Dissolution of a Connecticut LLC
Wrapping up a Connecticut LLC is not rocket science, but it is a lot of work. If you want to ensure you don’t have liability, you better do it right. Chances are you will need some help from a good Business Lawyer and perhaps a good Tax Lawyer. You’ll probably involve your accountant too.
There are various steps necessary to dissolve and wind up a CT Limited Liability company.
The Business Lawyers know that CT law allows the LLC to dissolve under state law and then wound up by its legal representative. The person winding up the affairs of the LLC should settle items, pay creditors, discharge the liabilities of the LLC, wind up the corporation, pay the taxes, close the business, dispose of and transfer property, and distribute any remaining assets. The representative also has to handle any lawsuits on behalf of the LLC and will need to consult a Business Lawyer on these. The LLC essentially continues to exist during its winding up phase and can bring a lawsuit or face a lawsuit.
The CT law governing Limited Liability companies can be found at the Uniform Limited Liability Company Act, Chapter 613a CGS 34-243 to 291 and you can certainly read it even if you are not a lawyer.
The procedures to wind up an LLC are as follows:
- First, the LLC members should approve a resolution to dissolve the company and adopt Articles of Dissolution.
- Second, the company should be dissolved with the CT Secretary of State and withdraw from any other jurisdictions in which it was authorized to do business.
- Third, the representative should settle and close the LLC’s activities and affairs and the creditors should be paid and assets distributed.
- Fourth, the tax returns should be filed, and tax accounts terminated, and you may need a Tax Lawyer to help here.
- Fifth, business licenses and permits should be canceled.
The Secretary of State has a website portion addressing dissolution and the DRS has a website portion addressing the tax winding up process.
Corporate Action: LLC members should approve a resolution to dissolve the company and articles of dissolution to document the corporate authority for the dissolution. These are normally drafted by your Business Lawyer. A meeting should be held for a vote or it can sometimes be done by unanimous consent.
State Action: CT requires the filing of a Certificate of Dissolution with the State, which can be done online at http://portal.ct.gov/-/media/sots/CommercialRecording/AllForms/llc-2017/certificate_of_dissolution.pdf?la=en. In addition, the LLC should withdraw from any other states in which it was authorized to do business.
Permits and Licenses: All licenses and permits held by the business should be terminated.
Assets and Creditors: In the big picture, the creditors should be paid and then the assets should be distributed. Or the creditors should be noticed and then not paid, avoiding liability.
Giving notice to creditors and other claimants of your LLC’s dissolution is optional. However, doing so will help limit your liability and allow you to more safely make final distributions to members. There are separate notices and ways to notify known and unknown creditors.
There are various actions required to notify creditors prior to distributing the assets. Notification procedures are detailed in CGS 34-267a. These may get tricky and require a lot of specific steps and you may want to get your Business Lawyer involved to ensure they happen properly. They require:
- Notifying the known creditors with specific information.\
- Publishing a notice to notify unknown or non-noticed creditors.
- Adopting a deadline for claim filing at least 120 days out.
- The claim should be either be paid or rejected and then the claimant has 90 days to file a lawsuit.
If these procedures are followed, the members will be protected against the LLC claims. Note that tax liabilities have different rules for discharge and it is particularly important that you pay all outstanding taxes to avoid personal liability.
It is extremely important to pay your tax liabilities because taxes can may not be discharged in a state liquidation. In addition, some taxes such as payroll taxes and sales taxes have personal liability to the members or people in control of the money. You may want to consult your Tax Lawyer on these to ensure you don’t have liability.
For federal tax purposes, check the “final return” box on your IRS Form 1065 (if your LLC is classified as a partnership for tax purposes) or IRS Form 1120 (if your LLC is classified as a corporation for tax purposes).
You also must address the state tax obligations.
The basic CT tax steps are on the DRS website http://www.ct.gov/drs/cwp/view.asp?a=1454&Q=266104
If you have a Sales and Use Tax Permit, you should file a final sale and use tax return (Form OS-114).
Fill out the back of the Sales and Use Tax Permit (blue card) with your last date of business and enclose it with the final return.
For income tax purposes, file a final Form CT-1120, Connecticut Corporation Business Tax Return. The corporation business tax applies to any year or part of a year when the corporation was in existence or was winding up.
If you were withholding on employees, you have to close the Withholding Tax account. File Form CT-941, for the current quarter. You should check the box indicating that the employer no longer has employees and enter the last payroll date on the line provided on Form CT-941.
An employer must also file Form CT-W3, Connecticut Annual Reconciliation of Withholding, issue Forms W-2 to all employees showing their wages and withholding and submit copies of all Forms W-2 to the Department of Revenue Services.
Whew, that wasn’t easy and required a lot of work. Other states such as New York, have similar laws and procedures but vary a bit. It will require help from your Business Lawyer, Tax Lawyer, and accountant. If you don’t dissolve the corporation, you will remain subject to a minimum business entity tax of $250, must file tax returns and will continue to be subject to liabilities and claims.