Dissolving Your LLC in Alabama

If you’ve decided to close your business, you’ll need to formally dissolve your Alabama LLC to avoid future taxes, fees, or legal complications. The process involves a few key steps with the state to make everything official. In this guide, we’ll walk you through how to dissolve your Alabama LLC properly and wrap up your business the right way.

When you’ve decided to stop doing business as a limited liability company in Alabama, it’s vital to dissolve the LLC officially, legally, and properly. Failure to follow the correct procedures will leave you at risk for ongoing expenses and possibly even personal liability.

This post discusses the reasons you might dissolve your Alabama LLC, the types of LLC dissolution, and the step-by-step process for dissolving an LLC in the State of Alabama.

Basics of LLC Dissolution

Dissolution is the process of terminating an LLC in the state where it is registered. Once you complete the process, your company is no longer a business entity in Alabama.

An LLC doesn’t cease to exist simply because it stops doing business. Until you formally dissolve the company, the State of Alabama considers it an active company and expects it to continue to pay fees and submit reports.

To dissolve an LLC, you have to file Articles of Dissolution with the Alabama Secretary of State. Furthermore, you have to ensure that the Secretary accepts your dissolution application, and that requires several additional actions. You must settle outstanding debts, pay all required taxes, dispose of physical assets, and distribute remaining funds to the members. Once you complete these dissolution procedures, your LLC is legally dissolved, and you are protected from future liabilities.

Types of LLC Dissolution

There are three categories of LLC dissolution. One is voluntary dissolution, and the other two – administrative and judicial dissolution – are involuntary.

Administrative dissolution

Administrative dissolution takes place when the State of Alabama terminates an LLC’s rights, powers, and authority because of the LLC’s failure to meet its obligations to the state. These failures can include:

• Failure to pay the state franchise tax.
• Failure to submit an annual report by the due date.
• Failure to maintain a registered agent on file with the state.

Judicial dissolution

Judicial dissolution, sometimes known as the corporate death penalty, is a legal process in which a court orders dissolution.

Some reasons for judicial dissolution are:

• Mismanagement, fraud, or breach of fiduciary duty by an LLC manager or member.
• Internal disagreements between the members.
• A member’s inability to fulfill their responsibilities because of incapacitation or death.

Judicial dissolution is often the result of a petition by one or more members.

Voluntary dissolution

Voluntary dissolution occurs when an LLC`s members choose to end the business. This can happen in two ways:

• Many LLC operating agreements contain dissolution triggers, which state that the organization will be dissolved when certain events occur. An example is the death of a member. If one of these taggers happens, the LLC is required to dissolve.
• Members can vote to dissolve the LLC because of internal disputes, financial difficulties, or a simple desire not to operate the business anymore.

Dissolving Your LLC in Alabama

Voluntary dissolution of an Alabama LLC requires the following steps:

Step 1: Vote to dissolve the LLC

The first step is for the member or members to make the decision to dissolve. This decision may be made for them if an event occurs that is defined as a dissolution trigger by the operating agreement. An example might be the death or incapacitation of one of the members.

Alternatively, the members might vote to dissolve the LLC. This may require either a simple majority vote or a unanimous vote, depending on the language of the operating agreement.

Single vs multi member LLC dissolution

For a single-member LLC, of course, no vote is necessary. Multi-member LLCs must conduct a vote. They should document in writing that a vote was taken and that the vote was in favor of dissolution.

Dissolution rules in your LLC operating agreement

When the LLC was organized, the members wrote an operating agreement, and that agreement should detail how dissolution will take place. Members must follow procedures laid out in the agreement, which might include:

• Whether a majority vote or unanimous vote is required for dissolution.
• The roles and responsibilities of each member.
• How business will be wound up, including how debts will be resolved.
• How assets will be liquidated and the proceeds distributed to the members.

Any of these topics not covered in the operating agreement will be governed by Alabama law.

Step 2: Wind up all business affairs and handle any other business matters

As part of dissolution, an LLC must wind up all of its activities so that it ceases business operations in an orderly fashion. These steps might include:

• Tapering off the sale of goods and services.
• Informing suppliers and customers that the LLC will no longer be in business.
• Canceling Alabama recurring business licenses and permits.
• Preparing employees for dissolution, and possibly offering severance pay and letters of recommendation.
• Notifying the registered agent and canceling the service.
• Preparing to close business bank accounts.
• Selling business assets such as machinery.
• Canceling doing business as (DBA) names or trade names with local governments.

Step 3: Notify creditors and claimants about your LLC’s dissolution, settle existing debts and distribute remaining assets

You must notify creditors and claimants about the dissolution. The LLC business structure provides its members with liability protection from debts accrued by the business, and you may close your LLC if it is experiencing financial difficulties. However, dissolution doesn’t remove these debts. They must be settled before dissolution. Pending lawsuits must also be resolved.

Once all debts have been taken care of, the LLC must sell any remaining physical assets. Any money left in the company’s accounts will then be distributed to the members in the manner specified by the operating agreement.

Step 4: Notify tax agencies and settle remaining taxes

Alabama does not require dissolving LLCs to obtain a tax clearance certificate. However, you must pay all outstanding taxes before the company can dissolve. These might include federal, state, and local income tax, sales tax, and employee withholding tax. If you review all the taxes the LLC has paid over the course of its existence, you will have a complete list of the final taxes you must pay and the authorities you must settle with. You need to be up to date with all tax and employment reporting requirements.

Step 5: File articles of dissolution with the Secretary of State

Your LLC is officially dissolved when the Alabama Secretary of State approves your Articles of Dissolution and changes your “active” status in its records. To file, download the state’s Domestic LLC Dissolution PDF, fill it out, and mail it to the address on the form. It must be typed and delivered by the USPS or by courier. There is no provision for accepting the form via email. A processing fee of $100 must be paid by check, money order, or credit card. The form may be filled out and submitted online at the Alabama Secretary of State Online Services.

You must provide the LLC name, the Alabama entity number, the formation date, the reason for dissolution, and the dissolution date. You must sign the form and provide your typed name and title. The Secretary’s site provides instructions for completing and submitting the form.

Conclusion

Dissolving an Alabama LLC is a relatively straightforward process. Alabama does not have any special requirements that make its LLC dissolution more complicated than dissolution in the average state. Still, there are a number of tasks that must be taken care of in addition to filing the articles of dissolution. You must settle debts, wind up business, and fulfill all tax and employment reporting requirements. Our LLC service covers all aspects of creating, managing and dissolving you LLC.

For many LLC owners, the most significant step is the decision to dissolve, whether by vote or by the decision of the single member. No matter what the reason, it can be an emotionally fraught decision to bring a termination to something you put so much into. You can take pride in the fact that you took a risk, started a business, formed that LLC, and poured your effort into it. It’s something most people never do, and the experience is outstanding preparation for whatever comes next in life.

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