A business entity typically ends its existence by being “dissolved.” After an event occurs that mandates dissolution, an LLC is expected to file Articles of Dissolution. An LLP may file a Statement of Dissolution and a Limited Partnership or LLLP shall file a Cancellation of Certificate of Limited Partnership.
Aside from the Articles of Dissolution being a legal requirement, there are many practical reasons why a business should ensure it is properly dissolved. Note that until a business is officially dissolved, its owners or managers continue to bind the business by their actions.
If an owner or manager enters into a contract, takes on a loan, purchases real estate, etc. from a person without knowledge that the business is ending, the new obligation will be enforceable against the business. Accordingly, other business owners will be financially liable for any such debts incurred to the extent of their interest.
However, filing of Articles of Dissolution in Kentucky constitutes a well publicised notice of dissolution and thereby a limitation of authority. This will prevent third parties from enforcing new obligations against the business.
Also, generally, business owners are not personally liable for business debts and obligations. But the failure to observe basic business entity formalities may give chance for a court to pierce the corporate veil and take away this liability protection, thereby holding its owners responsible.
Owners might be inclined to, for example, forego filing an annual report and allow the Secretary of State to administratively dissolve the business, but doing so will cause the entity to go into “bad standing” with the state and serve as evidence that formalities were being ignored.
An ethical practice for owners seeking to end a business would be to file Articles of Dissolution, thereby eliminating a rationale for piercing the corporate veil and dumping business debts to owners personally. In addition, a reputable business concludes operations by formally dissolving.
In the State of Kentucky, it’s important to note that once your dissolution is complete, any business entity in Kentucky can claim the business name if they would like to use it. This is just one of many reasons that you should only dissolve your Kentucky limited liability company if you’re entirely certain that you’re done conducting business in the state.
However, if your LLC is administratively dissolved, you will need to file a reinstatement application with the Secretary of State, which costs $100. You will also be required to pay filing fees for each annual report you missed. It all depends on the nature of your business; these steps could be just the tip of the iceberg for reinstatement, so it’s strongly advised to not dissolve your business unless you have no plans to transact business in Kentucky again.
Detailed 4-Step Guide to Dissolve an LLC in Kentucky
If you and other members of your company decide to dissolve your LLC, it’s very crucial to address the necessary steps; otherwise, you could face administrative consequences and additional challenges associated with the dissolution of your LLC.
Table of Content
1. Before you file paperwork
Note that before you file anything with the state to formally dissolve the existence of the LLC, members of the LLC need to take certain actions. First and foremost, members of the LLC need to approve the dissolution. This can be done in accordance with the operating agreement of the LLC or through a unanimous consent of the members approving the dissolution.
Irrespective of the route, the vote on the dissolution should be recorded in the minutes of the meeting in which it occurred. Things like this can be very helpful in the event that someone does not remember providing their consent.
2. What to file
In the state of Kentucky, you are charged with notifying creditors prior to dissolving the LLC. The Secretary of State will have to approve your application for dissolution by reviewing your submitted articles of organization. You are also expected to clear both tax and reporting obligations. Note that steep penalties may be applied if the obligations are not met by required deadlines.
Also note that any annual reports that are currently owed to the Secretary of State are expected be completed and distributed. Once you fail to follow the appropriate procedures, such as filing your annual report on the due date, the Secretary of State can place your LLC in bad standing and transmit a 60-day notice to you. If you fail to respond, your LLC can be administratively dissolved by the Secretary of State.
In addition, you will have to distribute the remaining assets of the LLC, close business bank accounts, cancel permits and licenses, file form 966 with the IRS and officially cancel the account associated with the federal tax ID for the LLC. The processing time for dissolution filings in Kentucky LLCs typically takes several business days.
This can be a very daunting and frustrating process for someone in the midst of winding down a business. To avoid the hassles associated, the state of Kentucky allows you to hire a Document Filing Service Firm to do this on your behalf.
3. Impact of dissolution
Also have it in mind that once you formally dissolve with the state, the name of your Kentucky LLC is not protected. Other business entities may be eligible to use the name immediately. You also lose the right to exclusively do business and use your name on the date that the state of Kentucky gives you a proclamation of forfeiture.
4. Don’t forget about taxes
Every LLC in Kentucky has various tax accounts that are maintained by separate departments within the Kentucky state government. Prior to dissolving an LLC, you are expected to pay any fines or taxes owed to these accounts. Finally, note that if you are authorized to do business in other states, you will need to follow the necessary procedures within those states to decrease your chances of facing additional consequences outside of Kentucky.
Whether you’re dissolving a domestic or foreign limited liability company, the process isn’t complicated. The filing of either the Certificate of Withdrawal of a Foreign Business Entity or an Application for Dissolution is essentially the same process. Also note there is a $40 filing fee to file Kentucky Articles of Dissolution. SOS processes documents on the day they are received, but it can take up to three business days for them to complete the filing.