What You Need to Know Before Dissolving an Arizona Limited Liability Company
by Richard Keyt, Arizona business attorney
Unless formally terminated or unless the Articles of Organization contain a termination date, an Arizona limited liability company will exist “forever.” Unlike an Arizona corporation, an Arizona LLC does not have to file an annual report with the Arizona Corporation Commission or pay the ACC an annual fee.
Rather than terminating your LLC, you might consider letting it go dormant, i.e., terminating all activity, business and otherwise. You could just let the LLC exist without owning any assets, employees or business activity. It would then be an empty shell that could exist in that state indefinitely.
If you do decide to let your LLC go dormant, then when you file the next tax return for the entity after it ceases to receive income you should mark “Final Return” in big letters on the front page of the last federal and state income tax return so the tax man won’t come looking for the next year’s tax return.
How to Terminate an Arizona Limited Liability Company
If you want to legally kill an Arizona LLC, the LLC must file Articles of Termination with the Arizona Corporation Commission and pay the $35 filing fee. I recommend you pay an addition $35 to the ACC for expedited review of the Articles of Termination. It is not necessary to publish anything in a newspaper.
I urge you not to terminate an Arizona LLC unless and until you first satisfy each of the following tasks:
- Get Tax Federal Income Advice. Consult with an experienced federal income tax advisor to determine if the termination of the LLC will cause adverse federal income tax consequences. If the LLC has assets that are distributed to one or more members, the distribution could cause the a recipient member to include taxable income on the member’s federal income tax return. For example, if the LLC distributes $100 to a member as a liquidating distribution, the member may have to report $100 of taxable income on the member’s federal income tax return for the year in which the member receives the money. If the termination of the LLC will cause adverse tax consequences, then maybe you should not terminate the LLC until you find a way to solve the tax problem.
- Get All Members to Approve the Termination in Writing. You can probably skip this step if you are the only member of your LLC or if it is owned only by a husband wife. If, however, your LLC is owned by multiple members, especially if the members are not in the same family, you should not terminate the LLC unless the members approve the termination. If your operating agreement provides for a method to call a meeting of the members and vote to approve action, then follow the procedures in the Operating Agreement and let the members vote to approve the termination. Be sure to document the meeting with minutes signed by the members. In lieu of having an official meeting of members, you can also have all of the members sign a document that contains a resolution approving the termination and any conditions applicable to the termination. Conditions you might want the members to approve and include in your minutes are: (i) payment of last expenses, (ii) the timing of the assignment of assets, (iii) who gets what, (iv) when the LLC will cease all activity, and (v) when the LLC should file the Articles of Termination with the Arizona Corporation Commission.
- Pay all Creditors. You probably aren’t surprised to learn that Arizona law will not let members of an Arizona LLC transfer assets of their LLC to themselves, terminate the company and leave the LLC’s creditors unpaid. If a single member Arizona LLC has $100 and owes a creditor $25, the member cannot take the $100, terminate the company and not pay the creditor. Arizona law will allow the creditor to sue the member and collect the $25 plus attorneys fees (at the discretion of the court) and costs. Be sure to use the LLC’s assets to pay all of its known expenses and bona fide claims before terminating the LLC.
- Assign All Remaining LLC Property to the Proper Members. If after paying all expenses and bona fide claims of the LLC any property remains in the LLC, the LLC should transfer or assign the remaining property to the appropriate members by written instruments. If the LLC has money in a checking account, it writes a check payable to the members for the amounts due each member. If the LLC has property that is titled such as a vehicle or land, the LLC will have to sign appropriate documents (DMV title docs for a vehicle and a deed for land) to change the title to the appropriate members. Personal property should be transferred with an Assignment of Personal Property. You must make sure that the appropriate members have an appropriate document that shows that the LLC transferred ownership of certain assets to the members so that the members can prove ownership of the assets after the LLC ceases to exist.
- Prepare and File the Articles of Termination with the Arizona Corporation Commission. This is the final step in the termination process, but it should not be taken until all of the above five steps have been accomplished.
KEYTLaw LLC Termination Service
You may hire KEYTLaw to prepare the documents needed to terminate your Arizona limited liability company. When we are hired to terminate an AZ LLC, we do prepare the following documents:
- Action by Unanimous Consent for all the members to sign. This document evidences the members’ approval to the termination.
- Assignment of Property or a Deed to evidence transfers of assets to members.
- Articles of Termination.
Our fee to prepare the documents and file the Articles of Termination with the Arizona Corporation Commission is $397 plus $70 for the expedited filing fee payable to the ACC. To hire KEYTLaw to prepare the above documents to terminate an Arizona LLC, complete our online Termination Service Agreement. You can complete the agreement online and email, fax or mail it to us and pay in our web-store with your credit card.