Dissolving your LLC is a challenging decision, but when the time comes, for whatever reason, there’s a wind-up process you must follow and complete to ensure you implement this process correctly.
In this post, we’ll examine the reasons for dissolving your TX LLC, the different types of LLC dissolution, and the steps and requirements for doing so in Texas.
Basics of LLC dissolution
Dissolution is the act of officially closing your LLC with your registered state. LLC dissolution removes your LLC’s independent legal status by canceling it voluntarily or involuntarily with the Texas Secretary of State.
To ensure your state accepts your dissolution application, you must follow certain steps such as notifying your creditors and any applicable government (local and federal) agencies, paying any existing debts, and including a certificate of account status from the Texas Comptroller proving you’ve paid all outstanding taxes and your entity is in good standing.
Only when you follow these dissolution procedures can you dissolve your LLC and protect yourself from future liabilities.
Types of LLC Dissolution
Dissolution falls into three categories: administrative, judicial, and voluntary. Texas law calls the end of an LLC “termination,” which comes after the LLC “winds up” its affairs. And the procedure you must follow to dissolve your LLC depends on which dissolution type applies to you.
Involuntary termination and tax forfeiture
The Secretary of State can terminate an LLC that doesn’t file a required report, pay a required fee or keep a registered agent and registered office in Texas, if it doesn’t fix the problem within 90 days after notice (BOC §11.251).
Separately, if your LLC doesn’t file its Texas franchise tax and Public Information Reports or pay franchise tax, the Comptroller forfeits its right to do business in Texas, and the Secretary of State can then forfeit its certificate of formation (Tax Code §171.309).
A terminated or forfeited LLC can usually be reinstated. After a tax forfeiture you file Form 801 with a $75 fee and a tax clearance letter from the Comptroller.
Judicial dissolution
Judicial winding up is when a court orders an LLC to wind up and terminate.
A court can order an LLC to wind up if its economic purpose is unreasonably frustrated, if another owner’s conduct makes it not reasonably practicable to carry on the business with that owner, or if it’s not reasonably practicable to operate under the company agreement (BOC §11.314).
Voluntary dissolution
Voluntary winding up is when the members decide to close the LLC. Unless the company agreement says otherwise, it needs the approval of a majority of all members (BOC §101.552).
Voluntary dissolution can happen in 2 ways.
- Members can present dissolution triggers (the death or departure of a member) in the LLC operating agreement.
- Members can vote to dissolve the LLC because of internal disputes or financial difficulties.
Dissolving your LLC in Texas
Below are the steps you need to follow if you choose a voluntary dissolution for your Texas LLC:
Step 1: Vote to dissolve the LLC
LLC members (owners) who choose to dissolve their business are implementing voluntary dissolution.
Unless your company agreement sets a different rule, a majority of all members must approve the decision to wind up (BOC §101.552).
Voluntary dissolution can also occur if a pre-agreed dissolution trigger, as per the LLC operating agreement, occurs, such as the death of an LLC member.
LLCs without an operating agreement or those with one that doesn’t address voluntary dissolution, stating when why, and how it will take place, must follow the Texas state statute’s default provisions. In Texas, the operating agreement is called a “company agreement,” and it can be written, oral or implied (BOC §101.001).
Single vs multi-member LLC dissolution
The difference between a single-member LLC dissolution and a multi-member LLC dissolution is that in a multi-member LLC, a majority of all members must approve, unless the company agreement says otherwise. A single-member LLC’s owner can decide alone.
Dissolution rules in your LLC operating agreement
An LLC operating agreement contains the internal rules for running and dissolving an LLC.
Before members trigger their LLC dissolution, they must refer to the operating agreement LLC Texas to ensure the reason for the dissolution complies with its terms.
Operating agreement rules can include:
- The number (or percentage) of members who must approve dissolution.
- How the LLC will discharge its debts and other liabilities.
- The procedure for settling and closing the LLC’s activities.
- How members will divide assets, cancel contracts, and handle debts.
Texas-Specific rules for voting to dissolve your LLC
In Texas, closing an LLC follows the Texas Business Organizations Code (BOC).
