If you are in a limited liability company (LLC), you know it has three processes. LLCs form, do business, and eventually terminate. Even though some stay forever, others terminate. Terminating an LLC’s existence means dissolving, paying taxes, paying creditors, and more.
If you have decided to terminate your membership in a corporation, there are formalities you must meet. You must also adhere to requirements, and no alteration can happen. Understanding the steps to take for startup shutdown is crucial to ensure you do everything the right way. However, terminating your existence depends on various things.
So, if the situation is complicated, you may choose to go for a dissolution and terminate it later. So, what is the difference between LLC termination and dissolution? Here are three crucial things to keep in mind.
1. Dissolution Is Not The End
Dissolution is different from termination. However, it is among the processes of closing a business. Before you go down this road, it is crucial to learn how to close a business. Closing an LLC starts with dissolution. Dissolution does not mean the business is terminated. It starts when an event triggers the need to dissolve or the need for the LLC to stop operating. However, it must be according to the operating agreement. There are different reasons why an LLC may decide to dissolve. The reasons include the following:
- Dissolution by agreement
- Dissolution by notice
- Bankruptcy of partners
- Involvement in illegal businesses
- Contract expiry
- Death of the partner
- Term completion
- Resignation of partner
In short, dissolution ends the existence of the company. However, that does not mean its obligations stop. Typically, a dissolved company continues to receive penalties. Therefore, dissolving the company should happen at the state level.
Understanding LLC termination vs dissolution is crucial to know how far you need to go with each step. However, as mentioned earlier, dissolution is a termination process indicating the beginning of the end. The state requires the business to file some documents and stop operating before termination.
2. Winding Up Affairs
Another thing you need to know is the step of winding up affairs. Once you have dissolved, you will need to wind things up. The statutes in LLC clearly indicate what you should do. Here are some crucial things you should do when winding up your affairs.
- Discharge debts, liabilities, and obligations
- Distributing remain assets
- Closing activities
These are the main things that every LLC must do. However, the following differs from one LLC to another. If you have no idea where to begin, it will be a good idea to contact Goodbye Startup for direction. Here is what you should do depending on your LLC.
- Closing your bank and credit accounts
- Paying final taxes
- Paying creditors
- Canceling permits, licenses, and insurances
- Filing final reports and returns
- Notifying customers, investors, and employees
- Withdrawing from the states, the LLC is registered
3. The Process Of Termination
Once you have completed the winding-up process, you have terminated your LLC’s existence. The process of how to dissolve an LLC in Colorado is not complicated. After you are done, and your affairs are in order, your business is terminated. You might be required to file a termination document.
From the details above, you can see that terminating an LLC is a process that involves dissolving the entity first and winding things up. Remember, the difference between dissolution and termination is that your company can still be liable for reports and taxes during dissolution. It can also be sued, and identity theft is risky. Therefore, a service company can help speed up the dissolution and termination process.