Closing a business is not as simple as just hanging a "closed" sign out front and locking the door. Depending on the business structure you established — limited liability company (LLC), corporation, partnership, or sole proprietorship — the State of Alabama may have legal requirements in place, as do the Internal Revenue Service and the Alabama Department of Revenue.
If your business is located in Birmingham, or anywhere in Alabama or the Florida Panhandle, contact the Clark Law Firm PC to help you dissolve your business and meet all of the legal requirements. Attorney John W. Clark IV will serve as your legal counsel and help you navigate through the process to protect you and your business from potential liabilities.
Business owners choose to go out of business for a variety of reasons. A competitor may hit the scene and undercut your business, and you simply can’t match their product, service, or pricing. A dispute might arise among the owners over the direction of the company or management style. There may be breaches of fiduciary responsibility. One member or partner may simply decide to move on, leaving the others unable to continue operations.
Whatever the reason, it is crucial to seek guidance about the dissolution process from an experienced business law attorney. If you don’t follow the process carefully, you can end up facing liabilities and further difficulties down the road, long after you think the company ceased operations.
A limited liability company (LLC) is operated by individuals who are legally known as "members." Just as they must have filed a certificate of formation to begin operations, the members also must file a certificate of dissolution with the Secretary of State. These obligations differ slightly by state - what is required in Florida or Mississippi may be different from what is required in Alabama.
The LLC's "LLC Agreement" or "operating agreement," which is the document that governs the management and operations of the LLC, generally will include procedures for dissolving the LLC. Typically this is done via a vote of the members. Most state's LLC laws also provide an alternative method for dissolution through the written consent of all members.
Once the decision to dissolve is finalized, the LLC continues to have certain rights and abilities under each state's LLC laws, typically including:
Continuing to operating for a reasonable time to "wind down"
Prosecuting and defending civil, criminal, or administrative actions and proceedings
Resolving disputes by mediation or arbitration
Settling and closing the LLC’s business
Canceling any relevant licenses and permits, along with closing business bank accounts
Disposing of or transferring the LLC’s property
Discharging the LLC’s liabilities, including paying all taxes and creditors
Distribution of remaining assets to the LLC’s members and creditors
Instead of members, a corporation has shareholders. Those shareholders may include those who founded and operate the corporation. A corporation is also governed by its certificate of formation (or articles of incorporation) and bylaws. Dissolving a corporation is similar to dissolving an LLC. The corporation’s board of directors and shareholders must vote to dissolve the corporation.
The rights and powers listed above for a dissolving LLC are largely also followed in a corporate dissolution, but substituting corporation for LLC and shareholders for members. Similar to an LLC, you must file a certificate of dissolution with the office of the Secretary of State or some other similar state official (depending on the state).
Making the decision to dissolve is much simpler for a (non-registered) partnership or a sole proprietor since those entities are not formed under a specific state statute. But, unlike an LLC or a corporation, there are no liability shields built into those business structures. As a partner or sole proprietor, you are responsible for all debts and other obligations of the partnership or sole proprietorship. You can be personally sued and hounded by creditors.
Because (unregistered) partnerships and sole proprietorships do not need to file any operating papers with the Secretary of State in Alabama, dissolving the business primarily involves paying debts, closing creditor accounts, and ensuring that records are maintained for tax-filing purposes. It may be wise to notify the IRS that you are shutting down the business. You must also cancel all licenses and permits, including (in some states) your fictitious business name (if you are using one).
If you are considering the dissolution of your business, attorney John W. Clark IV will meet with you, evaluate your situation, help you resolve any disputes, and guide you through the process to make sure you cover your bases. The Clark Law Firm PC serves clients in the Birmingham area and throughout the state of Alabama and the Florida Panhandle.