How to Dissolve a Business in Texas | Essential Steps

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Dissolve Texas LLC

Deciding to dissolve a Limited Liability Company can be difficult for business owners. Still, it is sometimes necessary due to changes in the business landscape, financial challenges, or personal reasons. Dissolving a business requires specific steps and regulations to complete the process correctly and legally. This comprehensive guide will teach you how to dissolve a business in Texas.

Webinarcare Editorial Team will help you easily dissolve your business. You must be guided by all the factors gathered in this article.

How to Dissolve a Business in Texas

If you are starting an LLC in Texas, having an operating agreement is one of the key requirements in dissolving a business. Before starting the legal paperwork, there are a few things to remember. Initially, confirm that all LLC members agree with closing the business. Once everyone is ready, voting should be used to document everyone’s assent. They must vote in favor of the dissolution before the legal procedure may begin. The procedures for the dissolution are listed below.

How to Dissolve a Business in Texas

Dissolving a business in Texas requires following specific steps to ensure a smooth and legally compliant process. The process usually includes the following steps:

Step 1: Make the Decision

Before dissolving your business, ensure this decision is right for your Texas business. Consider discussing the decision with your business partners, members, or legal counsel to weigh the pros and cons and determine if dissolving the business is best.

Step 2: Hold a Formal Vote

Once you’ve decided to dissolve your Texas business, you’ll need to hold a formal vote among the members to approve the dissolution. This step is important because it ensures that all members know and agree to the decision to dissolve the business.

To hold a formal vote:

  • Review your Texas Operating Agreement to determine the required voting procedures, such as the percentage of affirmative votes needed for approval.
  • Notify all Texas members of the upcoming vote and give them sufficient time to review the matter and make an informed decision.
  • Conduct the vote according to the procedures outlined in your operating agreement.
  • Record the vote results in your business meeting minutes or a written resolution.

If most members approve the dissolution, you can proceed with the dissolution process.

Get a Professional Service

It’s important to get legal assistance when dissolving an LLC. With that, you must have a Registered Agent. Ensure that the Registered Agent you choose is qualified and legal since they will file the Article of Dissolution for your LLC. We reviewed the Best Registered Agent Services in Texas for you to check out.

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Step 3: Settle the Outstanding Debts and Liabilities

You must settle all outstanding debts and liabilities before dissolving your Texas business. This includes paying off loans, settling pending lawsuits, paying owed taxes, and fulfilling any remaining contractual obligations. You can inform your Texas Business Attorney to ensure it is settled.

To settle your Texas business’ debts and liabilities:

  • Review your business’ financial records to identify all outstanding debts and liabilities.
  • Contact creditors, lenders, and other parties to whom your business owes money or obligations, and arrange for payment or settlement.
  • If your business does not have sufficient funds or assets to cover all outstanding debts and liabilities, consult with legal counsel to determine the best course of action for settling these obligations.

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Step 4: Distribute the Remaining Assets to Members

Once all debts and liabilities have been settled, you can distribute any remaining assets to the business members. Your operating agreement should do this or, if no such agreement exists, in proportion to each member’s ownership interest in the business.

To distribute assets:

  • Determine the fair market value of the remaining assets, such as real estate, equipment, or inventory. 
  • Calculate each member’s ownership interest in the business based on the operating agreement or their initial capital contribution.
  • Distribute the assets to each member according to their ownership interest.
  • Keep detailed records of all asset distributions for tax and legal purposes.

Step 5: File the Articles of Dissolution

After settling debts and distributing assets, you’ll need to file the Articles of Dissolution with the Texas Secretary of State to dissolve your Texas business officially. This document provides the state with notice that your business is ceasing operations and will no longer conduct business.

