Dissolution of an LLC is the termination of a limited liability company's legal existence. In a majority of jurisdictions an LLC legally dissolves upon the withdrawal, disability, expulsion, death, or bankruptcy of a member. Other situations that bring about dissolution include a court order, bankruptcy of the LLC, or the completion of the LLC's stated period of duration.
Depending upon the nature of winding up, LLC dissolution may be either voluntary dissolution or involuntary dissolution.
Voluntary dissolution of an LLC is made at the initiative of its members. It happens when the members may not be able to continue operating the business. For instance, when the business undertaking's operating expenses constantly outweigh profits. Parties may enter into a dissolution agreement to voluntarily dissolve an LLC. Depending on the bylaws of the limited liability company, articles of organization, and the state laws, a voluntary dissolution process is carried out. Voluntary dissolution of an LLC is initiated by a resolution passed by its members and by filing a certificate of dissolution and other dissolution documents with the secretary of state or governing corporate agency. In the dissolution process debts are paid off and assets are distributed.
A majority of jurisdictions provide for the continuance of an LLC after the withdrawal of a member. Continuance after the withdrawal of a member usually requires the undisputed consent of remaining members. Some states require that the operating agreement or the articles of organization provide for the continuation of the business after a member's withdrawal.
Involuntary dissolution of a limited liability company happens in two circumstances:
- when there is a court order
- when the secretary of state orders a dissolution
Court orders for dissolving an LLC are typically issued when the company is engaged in oppression or fraud or when the company becomes insolvent. The secretary of state orders dissolution of a limited liability company when there is improper management of the company or when corporate taxes or other payment owed to the government are overdue.