Dissolving a Limited Liability Company (LLC) in the state of Kentucky is a process that has multiple steps to ensure that your business is properly shut down following the state’s regulations.
Dissolving an LLC correctly is critical no matter what the reason might be; be it shifting market trends, business performance, or personal obligations. Maintaining a clean legal and financial record requires you to ensure that all future liabilities are taken care of at the time of dissolution.
In this article, we will help you with the steps that you need to take to dissolve an LLC in Kentucky.
Step 1: Hold a Meeting with LLC Members
The dissolution process begins with setting a meeting with all the owners of the LLC, in order to gather votes for the dissolution. The operating agreement may have more specific requirements than a majority vote.
Key Considerations:
Voting: Ensure that a majority of the required number of members have agreed to the decision taken.
Meeting Minutes: Regardless of whether a formal meeting occurred or not, ensure that what was discussed and the decisions taken are documented.
Operating Agreement: If a member of an LLC wishes ever to buy out some other member or if there are rules operating about asset distribution, follow these rules.
Step 2: File Articles of Dissolution
After a decision has been unanimously, or rather three-fourths of members had voted and made the decision to dissolve the LLC, Articles of Dissolution are to be filed with the Secretary of State in Kentucky. This document legally serves as notice to the state that the members of the LLC have agreed to dissolve their company.
Required Information:
- The name and ID number of the LLC issued by the Secretary of State in Kentucky.
- Certificate of dissolution of an LLC.
- The LLC manager or a member must sign.
If a DBA name was used for registration, then also it should be canceled with the Secretary of State. It is easy to file the forms, and the Articles of Dissolution can be filed online on the State’s official website or a paper form can be mailed to the Secretary of State.
Step 3: Notify Creditors and Settle Debts
In the process of dissolution, a business must make it known to all commissioned creditors, vendors, or any businesses they are in debt. The state of Kentucky does not allow the finalization of dissolution until all debts and liabilities of the LLC are paid off first. This makes sense in order to prevent any unresolved claims against the LLC once it is dissolved.
How to Notify Creditors:
Direct Notification: Inform all creditors of the company dissolution via emails or letters providing them with details on how they can file their unpaid claims and/or invoices.
Public Notice: In case creditors cannot be pinpointed or located and the LLC is in a position to pay them, then placing an ad in the local newspaper or any other suitable website or location may be the right course of action.
Settlement of Debts:
Outstanding Contracts and Liabilities: Start by determining any investments the LLC has previously made into businesses, contracts, etc., and if any turn out to be unfound cancel them out. And if there are any remaining contracts and investments that the business can honor before the dissolution, then it is necessary to honor those.
State and Federal Taxes: Pay any outstanding taxes that you owe to federal or state and ensure that you file your returns before your business’s dissolution. This applies to both the income and payroll taxes if your LLC has employees.
Step 4: Close Business Bank Accounts
Once all the debts of the LLC are paid off and other financial obligations of the company are settled, you’re ready to close your business’s bank accounts. This process may involve:
Transferring Remaining Funds: Transfer any funds remaining in the business account to your business’s account and then deposit the remaining funds in your business bank account.
Cancelling Credit Cards: Cancel any business credit cards that are associated with the LLC in order to prevent other expenses from being charged.
Documenting Account Closure: Ensure that an account closure confirmation is written and given as proof to the bank.
Step 5: File Final Tax Returns
In the process of dissolving your business, ensure that you pay your outstanding taxes and that your last tax returns are filed. This involves both state and federal taxes. The Department of Revenue in Kentucky requires that tax returns for businesses that are closing be completed on their behalf on their last state taxes, those are as follows:
- Kentucky Corporate Income Tax Returns are to be filed (Form 720) by the corporation.
- Application of Sales and Use Tax Returns if applicable claiming exemption.
- Last Withholding Tax Returns to be filed if there were employees in the business.
As an individual owner or through business partnerships, the IRS demands the final returns be submitted which incorporate IRS Form 1065 for partnership structure as well as IRS Form 1120 for LLCs. Look up the requirements set there by the IRS for your LLC type and comply with them.
IRS Notifications :
EIN Cancellation: In case your LLC previously possessed an earning identification number, EIN requests cancellation by informing the IRS about the meshed LLC. This could be accomplished by furnishing a letter to the IRS documenting the EIN alongside the LLC’s details.
Step 6: Cancel Business Licenses, Permits and Registrations
Dissolution of LLCs structured in Kentucky requires the liquidator to transfer or cancel permits, registrations, and licenses so that the business can cease its operations. These permits include but aren’t limited to:
State or Local Business Licenses: It is imperative to reach out to the relevant local authorities if state-directed permits are in your possession for the closure of the LLC.
Health Permits, Liquor Licenses, and Other Specialized Permits: Ensure that permits specific to the industry including liquor licenses and health permits are canceled with the right authorities.
DBA Registration: If your LLC registered a name that’s different from its legal name with the secretary of state, remember to cancel the registration.
Step 7: Inform the IRS
As we’ve discussed before, when an LLC is being dissolved, the IRS has to be informed about it. You’ll also need to complete the last tax returns but in addition to this step, you also need to write a letter to the IRS, stating that your LLC is in the process of dissolving.
This is especially vital if your LLC utilized an Employer Identification Number (EIN). The IRS will ensure to modify the records accordingly and will remove your EIN from the entity that has been terminated.
Step 8: Distribute Remaining Assets
Once all the debts and responsibilities are paid off, any leftover assets remain to be divided among the members of the LLC. The distribution must comply with the provisions and terms in the LLC’s operating agreement, or if such agreement is not in place, done proportionally to the shares in the company.
If there are disagreements on the manner of distribution of the assets, you may wish to consider having a neutral third party or mediator to ensure that the distribution is fair. The manner of distribution of the assets should be recorded for future use.
Step 9: Maintain Records of the Dissolution
It is necessary to keep the documentation in place even after the dissolution period has ended for at least a couple of years. This documentation can consist of:
- Formulations for dissolving incorporation to the state.
- Final tax forms and other documents regarding taxation matters.
- Evidence of the payout of debts and the divestiture of other assets.
Keep in the file the documentation for potential audits, or other legal issues that may involve creditors or tax authorities.
Conclusion
Dissolving an LLC in Kentucky involves complying with certain steps in order to be done in an orderly compliant manner with the laws of the state. This includes giving members the right to approve the dissolution and filing Articles of Dissolution, paying off debts, and filing final tax returns. Each step is necessary if one wishes to transfer future risks.
EasyFiling will assist you in this process by offering a detailed step-by-step guide for the dissolution process including filling in necessary forms, tax purging, and distributing the assets. Allow our experts to worry about these aspects, so you can focus on the fact that your business is being shut down smoothly and in an orderly manner.
Book a free consultation today to dissolve an LLC in Kentucky.
Nabin Adhikari