To file the Articles of Dissolution:

  1. Obtain the appropriate form from the Texas Secretary of State‘s website. Access the Texas Secretary of State’s website and navigate to the Corporations Section for the required forms and instructions.
  2. Fill out the Articles of Dissolution Form with the required information, including your Texas business name, the date of dissolution, and any other necessary details.
  3. Pay the filing fee of $40 in the Texas Secretary of State’s office.
  4. Submit the completed form and payment to the Texas Secretary of State’s office, either by mail or online, depending on your Texas’s filing options.

Once your Articles of Dissolution have been processed and approved, your Texas business will officially be dissolved.

Mail to: 
Texas Secretary of State
Secretary of State, P.O. Box 13697, Austin, TX 78711-3697

Filling Fee:
$40

Step 6: Notify the IRS and Government Agencies

After dissolving your business with the Texas Secretary of State, you’ll need to notify the Internal Revenue Service (IRS) and other Texas government agencies of the dissolution. This is important to ensure your business complies with tax laws and other regulations.

To notify the IRS of the dissolution:

  1. File your final federal tax return using Form 1065 and check the box indicating that it is the final return for your business.
  2. Cancel your Employer Identification Number (EIN) in Texas by mailing a letter to the IRS at the address where you filed your tax return. Include your EIN, business name, and reason for cancellation in the letter.
  3. Update your Texas business status with any other relevant government agencies, such as the Texas Department of Revenue, Department of Labor, and local licensing and permitting offices.

Step 7: Cancel Licenses, Permits, and Insurance Policies

To fully dissolve your Texas business, you’ll need to cancel any business licenses, permits, and insurance policies associated with your business. This may include Texas Business Licenses, professional licenses, sales tax permits, and any other permits required for your industry.

You must contact the issuing agency to cancel your licenses and permits and follow their specific cancellation procedures. You should also contact your insurance provider to cancel any remaining business insurance policies. With the cancellation of the mentioned licenses, permits, and Business Insurances in Texas, you also need to remove a Registered Agent since he won’t be able to continue filing documents for your business unless you are the Registered Agent of your business. 

Step 8: Maintain Records of the Dissolution Process

For legal and tax purposes, it’s important to maintain detailed records of the steps taken to dissolve your Texas business. This includes documentation of the formal vote to dissolve the business, debt settlements, asset distribution records, and copies of filed state and federal tax returns.

Keep these records for at least seven years, as they may be needed in the event of an IRS audit or other legal issues arising from the dissolution.

Cost of Dissolving an LLC in Texas

The cost of dissolving an LLC in Texas can vary based upon various factors. The Texas Articles of the Dissolution filing fee cost $40. Other costs include any outstanding taxes or debts the business owes and potential costs for settling business contracts or selling business assets.

It’s also important to factor in professional fees, such as if you hire an attorney or accountant to assist with the dissolution process. After the LLC is dissolved, the remaining company assets are divided among the members. The exact breakdown of these costs can often be complex and will depend on the specific circumstances of the LLC, so consulting with a legal or financial advisor can be helpful.

Reasons Why an LLC in Texas Dissolves

There are numerous reasons why an LLC in Texas dissolves, and these reasons could impact other LLCs. It is best to understand the why’s and how to deal with it rather than knowing that your LLC may dissolve sooner or later. Here is the list of possible reasons why an LLC dissolves.

  1. Expired Duration: In Texas, an LLC will automatically dissolve if it reaches the end of its defined duration stated in the Articles of Organization.
  2. Member Vote: An LLC may dissolve in Texas if the members vote for dissolution. Usually, the LLC Operating Agreement outlines the percentage of member votes required to dissolve the LLC.
  3. Judicial Dissolution: A court in Texas may order the dissolution of an LLC if it is in the best interests of the members, especially in cases of fraud, illegal activities, or oppressive behavior.
  4. Bankruptcy: If the LLC becomes insolvent and cannot pay its debts, it may be forced into bankruptcy. This usually leads to the dissolution of the LLC.
  5. Non-compliance: If the LLC does not comply with state laws or fails to meet legal requirements, such as filing annual reports or paying taxes, the state may forcibly dissolve the LLC.
  6. Merger or Consolidation: If the LLC in Texas merges or consolidates with another company and the LLC is not the surviving entity, it will be dissolved.
  7. Death or Withdrawal of a Member: Unless specified otherwise in the Operating Agreement, the death, withdrawal, bankruptcy, or incompetence of a member may cause the LLC to dissolve.