Record the members’ approval in writing, such as a written consent. Then follow any dissolution rules in your company agreement.
Step 2: Wind up all business affairs and handle any other business matters
Winding up your business affairs means preparing for the closure of your business by taking the following actions:
- Notifying your registered agent (if you have employed one).
- Informing suppliers and customers that your business is closing.
- Canceling any Texas recurring business licenses and permits.
- Handling employee matters.
- Stopping planned sales or services.
- Plan to close the LLC business bank accounts.
Step 3: Settle debts and assets with creditors
An LLC provides its members with liability protection in cases of debts accrued by the business, and you may close your LLC if it is experiencing financial difficulties.
However, dissolution doesn’t remove any debts the LLC may owe. Before you can dissolve your LLC, it must meet its financial obligations by allowing claimants the opportunity to collect any money owed.
Those obligations include:
- Notify creditors: You must send written notice of the winding up to each of your LLC’s known creditors and claimants (BOC §11.052).
- Creditors and debtors: You must meet all your LLC financial obligations, including collecting and paying all debts, such as credit cards, business loans, and outstanding invoices.
- Liquidate assets: Members must sell any remaining LLC assets and split any remaining assets as per the LLC operating agreement.
Step 4: Notify Tax Agencies and settle remaining taxes
To dissolve your LLC in Texas, you must show the Comptroller that your LLC has paid all its state taxes.
Steps to take:
- Obtain a Tax Clearance: Members must get a Certificate of Account Status from the Texas Comptroller of Public Accounts to show their business has paid its taxes.
- Finalize Remaining Business: Members must conclude all outstanding business issues and file a final franchise tax report and, if applicable, a sales tax return.
- Employee obligations: You may also need to file a final employment tax return to ensure members aren’t liable for unpaid payroll taxes.
Step 5: File a Certificate of Termination with the Secretary of State
The Texas Secretary of State requires an LLC to file a Certificate of Termination of a Domestic Entity (Form 651) online through SOSPortal, by mail (P.O. Box 13697, Austin, TX 78711-3697) or in person (400 W. 15th St., Austin). As mentioned above, you also need to attach a Certificate of Account Status from the Texas Comptroller to prove the entity is in good standing.
The fee for Texas LLC dissolution is $40. Online card payments add $0.25 plus 2.25%.
The Certificate of Termination form asks for the following business details:
- The LLC’s name and entity type.
- Its formation date and the file number that the Texas Secretary of State issued upon formation.
- The names and addresses of its governing persons.
- The event that required the winding up.
- A statement that the LLC has complied with the BOC’s winding-up rules.
- When the termination takes effect.
- An authorized person’s signature.
After the Secretary of State files it, you’ll get evidence of filing by email if you filed online, or by mail if you filed on paper.
Conclusion
Those are the legal requirements to dissolve an LLC in Texas, and once you file your Certificate of Termination, the process is straightforward.
Most of the work to dissolve your Texas LLC happens before you file your request, such as agreeing with fellow LLC members, investors, or family in the case of a single-member LLC.
Closing your business can be heartbreaking, but it can also be an opportunity for new beginnings.
You learned a lot by starting your LLC and can use that knowledge to create something new.
Remember, knowledge and experience are never wasted if you use them!
FAQ
Several reasons exist for why you might dissolve an LLC. A few of the most common are that members can’t resolve disagreements, the business is moving to another state (some states allow this without dissolving your LLC), costs or competition have risen, the LLC is merging with another business, or the business has accounting or cash flow problems.
Suppose you don’t dissolve your Texas LLC. In that case, your LLC still has to file franchise tax reports each year, and if it stops filing, the state can forfeit its right to do business.
It costs $40 to dissolve your LLC in Texas.
To dissolve your Texas LLC online, file a Certificate of Termination with the Secretary of State through SOSPortal, with your Comptroller certificate of account status attached.
Processing times vary. Online filings through SOSPortal are usually faster, and standard expedited processing ($50 extra) is typically done in 2 to 3 business days.