Dissolving a Business?

You will need to pay off those debts first in order to properly dissolve the business and the LLC.

Dissolution is the formal end of the business entity, whether voluntary or involuntary. All outstanding debts become due in full and the members are obligated by law to end the financial affairs of the company. The LLC gives up or loses its authority to conduct business legally once dissolved, but the company's debts do not end with the close of the business.

For all of the legal and practical reasons, you will want to work with an attorney with both business and law experience. Some of the answer to your questions involve "business strategy" and negotiations...and some of the answer is "legal" and "compliance". I would recommend that you call at least three attorneys to get a better picture of what needs to get worked on and who may be the best attorney to assist you in this process. Shawn Jackson - California Business Development Attorney

I have a lot of clients who have been in this same boat. Unfortunately, the State will not allow you to dissolve the LLC without first paying off all the debts to the State and then you must sign a document saying that you swear under penalty of perjury that all of the LLC's debts are paid in full. You should be certain that the debts belong to the LLC and not to you personally (or to someone else). If the debts belong to someone other than the LLC, you should be good to go! My best wishes to you!! Julie King, Monterey, CA

It's best to hire counsel to assist. In a nutshell the following are the steps: (1) All members of the LLC sign a Dissolution and Winding Up Agreement or the requisite number of members of the LLC (usually a majority is required) adopt and sign resolutions to dissolve. (2) The resolution should designate a person responsible to wind up the LLC's affairs. (3) The responsible person signs a Certificate of Dissolution on the form approved by the Secretary of State (SOS) and files it with the SOS. (4) The repsonsible person liquidates all LLC assets. (5) The responsible person pays all creditor liabilities to the extent of available liquidation proceeds. (6) If proceeds are insufficient, the debts generally are prorated but taxes usually are paid in full if possible. (7) If proceeds are left after paying creditors, the remaining balance of the proceeds are distributed to the members i proportion to their ownership interest. (8) An abandonment of any fictitious business name is filed by the responsible person. (9) If the articles of organization previously were recorded, a cancellation is recorded.