Please note that the process for dissolution typically includes settling all business debts, distributing any remaining assets among the members, and filing a formal notice of dissolution with the Texas Secretary of State.

After the Texas LLC Dissolution

Once your Texas business has been dissolved, it typically cannot be reinstated or “taken back” after a few years. Instead, you would need to form a new LLC in Texas if you wish to operate a business under a limited liability company structure again.

To create a new Texas LLC, you would need to follow the standard formation process, which generally includes the following:

  • Choosing a Unique Business Name: Ensure that another business does not already use the name you choose in Texas and complies with state-specific naming requirements.
  • Appointing a Registered Agent: Designate a Registered Agent who will be responsible for receiving legal correspondence on behalf of your LLC.
  • Filing Certificate of Formation: Submit the Certificate of Formation with the Texas Secretary of State’s office, along with the required filing fee.
  • Creating an Operating Agreement: Draft an agreement outlining the rules and regulations governing your new LLC, including member roles, ownership percentages, and management structure.
  • Obtaining Necessary Licenses and Permits: Apply for any required business licenses, permits, and tax registrations with the appropriate state and local authorities.
  • Registering with the Internal Revenue Service (IRS): Obtain an Employer Identification Number (EIN) from the IRS, which will be necessary for tax purposes and other business activities.

Availability of the Business Name

When a business is in Texas was dissolved, the business name becomes available for other business owners to use after a certain period. However, the specific rules and regulations regarding the availability of a dissolved business name can vary. Keep in mind that even if the name becomes available, other factors, such as trademarks or potential confusion with existing businesses, may still impact the ability of another business owner to use the name.

