Last Updated on April 22, 2023 by Ewen Finser
Running a business is not easy, and most small businesses do not make it to the levels their owners envision. Dissolution of a business depends on multiple macro and micro factors, or a combination of both, and regardless, owners should understand the proper legal proceedings to end operations.
This part is often overlooked since owners are enthusiastic about the possibilities of running a successful business when opening one. Still, the same is not evident when things do not work out.
As a result, you find business owners walking away from their businesses without following the right legal procedures, only to find later that the business owes the state taxes and has a lot of pending stuff, which puts the owners’ reputation in jeopardy.
This piece will outline the important legal procedures you should follow to dissolve an LLC in Georgia and all the important details surrounding it.
Overview of an LLC
A Limited Liability Company is a legal structure popular with small businesses because it borrows the best of corporations and partnerships features. It protects your assets from liability and can be used to hold property or operate a business in Georgia.
It is easy to form one, and the process starts by selecting a name. You will need to ensure that the name is unique amongst the businesses registered in Georgia. The name should be properly structured and contain LLC, Limited Liability Co., or Ltd to identify the entity as an LLC. Note that you cannot exceed 80 characters as per the Georgia statutes.
Next, you will have to designate a registered agent, an entity that will receive legal mail for you. The agent must be based in a registered address in Georgia, and you can always hire a commercial one from the dedicated ones available.
You will need to register your LLC with the state through an online form on Georgia’s Secretary of State’s website. Here, you will complete an Articles of Organization and Transmittal form before paying a $100 filing form. The approval time is faster for online applications compared to mail.
The Secretary of state will review the application, and within seven business days, you should get a response. The response, if approved, is in the form of a receipt of payment, an approved copy of your Articles of Organization, and a Certificate of Organization.
An LLC operating agreement is an internal document that is not requested by the authorities but comes in handy if things go wrong.
It is an agreement between the LLC members, and it highlights important information such as who owns the business, how profits and losses are split, and how taxes are paid. This agreement is recommended even if the LLC has a single owner.
To identify your LLC with the IRS, you will have to get a Federal Tax ID called the EIN. It is issued by the IRS and is used to open business accounts and to handle employee payments. An EIN is free, and you should apply for it after the Secretary approves your LLC of State.
Once the LLC is running, you will have to file an annual report every year. You can do this online, which is due between 1st January and 1st April of the year after forming the LLC. Late filings will attract a fine of $25, after which the state can take administrative action and shut down your LLC.
Importance of Closing Correctly
According to the government, a Limited Liability Company is a legal entity, and it can take independent actions once it’s formed. As a result, the authorities do not see through the entity as they prefer to view it as a whole rather than a sum of many parts.
When the Georgia Secretary of State approves a request to form an LLC, the legal entity is born and has certain obligations towards the state. These are what give the basis behind the significance of closing correctly.
The state requires you to file annual reports every year, and there are consequences if you do not comply. If you walk away from your LLC, the state can impose sanctions on your LLC, which might pass over to you depending on the operating agreement.
Correct dissolution will inform the state that the LLC no longer exists, and the Secretary of State won’t expect any annual reports. Besides, some business license fees are levied to an LLC every year, depending on the nature of the business you deal in, and they could be charged continually. By the time you notice, the LLC could be deep in debt.
Steps for Closing an LLC in Georgia
Agree to Dissolve
The first step to closing an LLC is to agree between the owners. The operating agreement should stipulate how these agreements are arrived at between the members. If some members have more power and are tasked with decision-making, they should establish this.
All states have different requirements for this decision to hold, with Georgia stating that members should vote, with most of them agreeing to the dissolution. Alternatively, it can be agreed in a meeting where all members are present and recorded in the minutes as evidence that all members were party to it.
Georgia statutes allow you to file a statement of winding up with the Secretary of State. This document contains the name of the LLC and a statement indicating the company intends to dissolve and has initiated the process of doing so.
This statement is vital as you have to file it before you give notice of dissolution to any stakeholders such as creditors and claimants.
Filing a winding-up statement does not automatically dissolve the LLC as you need to take care of a few matters before you close shop. As a result, the LLC will still exist to finalize any pending matters. You can designate one of the members or a manager to see through the winding-up processes.
Luckily, the Georgia LLC Act contains some insight into what is required to wind up, making it clear for you. The Act highlights making provision for discharging LLC liabilities and distribution of remaining assets to members. In simple terms, the LLC should pay up any debts owed to other entities before winding up.
