Dissolving an LLC (With Debt) in Texas
Dissolving a limited liability company (LLC) is a multifaceted process. It’s important to jump through all of the appropriate legal, regulatory, and administrative hoops to ensure that the company is fully dissolved and no unnecessary liability is passed through to the business owners. If there is a significant amount of outstanding debt at the time of dissolution, it’s even more important to carefully go through the proper processes. Read on for a discussion of dissolving an LLC with debt in Texas, and call a knowledgeable Houston business lawyer for help with a Texas business law matter.
Winding Up a Business in Texas
Dissolving an LLC requires taking several legal and administrative steps. While some states have an LLC law specifically detailing how to dissolve an LLC, Texas does not. Texas business owners must comply with the laws and rules set by the Texas Business Organization Code (BOC). In order to dissolve an LLC, Texas business owners must first start a process known as “winding up” the business.
Winding up the business means tying up all the loose ends of the business before fully dissolving. This involves a number of tasks, including:
- Notifying claimants against the business about the impending dissolution
- Defending or prosecuting outstanding claims
- Taking inventory of the LLC’s property and either distributing the property among the members, selling it off, or using the property to satisfy liabilities
- Paying off all LLC taxes and ensuring the business is in good standing with state and federal tax authorities
Ultimately, you’ll need to file a Certificate of Termination with the Texas Secretary of State to officially declare the dissolution of the LLC. The Certificate certifies that you have complied with all BOC requirements. There are many additional steps to take beyond dissolving the actual LLC, however, including liquidating assets, paying employees, terminating leases, settling debts, and others. A seasoned Texas business law attorney can help you work through the process and ensure you leave no part of the process uncompleted.
Dealing With Creditors While Dissolving an LLC
If your LLC has outstanding debt at the time you plan to dissolve, you’ll need to deal with the debt and with your creditors appropriately. The LLC protects you from individual liability for the debt, but you’ll need to take appropriate steps on behalf of the LLC prior to dissolution. These steps include:
- Giving warning. You must give notice to your creditors of your plan to dissolve. This gives the creditors the opportunity to seek repayment before the LLC disappears. In Texas, you need to send notice of the dissolution via certified or registered mail to all known creditors and give them a deadline within which to submit their claims.
- Disposing of assets. As the claims come in, you’ll need to conduct a review to evaluate whether the claims are legitimate and whether there are any points of contention. Assuming the claims are legitimate, you’ll need to do your best to pay them all off. If the LLC has sufficient cash, start there. If the LLC has limited funds, you’ll need to sell off LLC assets to satisfy the debts. Debts must be paid evenly and fairly, without giving preference to one creditor over others in violation of the law. If any assets remain, they (or the sale proceeds therefrom) can be distributed to the LLC owners.
- Settling debts. If the LLC still has outstanding debt after exhausting all cash and other assets, you’ll need to take the appropriate next steps. Ideally, you can negotiate with your creditors and settle for a reduced payment that you can actually meet. The goal is to eliminate all debts and close all accounts before dissolving. Under no circumstances should you or other owners take LLC assets before all debts are handled and accounts closed.
Failing to take the appropriate steps can open up the business owners to individual liability for outstanding debts. Talk to a seasoned Texas business law attorney to identify the steps necessary to dissolve your LLC and ensure that you do not open yourself up to unnecessary liability.
If you need legal assistance with a Texas business law matter, contact the qualified and detail-oriented Texas business law attorney Leigh Meineke at the Houston offices of Stephens | Domnitz | Meineke PLLC by calling 832-706-0244.