Basics of LLC Dissolution

Dissolution is the process of officially dissolving your Virginia LLC with the Virginia Secretary of State by submitting articles of cancellation to remove its independent entity status.  

Once dissolved, your LLC will cease being liable for its state and federal tax obligations and legal or financial liabilities. 

Why dissolve your LLC

Many reasons exist for a business owner or members to decide that dissolving their LLC is the right decision.

Including:

• You no longer need your LLC
• Internal multi-member LLC disputes
• Loss of financial viability
• Rising raw material costs or increased market competition
• Moving to another state
• Bankruptcy

Types of LLC Dissolution

Dissolution falls into three categories: voluntary, administrative, and judicial.

Voluntary dissolution

Voluntary dissolution is when an LLC’s members choose to close their business. 

This can happen because of a “triggering event” written into the Virginia LLC operating agreement, such as a member’s death or the LLC fulfilling its original purpose. 

LLC members who vote to dissolve an LLC must comply with its operating agreements’ procedures for voluntary closure, including formalities such as obtaining a percentage or number of votes required to trigger dissolution. 

An LLC without voluntary procedures written into its operating agreement must follow the Virginia State default dissolution rules.

Administrative dissolution

Administrative dissolution happens when the Virginia state imposes an LLC dissolution for reasons specified by state law. 

Common reasons for administrative dissolution are failure to file an annual report, pay state taxes or fees, or have a Virginia-designated registered agent.

Judicial dissolution:

A Virginia court implements judicial dissolution, usually when a disgruntled LLC member files for litigation against the business because of disputes with fellow members.

Dissolving Your LLC in Virginia

LLC members voting to dissolve their LLC must first conform to Virginia’s rules for voluntary closure. To dissolve your Virginia LLC, you must file form LLC-1050, Articles of Cancellation, and confirm you have completed the winding-up process.  

A Virginia LLC manager or member must sign the articles of cancellation.

Step 1: Vote to dissolve the LLC

LLC members who wish to vote to dissolve their businesses must follow the rules for dissolution in the LLC operating agreement.

Often, this requires a majority member vote to dissolve the LLC. Still, the conditions for voluntary closure can differ depending on what members agree upon when forming their business. 

Single vs. multi-member LLC dissolution

Your operating agreement should outline the procedures and regulations for dissolving your Virginia LLC, and you should refer to it to confirm that your reason for dissolution complies with its conditions.

Some operating agreement rules can include the following:

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 in Virginia 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.

• The percentage of votes or the number of members required to approve the dissolution
• How the vote will take place
• How will the members be notified of the decision?
• The procedure for paying all debts and taxes
• The procedure for closing your LLC’s business activities
• How any remaining assets will be divided amongst the members

Virginia-specific rules for voting to dissolve your LLC

LLC members voting to dissolve their LLC must first conform to Virginia’s rules for voluntary closure.

These include:

• Your LLC must be in good standing with the Virginia State Department of Taxation
• Pay any due Virginia state payments
• Inform the Virginia Department of Taxation of your forthcoming closure by filing Form R-3

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

Before Virginia State approves your dissolution request, you must prove you have ended your business affairs and paid any outstanding debts and taxes, known as winding up your business.

Most U.S. state’s LLC statutes outline the steps necessary to wind up your LLC; these steps often include:

• Terminate your LLC’s business licenses and permits
• Notify your LLC creditors and suppliers
• Cancel any business contracts or property leases
• Close all Virginia business bank accounts and other lines of credit
• Notify your Virginia registered agent
• Inform employees and implement a severance package

Step 3: Settle debts and assets with creditors

In Virginia, you must pay all your business debts and inform your creditors and vendors that you are dissolving your LLC so they can claim any money owed.

Not notifying your creditors before dissolving your LLC can cause litigation and a loss of business credit. 

Step 4: Notify tax agencies and settle remaining taxes

Virginia State does not require an LLC to get tax clearance before submitting articles of cancellation with the State Corporation Commission, nor does the state require an LLC to file an annual report.

However, you must pay and file your last tax return with the IRS, the Virginia Department of Taxation, and any other taxes your LLC is liable for, such as sales and use tax. 

Step 5: File a certificate of dissolution

Your last step in dissolving your Virginia LLC is filing your articles of cancellation of a Virginia LLC (Form LLC-1050) with the Virginia State Corporation Commission.

Out-of-state/foreign LLCs must file an application for a certificate to cancel a Foreign LLC in Virginia (Form LLC-1056).

You have 3 choices for submitting your Virginia articles of cancellation: 

• Online: SCC Clerk’s Information System
• By Mail: Virginia State Corporation Commission Clerk’s Office P.O. Box 1197 Richmond, VA 23218
• By Hand: Virginia State Corporation Commission 1300 E. Main Street, 1st floor Richmond, VA 23219

Conclusion

Closing your LLC often takes the same effort as starting it. But you must complete all the winding-up steps before the state will approve your dissolution.

If, for any reason, you cannot complete any of the steps yourself, consider consulting with a Virginia dissolution lawyer.

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