Notifying Claimants and Creditors
You should notify your stakeholders of the impending dissolution. This is allowed after you file a statement of commencement of winding up. Note that this is not a requirement but a best practice to reduce your liability which might eat into the assets you will be distributing to members.
According to Georgia Law, you can do this by sending a written document directly to claimants after the dissolution. A proper notice should;
- Outline the information the LLC requires to be included in a claim
- Give a mailing address for the claim to be delivered to
- Give a timeline, which should not be less than six months from the date of notification, by which the LLC in question must have received the claim
- Explicitly state that the claim will be barred if not received within the stipulated deadline
- State that the LLC will either accept or reject all claims that are received within the stated timeline within six months following the deadline
You can also give a notice to unknown claimants in a newspaper. Such claimants have up to two years after the date of the publication to file the claim. While your business attorney might advise otherwise depending on the scenario, it is often advantageous to give claimants direct notice.
Certificate of Termination
Once you have notified your claimants, you should file a certificate of termination with the Secretary of State. Georgia states that “an LLC should file this document” rather than an individual. To complete it, you should have;
- The LLC’s name
- A statement indicating all the debts, liabilities, and obligations of the LLC have been cleared, or a provision for this has been set aside
- A statement indicating there are no pending actions against the LLC in court or that a satisfying provision for any order, decree, or judgment has been set aside pending any action.
For swift approval, your LLC should be in good standing with the Secretary of State. If not, they might require you to settle any issues or disputes before you can terminate successfully.
Filing this certificate is free and can be done online. The process is completed within 7 to 10 days, although expedited processing is available at an additional fee. Note that your LLC name will no longer be reserved and will be available for use by others after termination.
Georgia does not require you to obtain tax clearance before dissolving an LLC. However, it is in your best interest to take care of this before you wind up the LLC.
Tax liabilities can follow the members if they are not taken care of and be cautious of the various tax accounts held with the state and federal governments. If you had employees in Georgia, you should have been paying Unemployment Insurance Tax and Employee Withholding Tax.
If the LLC sells goods and services in Georgia, then you paid sales and use tax. Closing your tax accounts entails filing a final return to the relevant agency. It would be best if you cleared all balances before you can close any tax account.
Out of State Regulations
If your LLC is registered to do business in other states, you will have to file separate forms with their Secretaries of State. This varies from state to state. You will find others referring to the certificate of termination as a termination of registration, certificate of termination of existence, application of withdrawal, or certificate of surrender.
The procedure and requirements for these processes also vary, and you will have to find out about them. Dissolving an LLC that operates in multiple states in Georgia only means you will still be liable for annual report fees and business taxes.
Can other parties dissolve an LLC?
Other than voluntary dissolution, an LLC can be dissolved through administrative or judicial action. These are scenarios where the LLC is dissolved without your consent due to misconduct or breach of law.
The Secretary of State’s office imposes administrative dissolution. It is often done if you fail to comply with the state law or file an annual report. The Secretary of State has a lot of administrative power and can choose to dissolve your LLC for any reason.
The court issues judicial dissolution for a couple of reasons. If your LLC is engaged in a lawsuit or fails to comply with the laws, a court of law can order to have it dissolved.
Frequently Asked Questions
Question: How long does it take before someone can take your business name?
Answer: For voluntary dissolution, your business name is available the moment your Georgia LLC is terminated. If the Secretary of State terminates your LLC through administrative action, the name is protected for five years before someone can use it.
Question: What is the process of dissolving a foreign LLC that operates in GA?
Answer: Suppose your LLC is primarily registered in another state and conducts business in Georgia. In that case, you will have to dissolve them in the primary state before applying to dissolve them in Georgia.
Question: Can I dissolve my LLC on my own?
Answer: It all depends on the winding-up process and how complicated it is for your business. The Secretary of State does not require you to seek the services of a third party, and this is entirely up to you.
Generally, you can do it on your own if the winding-up process is not complicated, thanks to the online and expedited procedures. However, you will have to follow the procedures and go through all the steps before you can dissolve the LLC successfully.
When you form an LLC, ensure that you follow the rules of operation and stay true to your promise. This will help you be successful and sustain a good relationship with your customers and stakeholders.
Ensure that you meet the obligations required by the state as failure could land your business in trouble. When you plan to dissolve, plan for it before it happens, as some of the winding-up procedures can be time-consuming.
This is when your operating agreement comes into play, and if it fails to address the dissolution, the standard state laws will automatically kick in. These laws are written for all companies and might not be the best for your unique situation.
The state can impose fines if you walk away from an LLC, which can accrue over time and affect your financial position in the future. The processes are clear and ensure all loose ends are tied before you close shop and move on with your life.