Basics of LLC Dissolution

Business dissolution is the process by which you and other owners opt to cease doing business in New Mexico. Doing so removes your legal ability to do business within the state.

Such actions may take several forms and can be voluntary or involuntary. In other words, you may opt to close your business or be forced to do so by the state.

The state requires you to complete certain tasks to ensure that all your obligations and taxes are paid, that your certified to cease business operations and that all proper state and federal notifications have been completed.

Types of LLC Dissolution

There are several forms of LLC dissolution, as we will review in this section.

Administrative dissolution

An administrative dissolution occurs when the New Mexico secretary of state office determines that the business is no longer in good standing with the state. This status may occur because the company is not complying with state law or has not filed an annual report.

States may act for a broad range of reasons to dissolve the business, whether it’s not maintaining a registered agent or failing to pay taxes.

Judicial dissolution

This act, often referred to as the corporate death penalty occurs via a court order. The most common causes of a judicial dissolution are lawsuits brought by some LLC members seeking to disconnect from the business.

Courts can also dissolve an LLC for:

• Failure to comply with state laws
• Mismanagement
• Fraud
• Breach of fiduciary duty
• A member’s inability to conduct the duties required to operate the LLC due to incapacitation or death

Voluntary dissolution

A voluntary dissolution occurs when the members choose to halt company operations. These dissolutions can occur in one of two ways.

First, if there is an action that triggers a dissolution, such as the death of a key member, as stipulated in an operating agreement.

Second, it may be triggered by a vote by members to dissolve the company. The vote is not a simple majority but members representing a majority share in the company.

Dissolving Your LLC in New Mexico

Here are the steps that must be taken to dissolve your LLC.

Step 1: Vote to dissolve the LLC

The first step to dissolution involves a formal vote among the members (owners) of the company. This vote requires a unanimous decision among the members. It should follow any guidelines set forth in the articles of organization.

Be sure to keep minutes of this vote and include those records in your company’s document files.

Single vs. multi-member LLC dissolution

The process is slightly different if you have a single-member LLC. As you are the sole owner of the business, there is no requirement to hold a formal vote. You may simply opt to dissolve the LLC by following the steps noted here.

Dissolution rules in your LLC operating agreement

The LLC operating agreement should contain rules about dissolution. These ought to cover not only whether a unanimous vote is required but also how the LLC will discharge its liabilities, close out its business activities, and divide its remaining assets among its members. Anything not specified is governed by the laws of the State of Oklahoma.

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

You’ll need to wind up various aspects of your business operations. These aspects are important and part of the Cleanup necessary to close your company.

Winding up operations include:

• Notifying your registered agent
• Informing suppliers and customers that the business is closing
• Canceling recurring or planned business licenses and permits
• Notifying employees and handling personnel matters
• Closing business bank accounts

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

Creditors and claimants must be notified about the business closure. You need to ensure that all your debt obligations are paid, including any credit card debt, business loans or invoiced amounts due to suppliers and customers. All these debts must be resolved before the dissolution can be approved.

Notifying claimants and creditors ensures that your liability is limited and that assets are distributed properly.

Many companies dissolving their business will send a letter to all claimants and creditors with a deadline for when claims must be submitted. If there are unknown claimants, you may need to publish a notice in a newspaper.

As part of the dissolution process, you will also need to liquidate any assets or split them among members as stipulated in the operating agreement.

Step 4: Notify Tax Agencies and settle remaining taxes

Tax clearance is a critical step in New Mexico. While the state does not require you to obtain a tax clearance from the state Department of Revenue, there are three clearances that need to be filed with the Articles of Dissolution. These will be issued once final tax returns are submitted and approved and tax obligations are paid. The clearances include:

• Certificate of No Tax Due (from the Taxation and Revenue Department – Audit and Compliance)
• Certificate of Compliance (issued by the Department of Workforce Solutions – Employment Security Division)
• Letter of Clearance from the Public Regulation Commission – Corporations Bureau Corporate Report Compliance Division

Step 5: File Articles of Dissolution with the Secretary of State

To complete the dissolution process, you will need to file Articles of Dissolution form with the New Mexico Secretary of State. There is a $25 filing fee and completed forms may be sent to:

New Mexico Secretary of State
Business Services Division
325 Don Gaspar, Suite 300
Santa Fe, NM 87501

For the form, you will need to include the following information:

• Legal name, DBA name and business ID for the company
• When Articles of Organization were filed and the dates of any amendments
• What triggered the dissolution, whether it was:
  – An event specified in the Articles of Organization or operating agreement
  – Written consent of members representing a majority of ownership
  – Majority interest of remaining members did not give written consent to continue the LLC within 90 days of the dissolution date
• Name and address of parties responsible for winding up business affairs
• Confirmation that the LLC has resigned as a registered agent or not serving as a registered agent in the state
• If applicable, if the winding up is being supervised by a court
• The executed date and effective date, if applicable
• Printed and signed names

Conclusion

There’s a lot of work to complete before you can dissolve your LLC. By working together with your fellow members, you can resolve the financial, legal and regulatory mandates to ensure that you have everything in order.

The state makes it easy to dissolve your LLC in New Mexico, with a simple form to be completed and filed. The heavy work comes prior to that filing, ensuring that you’ve completed the proper filings and notified the affected parties.

FAQ