Dissolving an LLC
If you choose to close a Colorado LLC, dissolving the company is a key step that you absolutely cannot skip.
At formation, you registered your LLC with Colorado. Dissolution is formal process that officially ends your company's classification as business entity that is state registered. This process also ensures that claimants, including creditors, cannot reach the business.
It is possible for court decrees to dissolve LLCs on involuntary basis. The following information, however, focuses solely on voluntary dissolution that is initiated by member of the LLC.
Examine the Operating Agreement
The first step towards the voluntary dissolution of your Colorado LLC will be checking the operating agreement. A properly drafted operating agreement will almost always include a section dedicated to the dissolution process. Most of the time, these rules require LLC members to vote in favor of a resolution that will dissolve the company. There is likely a specific requirement of a minimum percentage of LLC members that must vote for the resolution. Ensure you follow the procedural requirements outlined in your dissolution rules. These may include providing members with advance notice of the meeting or setting the meeting and vote for a particular time.
If the operating agreement does not include a dissolution process or you do not have an operating agreement, the default rules in the Colorado LLC Act regarding voluntary dissolution of an LLC will apply. The Act lets you voluntarily dissolve the LLC if the members agrees.
Regardless of the approach you take to dissolve the LLC, you must ensure you record all parts of the decision making process and draft a resolution of dissolution. This record will represent the dissolution meeting's official minutes.
Filing the Dissolution Statement
After voting to dissolve your LLC, you must file a dissolution statement with the Secretary of State. Under Colorado law, this statement of dissolution must include:
- Your LLC's name
- Your LLC's principal office address
- the state ID number of LLC
You do not need to craft the statement of dissolution from scratch or include your dissolution meeting's final minutes. The Secretary of State website has a form you will complete. Colorado requires you to file the statement online through the Secretary of State website and pay a $25 fee.
The online dissolution filing is typically processed immediately. You should note that following your LLC’s dissolution, others can legally use the business name.
Winding Up Your Company
After the dissolution with the Secretary of State is complete, the LLC still exists, but only to wind up the company's outstanding affairs. You can designate at least one manager or member of the LLC to handle the winding up process.
The Colorado LLC Act outlines several key tasks that are part of winding up. They include:
- Settling disputes
- Preserving the property or business of the LLC as a going concern over a reasonable period of time.
- Defending and prosecuting proceedings and actions against the company, including administrative, criminal, and civil.
- Collecting assets of the LLC.
- Disposing of properties of the LLC that will not be distributed in-kind to members.
- Distributing any remaining property of the LLC among members.
It is also crucial for your LLC to pay any outstanding taxes that are due. There is no requirement in Colorado for you to obtain tax clearance prior to dissolution and on your federal and state return you will simply mark the box labeled “final return” on the appropriate form.
Sending Notice to Claimants and Creditors
Another key task involves providing notice to claimants and creditors. It is optional to give notice of the dissolution of the LLC to potential claimants and creditors, but it is wise to do so. Taking this step can reduce the potential liability of members, managers, and officers in the future. It may also provide additional safety when finalizing member distributions.
Based on Colorado Law, you must give notice via a written document that is sent directly to any known claimants following dissolution. To count as proper notice, this written document must indicate that any claim filed against the LLC must take place by a stated deadline. If it does not occur by then, the action will be barred. The notice should also state that other limiting actions or statutes may bar these claims sooner than the stated deadline. You cannot list the deadline as any date sooner than two years following the date the notice is delivered.
Alternatively, you can provide unknown claimants with notice via a newspaper ad. Check the specific requirements for using publication as notice as there are particular rules. Typically, claimants will have a time frame of five years following the publication date in which they can bring the claim.
If you decide to deliver notice to claimants that your LLC has dissolved, we strongly suggest you get assistance. Business attorneys will assist you with this.
You should also note that in cases where your LLC has registration in another state as well, you must file an additional form with that state.
Conclusion
Dissolving and winding up an LLC are just two of the many steps that may be involved in the process of closing down a business. You will likely need additional guidance to ensure you complete all steps that may be required for your business. If you would like to speak with a qualified and experienced attorney about your business, you can schedule a consultation through the contact link on our website.
For more information about Colorado LLCs, including articles of organization, EINs, sole proprietorships, and Colorado business licenses, check out the rest of our blog.
