Closing a Limited Liability Company (LLC) can be a challenging decision for business owners. Whether due to financial difficulties, strategic shifts, or a desire to pursue other opportunities, dissolving an LLC requires careful attention to legal and procedural details. If you’re wondering how to dissolve an LLC in Texas, this guide will walk you through the process.
By following the proper steps, you can avoid future liabilities, resolve any outstanding obligations, and formally close your business with the state.
Why Dissolve an LLC in Texas?
There are many reasons a business owner might choose to dissolve their LLC, including:
- Voluntary Closure: The LLC’s members decide to cease operations.
- Expiration of Duration: The LLC’s Certificate of Formation specifies a set term, which has ended.
- Court Order: A judge orders the dissolution due to disputes or legal violations.
- Failure to Operate: The LLC is no longer active or financially viable.
Understanding the motivation behind the closure will help you address the specific legal and financial considerations involved in the dissolution process.
How to Cancel or Dissolve an LLC in Texas
Dissolving an LLC in Texas involves multiple steps, from agreeing to close the business to filing the necessary paperwork with the state. Here’s a detailed look at each phase.
Step 1: Identify the Triggering Event
The dissolution process begins with a triggering event that initiates the LLC’s closure. Common triggering events include:
- Voluntary Decision by Members: LLC members vote to dissolve the company. Check your governing documents, such as the Company Agreement or Certificate of Formation, to determine the required vote threshold for approval.
- Pre-Defined Conditions: The LLC’s governing documents specify events that require dissolution, such as achieving a business goal or reaching a specific end date.
- Court-Ordered Dissolution: A court may mandate the LLC’s closure in cases of disputes or violations.
Your LLC’s governing documents and the Texas Business Organizations Code will guide you in identifying and documenting the triggering event.
Step 2: Begin the Winding-Up Process
Once the dissolution process is triggered, the LLC enters a phase called winding up, during which it must settle all its affairs. According to Texas law, this includes:
- Notifying Claimants: Send written notice to creditors and claimants, informing them of the LLC’s impending closure.
- Settling Obligations: Pay off debts, taxes, and any other outstanding liabilities.
- Liquidating Assets: Sell the LLC’s property and distribute the proceeds.
- Resolving Lawsuits: Address any pending legal actions involving the LLC.
- Distributing Remaining Assets: Divide remaining assets among members as outlined in the governing documents or per Texas law.
During this phase, the LLC must cease normal business operations except for activities necessary to complete the winding-up process.
Step 3: Obtain a Tax Clearance Certificate
To formally dissolve your LLC, you’ll need to obtain a Certificate of Account Status from the Texas Comptroller of Public Accounts. This certificate confirms that the LLC has paid all due taxes and has no outstanding tax liabilities.
How to Request a Certificate of Account Status:
- File Form 05-039, either online or in person.
- Wait approximately 4–6 weeks for processing if filing online, or visit a Comptroller Field Office to receive the certificate immediately.
- Ensure all state taxes, including franchise taxes, are paid in full before applying.
The Certificate of Account Status is a critical document required for filing the LLC’s termination paperwork.
Step 4: File the Certificate of Termination
Once you’ve completed the winding-up process and obtained the Certificate of Account Status, you must file a Certificate of Termination with the Texas Secretary of State. This step legally terminates the LLC’s existence.
Filing Requirements:
- Include the Certificate of Account Status with the Certificate of Termination.
- File online, by mail, or via fax.
- Pay a $40 filing fee to the Secretary of State.
The Certificate of Termination form requires details such as the LLC’s name, the date of dissolution, and a statement confirming that the winding-up process is complete.
Step 5: Notify Stakeholders
After filing the termination paperwork, notify all relevant parties of the LLC’s closure. This includes:
- Employees
- Clients and customers
- Vendors and suppliers
- Financial institutions
Providing clear communication ensures that your stakeholders can adjust their records and resolve any outstanding issues with the LLC.
How Much Does It Cost to Dissolve an LLC in Texas?
The cost to dissolve an LLC in Texas is relatively low compared to other states. Here’s a breakdown of common expenses:
- Certificate of Account Status Filing: Free
- Certificate of Termination Filing Fee: $40
- Attorney Fees: Varies depending on the complexity of your case and whether you seek legal assistance.
While the upfront costs may seem minimal, failing to follow the proper dissolution procedures can lead to significant expenses in the form of penalties or unresolved liabilities.
How Long Does an LLC Last in Texas?
An LLC in Texas continues to exist until it is formally dissolved. However, its duration may be limited if:
- The governing documents specify an expiration date.
- The LLC is administratively dissolved by the state for failing to file annual reports or pay franchise taxes.
Properly terminating the LLC ensures that it ceases to exist as a legal entity, protecting members from ongoing liabilities.
Common Mistakes When Dissolving an LLC in Texas
Many business owners make errors when attempting to shut down an LLC in Texas, which can lead to legal and financial complications. Avoid these common pitfalls:
- Failing to Follow Governing Documents: Ensure you comply with the procedures outlined in your Company Agreement or Certificate of Formation.
- Neglecting Tax Obligations: Obtain a Certificate of Account Status to confirm that all taxes have been paid.
- Skipping Stakeholder Notifications: Notify creditors, clients, and other stakeholders to avoid confusion or legal disputes.
- Overlooking Winding-Up Tasks: Ensure that all debts, lawsuits, and other obligations are resolved before filing the Certificate of Termination.
Seeking professional guidance can help you navigate these challenges effectively.
How to Close a Business in Texas
If your LLC is part of a larger business closure, additional steps may be required. These may include canceling business licenses, closing bank accounts, and notifying the Internal Revenue Service (IRS) of the closure.
How an Experienced Business Dissolution Lawyer Can Help
The process of dissolving an LLC in Texas can be complex and overwhelming, especially when legal and financial issues arise. At Roquemore Skierski Business Lawyer, we specialize in helping business owners navigate the intricacies of LLC dissolution. Our experienced team can assist with:
- Drafting and reviewing governing documents.
- Ensuring compliance with Texas Business Organizations Code requirements.
- Resolving disputes during the winding-up process.
- Preparing and filing all necessary paperwork.
Don’t risk future liabilities or penalties. Contact Roquemore Skierski Business Lawyer today to ensure a smooth and legally compliant dissolution of your Texas LLC. Let us help you close your business with confidence and peace of mind.
