Dissolving a Maryland LLC: What You Need to Know

While registering an LLC in Maryland is something that can be exciting and positive, in some cases there could come a time when you need to close it. 

Dissolving an LLC in Maryland makes sure all your company’s legal obligations are met. Whether you’re wrapping up a successful run or stepping away from a business that didn’t go quite as you planned, it’s important to understand the process and requirements involved in legally dissolving your LLC under Maryland law.

Basics of LLC Dissolution

Dissolution means the end of your LLC’s existence in the state where it was organized and is registered. While there are several ways this can come about, all of them officially and legally dissolve your business.

LLC Dissolution

Dissolving a limited liability company (“LLC”) legally terminates your company so it no longer exists. When you dissolve your LLC, you cut off your business operations; settle all unsettled debts; remove property and assets from your business’s name and distribute to the members; and then file paperwork with the state.

Types of LLC Dissolution

There are three types of LLC dissolution: judicial, administrative, and voluntary. Each dissolution type has different causes and processes.

Administrative dissolution

An administrative dissolution is where the state itself dissolves the company. This usually happens because the entity has not followed legal responsibilities. In Maryland, SDAT can forfeit an LLC’s right to do business, most often because it didn’t file its annual report and personal property return.

Judicial dissolution

This type of dissolution happens when a court dissolves the LLC. In Maryland, a member can ask the circuit court to dissolve the LLC when it is no longer reasonably practicable to carry on the business under the articles of organization or operating agreement (§4A-903). In that case, the court may step in to dissolve it and distribute its assets.

Voluntary dissolution

This type of dissolution of an LLC is by member vote. Generally, this involves taking a vote to dissolve; you’ll then wind up business affairs, settle debts, distribute what’s left over to members, and file the necessary paperwork with the state of Maryland. The rest of this article focuses on voluntary dissolutions, not administrative or judicial ones.

Dissolving Your LLC in Maryland

Step 1: Vote to dissolve the LLC

The first step to dissolving your Maryland LLC is to call a meeting at which the members will vote on whether the business will be dissolved.

Single vs. multi-member LLC dissolution

In a single-member LLC, the LLC may be dissolved by the lone member by unilateral action. In a multi-member LLC, a vote (majority or unanimous, depending on the provisions of the operating agreement) is often required to pursue dissolution.

Dissolution rules in your LLC operating agreement

Your LLC’s operating agreement may spell out the exact steps for dissolving the company, such as voting requirements and the distribution of assets. If your Maryland LLC operating agreement discusses dissolution, be sure that you conduct the process in accordance with the agreement and Maryland law.

Maryland-specific rules for voting to dissolve your LLC

Unless your articles or operating agreement say otherwise, a Maryland LLC dissolves when all members consent, when an event named in the operating agreement occurs, by court order, or after 90 consecutive days with no members (§4A-902). It’s always a good idea to have any member vote recorded in writing.

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

When the decision to dissolve has been made, the next step is to begin winding up your business affairs. You will need to inform your registered agent, vendors and clients that the business is closing. Business licenses and permits will also need to be canceled, employment issues addressed, and business bank accounts closed. Other administrative issues should also be addressed to make closure as easy as possible.

The Maryland Business Express website helpfully sets out these required steps and includes links to the relevant forms and documents you’ll need.

Step 3: Send a dissolution notice to creditors and claimants, pay off existing debts, and distribute assets

Next, you need to:

• Notify your creditors and other claimants that the LLC is being dissolved;
• Pay off all debts owed to your creditors and debts; and
• Distribute the LLC’s remaining assets, if any, to the remaining members, after paying off all company debts.

Send notice of the dissolution by registered mail to all known creditors at least 19 days before you file. The Articles of Cancellation must state the mailing date or that the LLC has no known creditors. If the LLC has not yet paid its debts, you must settle them before finalizing the dissolution. Any assets remaining are allocated to the LLC members in accordance with the terms of the LLC’s operating agreement.

Step 4: Notify tax agencies and settle remaining taxes

Before you dissolve your LLC, you’ll need to file your final tax returns and pay your outstanding taxes. A tax clearance isn’t required to cancel a Maryland LLC.

Step 5: File Articles of Cancellation with the Maryland State Department of Assessments and Taxation (SDAT)

After you take these steps, you’re ready for the final one: filing Articles of Cancellation with SDAT so the state can officially delete the LLC from its system. To do this, just complete the cancellation form (your resident agent must also sign it), pay the filing fee ($0 standard, $50 expedited), and submit it. You can typically do this online or by mail.

To submit the Articles of Cancellation form online, you’ll just need to create a login and then click on the “manage” menu to access the documents you need to close your business.

Conclusion

Dissolving your Maryland LLC is an important step in closing this chapter of your business. It’s important to do your homework on the process to ensure it goes smoothly. First, carefully review and follow your company’s operating agreement. If it doesn’t provide a process for dissolving your company, Maryland’s default requires the consent of all members, after which you can file Articles of Cancellation with the state. While this is happening, you can take the other necessary steps, like canceling your licenses and permits, paying off all debts, distributing assets, and notifying the appropriate parties.

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