Dissolving an LLC means closing up shop. It is usually a long process that requires one to be very keen with the paperwork they provide, and that is why most are advised to hire legal professionals to take care of the process. What are some of the reasons that may lead one to dissolve an LLC? Well, there are plenty of reasons that may lead to the dissolution of an LLC, some of which are voluntary, with others being involuntary. These reasons are discussed below in greater detail.
Unprofitability
One of the main reasons for starting a business is to make a profit among a host of other reasons. When the LLC is not breaking even or not generating the expected revenue, most entrepreneurs tend to call it quits before it becomes too ugly. This is because by simply existing, the LLC requires a lot of work to be put into it. Reports have to be filed, and taxes need to be paid. There are also fees that continue to accrue. At this point, the owner(s) may decide to dissolve it following the process as stipulated in the operating agreement.
Achievement of Target
While some businesses are set up to generate profit, others are started with a particular aim or mission. Once the LLC has achieved this aim, they no longer have a purpose, and the next natural step would be to dissolve it. Again, dissolution helps relieve members of specific duties such as annual filings and helps avoid fees, taxes, and potential penalties.
Illegal Activity
When an LLC is involved in any illegal activity, any one of the shareholders can petition the court for dissolution. Such matters are quite serious as they involve breaking the law, so the shareholder filing the petition has to be able to back their claim and show that they weren’t aware of any illegal activity. Alternatively, a change of federal or state laws could render an LLC illegal, in which case the shareholders have a given period to either change and be compliant or close up shop for good.
Mutual Agreement by Members
The founding members of the LLC may decide to pull the plug on the LLC for reasons best known to them. This could vary from disagreements among members, new opportunities, or the LLC not being worth the time and effort that the shareholders have put into it. In such scenarios, the logical thing would be to close the LLC to avoid the costs that have been repeatedly mentioned. Also, the shareholders may have an agreement in place that stipulates conditions that may lead to the dissolution of the LLC. If the members cannot agree, then one person may petition the state court individually to dissolve the company provided they can prove a few things.
Regardless of the reason for dissolution, it is essential to get professional help when the time comes to dissolve an LLC. They always know how to go about it.
