Question

Write in detail the procedure of formation and dissolution of LLC.

Business Law questions.

Answer 1

A Limited Liability Company or LLC is a specific kind/form of a private limited company. LLC can be termed to be a hybrid legal in an entity that possesses characteristics of sole proprietorship/partnership and corporation. The owners of LLC have limited liability and are also subject to a lesser number of regulations. Because an LLC can elect to be taxed by the regulatory authorities as a kind of sole proprietorship, they may be taxed at individual tax rates. The owners are also not personally responsible for the debts the business undergoes and exist in separation from the business. There are no citizenship restrictions for the members of an LLC, and they are also protected and shielded from certain liabilities as well as debts depending on the shield laws of the states. The LLC also gets the benefit of “pass-through” taxation and therefore no “double taxation” rule applies to them. LLC is a highly popular form of business structure because of the benefits.

Process of LLC formation

Initial Paperwork: The initial paperwork for LLC formation is filed with the respective state where the business is based. The filing and documentation should be in accordance with state procedures and rules.

LLC Name: Businesses are required to choose the name of their business. It is important to choose a unique name so that confusion is avoided and there are no trademark infringement claims. Some states may not allow the use of terms like banks in the names. Two businesses may also not have the same names, even if they are located in different cities of the same state. If the owner (s) are not filing the documents immediately, they may like to reserve the name, which may ask for a fee.

Registered Agent: In almost all states of the USA, an LLC is required to have a registered agent who is also known as Statuary Agent. The registered agent will receive the different official documents, subpoenas, and lawsuits for the LLC and will also forward these important documents to the designated and relevant persons in LLC. A person who has been a resident of a state and has more than 18 years of age can be designated as the registered agent. He can also be an officer or member of the LLC itself. There are also other companies that can provide you a registered agent, for a fee.

LLC Operating Agreement: The operating agreement may not be required by the state laws but business owners often prepare this document to define all the responsibilities and rights and to prevent future disagreements. The document and agreement describe the running of the LLC and specifies things and issues like voting rights, ownership interests, allotment of losses and profits, governing of the business, and others.

Filing of Paperwork with State Government: The articles of organizations that should be filed with the government include address and name of LLC, length of existence, address and name of the registered agent, and the purpose of LLC formation among others. The documents need to be filed at the office of Secretary of State in many states, but the designated authority may also be different for some. There is a fee levied on the business for this documentation.

Certificate of Formation obtainment: Upon the successful completion of the documentation, the state issues a certificate to the LLC that denotes that the concern formally exists. A business can now obtain the business licenses, tax ID number, and also set up a business bank account once it obtains the certificate.

Multiple Registrations for Operating in the Different States: When an LLC aims to operate in different states, it needs to have registered agents in all of these States where it wishes to operate. It also has to carry out the complete registration process at the individual States.

Dissolution of an LLC

Proper dissolution of LLC and wrapping up of things is important, as it affects the liability of owners/partners/members. Government bodies and licensing authorities, local taxing, Internal Revenue Service and others will assume that the business is functional unless notified otherwise. When the LLC is dissolved with proper documentation and process, there are minimum taxes, and an end to the state fee and annual reporting process. Owners may be surprised by unpaid debt or fine if the LLC is not dissolved in the requisite legal manner.

Voting: An LLC is dissolved through voting. Many LLCs have the standard operating agreement having the procedure for voting for dissolution. The State LLC statutes also have this procedure, which can be followed. A written record of the dissolution decision has to be kept along with the LLC official records.

Notifying the Creditors: The LLC should promptly notify the creditors that it is closing the business and also gives them the details on how the company plans to submit the claims, and the deadline it will follow. The LLC statutes of the State specify the deadline, which is mostly in between 90 to 180 days. It is the proper way of clearing financial obligations.

Notifying the Licensing and Taxing Authorities: If the LLC has obtained the licenses from any agencies, it needs to be canceled and the outstanding fee has to be paid as well. The taxing and state authorities should also be notified and the remaining dues should be paid. Once all the financial obligations are settled, then remaining assets of the LLC can be distributed in the members.

Filing Articles of Dissolution: Just like the filing of articles of formation, the LLC also needs to file articles of LLC dissolution or similar kind of document. These papers are often handled by the same government organization that handled LLC formation documents. The filing procedures forms and fee depend on the State. If an LLC operates in different states, it has to file the dissolution documents in all the respective States. The company needs to file the final income tax return and the final employment tax returns (in cases where it is applicable) as well.