How to Dissolve an LLC in Maryland
All good things come to an end, so you may want to know how to dissolve an LLC in Maryland. The LLC may have had a specific purpose, which is completed; it doesn’t fit with what you’re doing; or the business is no longer sustainable. Dissolving an LLC in Maryland may be something you need to accomplish, so get it off your ‘to do’ list and move on.
Whether you want to dissolve a business entity or create a new one, Lusk Law, LLC, can advise you on your options and take the necessary steps to complete the job. Contact us today at (443) 535-9715 to set up a consultation.
What’s a Limited Liability Company (LLC)? Is it Right for My Business?
LLCs offer some of the benefits of a corporation without all its costs.
There are several types of legal entities that can operate as a business. The most common are a sole proprietorship, partnership, LLC, and corporation. One or more people may form an LLC, and its owners are known as “members.” All LLCs should have an operating agreement, that provides the rules for how the business is owned and run.
An LLC may conduct any lawful business, purpose, investment, or activity, for-profit or not, but it can’t be an insurer. It can be a party to a contract and carry out business as its members decide. The LLC can exist indefinitely or stop operation by a specific date or completion of a task.
Whether an LLC is the best entity for your business depends on many issues:
- Limited personal liability: Generally, members aren’t personally liable for the LLC’s acts and business debts. Your personal assets cannot be used to satisfy a judgment if your LLC is sued.
- Credibility: You may be considered more credible, trustworthy, and sophisticated if you’ve formally created a business instead of operating it as a sole proprietor. You may get more sales. It may be easier to get business loans and attract other people as members/co-owners.
- Paying taxes: The LLC’s income and losses are passed through to the members’ and considered members’ personal income, as long as the LLC elects to be taxed as a sole proprietor or partnership. For corporate shareholders, there’s normally a corporate income tax and shareholders also pay personal taxes on any dividends or profits they get from the corporation.
- Flexibility: LLC members have broad flexibility to run their LLC.
- Legal requirements and paperwork: An LLC, unlike a corporation, doesn’t need a separate board of directors to make broad decisions or officers to manage the company. Members may do both. There is also less required record keeping compared to a corporation, though LLCs must file articles of organization and annual reports
Forming an LLC is fairly simple:
- Choose a unique name that includes the words “limited liability company” or an “LLC” or “L.L.C.” abbreviation.
- Choose a resident agent who receives legal papers for the business if it goes to court.
- Identify a business address in Maryland
- Complete articles of organization and submit them to the Maryland State Department of Assessments and Taxation (SDAT).
- Prepare an Operating Agreement
- Obtain an Employer Identification Number from the IRS.
Is it Bad to Dissolve an LLC? Why Would I Want to?
Ending an LLC may be a wise business decision, given your situation.
You may want to end your LLC because you planned it to perform a specific purpose and things went as expected. Or things didn’t go as expected, things went wrong, and it’s best that the entity be terminated. If there’s more than one member . . .
- There must be unanimous agreement
- There may be another way to vote to end the LLC in the operating agreement, or
- One or more members could go to court to ask a judge to terminate the LLC.
Reasons to terminate the LLC include:
- You’re not making money.
The business is unprofitable, or you think something else you could do would be more profitable or personally satisfying. You would no longer have ongoing responsibilities to file reports, pay related fees and taxes, and you avoid possible penalties if you fail to do so.
- The job is complete.
Your articles of organization state your business purpose, which can be broad or narrow. If the LLC was created for a specific reason (to construct and sell a building), it may have been fulfilled. It also relieves you of ongoing paperwork responsibilities.
- A member died, became disabled, or filed bankruptcy.
The operating agreement may state that termination of the LLC must occur if this happens. Remaining members could vote to amend the agreement to continue, or they could create a new LLC.
- Members can’t agree.
Disagreements on essential aspects of your operations or goals may make dissolving the company your best choice. You may differ about how much time and money should be invested, the roles of members or employees, sharing profits and losses, and whether the company should go in a new direction. If it’s not terminated, unhappy members could go to court to force termination of the LLC.
- There have been unlawful acts.
The LLC may be engaged in illegal activities. Other members may be defrauding it or using its resources for personal gain. If members can’t agree to shut it down, this could be a reason to ask a judge to terminate the LLC.
How Do I Dissolve an LLC in Maryland?
There are multiple steps that must be done correctly.
Under Maryland law, the terms “dissolution,” “cancellation,” and “termination” are used concerning ending an LLC. They refer to different steps in the process. The LLC’s dissolution changes the relationship between the members and starts the process of ending its affairs. It’s not the end of the company, which happens with termination.
The first thing you should do is review your operating agreement and the LLC’s articles of organization. Either could state a specific time, event, or process of when and how the LLC ends, according to state law. If that’s not the case, the LLC can be dissolved if there are 90 consecutive days where the company has no members or by the unanimous consent of its members. If there’s a vote, record the decision in the LLC’s official minutes of the dissolution meeting or on a written consent form.
How do I dissolve an LLC in Maryland? Under limited circumstances, you could go to state court and seek judicial dissolution. The court would decide if the LLC can reasonably operate and comply with its operating agreement, articles of organization, or the law.
How Do You Close Out an LLC?
Dissolution means it’s time to pay outstanding bills and get ready to close shop.
If a Maryland LLC is dissolved, it must start winding up its affairs. One or more members can be responsible for the process. Between dissolution and termination, members can — but aren’t required to — file articles of dissolution with SDAT.
If you do, articles must contain:
- The LLC’s name
- The dates when the articles of organization and any amendments were filed
- The dissolution’s date
- Any other information members choose to add.
You need to give notice to all known creditors by registered mail of the fact that you’re winding up the LLC’s affairs prior to filing articles of cancellation (unless there are no known creditors). This process includes distributing assets to creditors and fully satisfying the LLC’s liabilities. The remaining assets can be distributed to LLC members in proportion to their capital contributions, according to state law.
Termination Puts an End to the LLC
After all the financial issues are addressed, the LLC ends.
To finally terminate the LLC, the entity files articles of cancellation with SDAT, and creditors can’t use the LLC’s assets to pay bills. These articles must contain:
- The LLC’s name
- The principal office’s address
- The name and address of a resident agent who will serve for a year after the LLC’s termination
- The name and address of each member designated to wind up the LLC’s affairs, or if no member is designated, all members’ names and addresses
- A statement that the LLC is terminated effective when the certificate of cancellation is filed or on a specified date which can be no later than 30 days after filing the certificate
- A statement that the notice of the termination was sent to all known creditors
- Any other provisions the LLC considers necessary.
How do you close out an LLC? It officially terminates when SDAT accepts your articles of cancellation or on their effective date.
How Much Does It Cost to Dissolve an LLC in MD?
It doesn’t cost anything to file articles of dissolution or cancellation unless you want expedited service, and then it’s $50 for each document. Wrapping up an LLC’s affairs will cost time and money due to registered mailing and administrative expenses. Legal representation would also be a cost.
Get the Job Done Right with the Help of Lusk Law, LLC
Is it bad to dissolve an LLC? No, it may be your best option. Contact Lusk Law, LLC today if you have questions about starting, running, or ending an LLC or another business entity. We help clients in Frederick, Carroll, Washington, Montgomery, Howard, Anne Arundel, Baltimore Counties, and Baltimore City. They trust us with a wide range of legal matters. Give us a call at (443) 535-9715 today to schedule an appointment.
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