalized.
Failure to Notify Creditors: Not notifying creditors is one of the reasons behind legal claims against the LLC.
Taking Too Long to Submit the Articles of Cancellation: Too long submission leads to persistent fees and maintenance requirements by the state.
How EasyFiling Can Help
If you are not equipped with the legal knowledge and processes, then pretty easily dissolving an LLC can get complicated and lengthy. This is when EasyFiling comes to help because Broadway does not want any of those barriers. Here’s what we can do for you:
Professional Assistance: Our experts work with you to develop a personalized plan to ensure that you complete all necessary tasks for your particular situation.
Preparation of Documents: From the Articles of Cancellation to any additional forms requested by the Virginia SCC, we do it all.
Tax Compliance: We assist you in fulfilling your last tax responsibilities by doing all necessary filings and submissions promptly.
Creditor Notifications: EasyFiling helps creditors send out notifications to settle debts so that they don’t have to deal with the risk of getting retaliated later on.
Streamlined Process: EasyFiling productively participates so that your plans are not interfered with by you worrying about the complexities of the nuances related to the dissolution of the limited liability company.
Now, let us take the hassle out of the process and help you with all the hard work like LLC dissolving. Book a free consultation today to dissolve an LLC in Virginia.
Nabin Adhikari
