The termination of a limited liability company (LLC) is known as dissolution. There are two types of dissolution: If the LLC is dissolved by the action of the state or by court order, it is called an involuntary dissolution. If the LLC members decide to end the business, it is called a voluntary dissolution.
Occasionally, the provisions of the LLC operating agreement provide for automatic voluntary dissolution. For example, an LLC might be formed for the purpose of putting on a concert on a certain date, and then will be dissolved once the concert has taken place. Or, an LLC might be formed for the purpose of constructing a building, and then will be dissolved after construction is completed and the building sold.
If you decide to close your Texas-registered LLC, or if the operating agreement provides for automatic dissolution, you will need to know how to dissolve an LLC in Texas. Certain procedures must be followed, and certain forms must be filed with the Texas Secretary of State. The forms will vary depending upon whether your LLC was formed in Texas or in another state.
Involuntary Dissolution of an LLC in Texas
The state of Texas may pursue the involuntary dissolution of an LLC for failure to comply with state law. The most common reason is for failing to file an annual franchise tax return or to pay the franchise tax. Other reasons include failing to file required forms, filing fraudulent documents, or engaging in some type of illegal activity.
An involuntary dissolution may also be ordered by a court. A judicial dissolution of an LLC in Texas usually occurs as the result of a dispute among the members of the LLC.
Voluntary Dissolution of an LLC in Texas
The forms required to be filed for the voluntary dissolution of an LLC in Texas will vary, depending on whether the LLC is domestic or foreign: An LLC that is formed in Texas is called a domestic LLC. An LLC that was formed in another state, and is registered to do business in Texas, is called a foreign LLC.
For both domestic and foreign LLCs, voluntary dissolution is either determined by a majority vote of the members, or by the terms of the LLC operating agreement. If your LLC has an operating agreement, be sure to review it for any requirements relating to dissolution.
The first step in dissolution is a process called winding up. This involves stopping new business endeavors, taking whatever action is necessary to pay off business debts, and distributing any remaining assets to the members. This may require the sale of assets. Debts include any federal, state, or local taxes that may be owed.
Your LLC will need to obtain a Certificate of Account Status for Dissolution/Termination from the Texas Comptroller of Public Accounts. This form verifies that the LLC has paid all its taxes. You can request a Certificate of Account Status by using the Request for Certificate of Account Status to Terminate Entity's Existence in Texas or Registration (Comptroller Form 05-359). Regarding the Certificate of Account Status, you should be aware that:
- A Certificate of Account Status printed from the Comptroller's website is not sufficient.
- The Certificate of Account Status will indicate that it is only valid until a certain date, so be sure to file your termination document before the Certificate of Account Status expires.
Dissolving a Domestic LLC
If you formed your LLC in Texas, you will file two signed copies of a Certificate of Termination of a Domestic Entity (Form 651), and pay a $40 filing fee. Form 651 must be signed by an authorized manager or authorized member-manager. The Certificate of Account Status must be attached to your Form 651.
Dissolving a Foreign LLC
If your LLC was formed in another state and is registered to do business in Texas as a foreign LLC, the form that needs to be filed will depend upon whether your LLC is still in existence in the state where it was formed:
- If your LLC is still in existence at the time you are ending operations in Texas, you will file two signed copies of a Certificate of Withdrawal of Registration (Form 608), and pay a $15 filing fee. This form must be signed by an authorized manager or authorized member-manager, and the Certificate of Account Status must be attached to your Form 608.
- If you have already dissolved your LLC in the state where it was formed, you will file two signed copies of a Termination of Registration (Form 612), and pay a $15 filing fee. This form must be signed by an authorized manager or authorized member-manager, and the Certificate of Account Status must be attached to your Form 612. You will also need to submit a document obtained from the state where your LLC was formed, verifying it has been dissolved in that state.
The procedures and forms for the voluntary dissolution of an LLC in Texas are fairly straightforward. The forms available from the Texas Secretary of State contain helpful instructions to guide you through the process.