FAQs

How do I dissolve my Texas LLC business?
To dissolve your Texas LLC business, you must first file a certificate of termination with the Texas Secretary of State.
What is a certificate of termination?
A certificate of termination is a legal document that officially ends the existence of your Texas LLC business.
How do I file a certificate of termination for my Texas LLC business?
You can file a certificate of termination by mail, online, or in person at the Texas Secretary of State’s office.
Do I need to pay a fee to file a certificate of termination for my Texas LLC business?
Yes, there is a filing fee for filing a certificate of termination with the Texas Secretary of State.
How long does it take for the Texas Secretary of State to process my certificate of termination?
It typically takes several business days for the Texas Secretary of State to process a certificate of termination for a Texas LLC business.
After I file a certificate of termination for my Texas LLC business, what steps do I need to take to officially dissolve the business?
After your certificate of termination is processed, you must notify any creditors or clients of your Texas LLC business that the business has been dissolved.
What happens to the assets of my Texas LLC business after it is dissolved?
Any assets of your Texas LLC business are typically sold or distributed to creditors or to the LLC members, depending on the terms of the LLC’s operating agreement.
What happens if I do not properly dissolve my Texas LLC business?
If you do not properly dissolve your Texas LLC business, you may be subject to legal liability, including penalties and additional fees.
Can I dissolve my Texas LLC business if there are outstanding debts or obligations?
Yes, you can dissolve your Texas LLC business even if there are outstanding debts or obligations. However, they will need to be resolved before lender approval is granted.
What if my Texas LLC business has employees?
If your Texas LLC business has employees, you must comply with all state and federal laws regarding the termination of employees and the payment of wages.
Do I need to notify the IRS that I am dissolving my Texas LLC business?
Yes, you must notify the IRS that you are dissolving your Texas LLC business and file final tax returns for the business.
How long does it take to dissolve a Texas LLC business?
The timeline for dissolving a Texas LLC business can vary, but it typically takes several weeks to a few months to complete the process.
Can I dissolve my Texas LLC business myself or do I need an attorney?
You can dissolve your Texas LLC business yourself, but it is recommended to consult with an attorney to ensure that you comply with all legal requirements.
What is the penalty for not dissolving a Texas LLC business?
The penalty for not properly dissolving a Texas LLC business can include fines, legal action, and potentially personal liability for any unresolved debts or obligations.
Is there a timeframe for when I need to dissolve a Texas LLC business?
There is no specific timeframe in which you must dissolve a Texas LLC business, but it is recommended to do so as soon as possible after the business ceases operations.
Can I dissolve my Texas LLC business if I have no members or assets?
Yes, you can dissolve a Texas LLC business even if there are no members or assets. A certificate of termination is still required to formally end the business’s existence.
Do I still need to file taxes for my Texas LLC business even after it is dissolved?
Yes, you must file any necessary tax returns for your Texas LLC business, including final returns, even after the business is dissolved.
Can I dissolve my Texas LLC business even if it has outstanding legal issues?
Yes, you can dissolve your Texas LLC business even if it has outstanding legal issues, but it is recommended to consult with an attorney to properly handle any pending or existing legal action.
What if I forget to dissolve my Texas LLC business?
If you forget to dissolve your Texas LLC business, you may still be subject to legal and financial implications, including the submission of continued reports and potentially incurring late fees.
Can I reinstate my Texas LLC business after it has been dissolved?
Yes, you can reinstate your Texas LLC business after it has been dissolved, but specific criteria must be met.
What is the process for reinstating a dissolved Texas LLC business?
The process for reinstating a dissolved Texas LLC business involves filing the appropriate documentation with the Texas Secretary of State, paying any applicable fees, and correcting any outstanding deficiencies.
Is there a timeframe in which I must reinstate a dissolved Texas LLC business?
If proper cause is shown out of control within one year, thereafter a provable dispute arises, then contingencies will be required but instruction provided by an attorney must be continued.
What if my Texas LLC business can not cover the cost to re-instate; can i sell the Texas LLC business?
You can sell the Texas LLC business to a third party or negotiate suitable payoff arrangements when unable to economically reinstate a dissolved Texas LLC business.
How can I make sure that all of the necessary steps are taken to properly dissolve my Texas LLC business?
The best way to make sure that all necessary steps are taken to properly dissolve your Texas LLC business is to consult with an experienced attorney.
Will the state of Texas notify me when my LLC is officially dissolved?
The State of Texas will notify you that your LLC is officially dissolved once all necessary documentation is filed and all fees are paid.
What if there are outstanding taxes or debts when my Texas LLC is dissolved?
Any outstanding taxes or debts that remain when your Texas LLC is dissolved will be handled by the LLC’s assets, which are typically sold to pay off creditors.
Can I dissolve a Texas LLC business if we have outstanding legal issues such as lawsuits or bankruptcy?
It is advisable that legal expenses accrued prior to dissolution of a Texas LLC be fully paid before processing termination of active business unit.
How do I dissolve a Texas LLC?
You can dissolve a Texas LLC by filing Certificate of Termination with the Texas Secretary of State.
What is the fee for dissolving a Texas LLC?
The filing fee for dissolving a Texas LLC is $40.
How long does it take to dissolve a Texas LLC?
It takes approximately two to three business days for the Texas Secretary of State to process the Certificate of Termination.
Do I need to notify any other entities when dissolving a Texas LLC?
Yes, you need to notify the Texas Comptroller of Public Accounts and your county tax assessor-collector.
What happens to the debts of a dissolved Texas LLC?
The debts of a dissolved Texas LLC are paid from the company’s assets and any remaining debts are the responsibility of the LLC’s members.
How do I notify the Texas Comptroller of Public Accounts and my county tax assessor-collector of the LLC’s dissolution?
You need to send a written notice to each entity notifying them of the LLC’s dissolution.
Do I need to file final state and federal tax returns for the dissolved Texas LLC?
Yes, you need to file final tax returns for the LLC.
How do I withdraw the LLC’s registration with the Texas newspaper?
You need to contact the Texas newspaper where the LLC is registered and request to withdraw the registration.
Does the LLC need to be in good standing to dissolve it in Texas?
Yes, the LLC must be current in all of its filings and in good standing with the Texas Secretary of State to dissolve.
Can the LLC be dissolved if it has pending litigation in Texas?
Yes, the LLC can be dissolved even if it has pending litigation in Texas.
How do I distribute the assets of the LLC when dissolving it in Texas?
The distribution of LLC assets should be outlined in the LLC’s operating agreement or decided by the LLC’s members.
Can I keep the business name after dissolving a Texas LLC?
No, the business name cannot be used by any other entity in Texas until the LLC is terminated and dissolved for at least 120 days.
Do I need to file an annual report when dissolving a Texas LLC?
No, annual reports are not required in Texas for LLCs that have been terminated and dissolved.
Can I revive a dissolved Texas LLC?
Yes, you can revive a dissolved Texas LLC by filing an Application of Reinstatement and paying a $50 fee.
Can creditors file claims against a dissolved Texas LLC?
Yes, creditors have six months after the date of publication of the Certificate of Termination to make claims against the dissolved LLC.
Do members continue to have liability after dissolving a Texas LLC?
Yes, members can continue to have liability after dissolving a Texas LLC if they do not follow all of the dissolution requirements correctly.
Is there a penalty for failing to notify the Texas Comptroller of Public Accounts and county tax assessor-collector of the LLC’s dissolution?
Yes, a penalty may be assessed for failure to correctly notify the Texas Comptroller of Public Accounts and county tax assessor-collector of the LLC’s dissolution.
Can I terminate a Texas LLC without a legal entity?
No, a beneficial legal entity is required to dissolve a Texas LLC.
Can I use the assets of the Texas LLC after it is terminated and dissolved?
No, the assets belong to the LLC until they are distributed to the members.
Do I need to notify the LLC’s registered agent of the dissolution?
Yes, the LLC’s registered agent should be notified of the dissolution.
What happens if the LLC does not have any assets when it is terminated in Texas?
The LLC will still need to go through the dissolution process, but there will be no assets to distribute.
Can I dissolve a Texas LLC that has not done any active business?
Yes, you can dissolve the LLC even if it has not done any active business.
Do I need to make sure all business tax accounts are closed before dissolving a Texas LLC?
Yes, all business tax accounts should be closed before dissolving a Texas LLC.
Can I dissolve a Texas LLC if I am unsure of any outstanding debts or obligations?
No, it is advisable to resolve all outstanding debts and obligations before dissolving the LLC.
Can a dissolved Texas LLC still be sued?
Yes, a dissolved Texas LLC can still be sued for any liabilities that existed before the termination was finalized.
Can a Texas LLC dissolve if it had no members at any point ethically during its existence?
Yes, any LLC can dissolve at any point if there were no members who ever held an interest in the company.
What happens if the LLC is dissolved but the member(s) failed to distribute the assets of the LLC?
Unclaimed assets of a dissolved Texas LLC will be turned over to the Texas Property Escheatment Office, which will retain the assets in perpetuity until claimed by their rightful owner.
Is there a grace period after publication where creditors can file claims against a dissolved Texas LLC?
There is no grace period – all claims against a dissolved Texas LLC must be filed by six months after the date on which the Certificate of Termination was published.

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Conclusion

Dissolving Texas business can be complex and time-consuming, but following the steps outlined in this guide will help ensure a smooth and successful dissolution. By conducting a formal vote, settling debts and liabilities, distributing assets, filing the Articles of Dissolution, notifying government agencies, and canceling business licenses and permits, you can legally dissolve your Texas business and move forward with the next chapter of your professional life.

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