If you have an idea of the dissolution process in other states, which we described in this post, forget that for now because to dissolve LLC Texas is like following a completely different process. This is because unlike other states with their specific LLC Act, Texas does not have one. Instead, LLCs, partnerships, corporations, organizations, and other kinds of business entities are covered by the Texas Business Organization Code (BOC). However, we give you instances on how to do it in other states, like dissolving the LLC in Missouri we explained here. Also, here's a guide to closing your Wisconsin LLC and a guide to closing your Georgia LLC, if you happen to have a company there. Some states accept only online submissions, as required with Colorado LLC dissolution and upon reading about Pennsylvania LLC dissolution you'll realize that you aren't required to publish or notify ahead the creditors.
Because of the complexities of Texas laws, it is important to follow these up-to-date steps of properly dissolving an LLC in Texas. On the other hand, if you are just about to set up a company find out more about the best LLC formation services here.
4 Steps to Dissolve an LLC in Texas
Before you study the steps on how to dissolve an LLC in Texas, note that the Texas Business Organization Code avoids calling the process "dissolution" and just uses the general term "termination" that all other business entities use to refer to the end of a business entity's existence.
The good news is if you cannot afford legal advice, you can still dissolve an LLC in Texas by following these steps carefully:
1. Complete Winding Up of Your LLC
Because you are voluntarily dissolving your LLC in Texas, you (or other members of the LLC) must initiate a series of final tasks that are collectively called "winding up" to prepare for the official closing of the business.
In Texas, the Secretary of State can legally terminate your LLC involuntarily if your business fails to file an annual report or pay taxes. Find out if that's the case in KY in this guide to closing your Kentucky LLC, or in OH in this Ohio LLC dissolution article.
To begin winding up for your LLC's termination:
- check the LLC operating agreement (this is the document that came with your LLC's certificate of formation). Find the section detailing how to dissolve a limited liability company.
- Follow the instructions. If there were rules in place written in the original operating agreement to dissolve your Texas LLC, you have to follow those procedures.
- If you do not have an operating agreement, the BOC allows LLCs to hold a vote and if a majority of the LLC members agree to dissolution, then the winding-up process can begin.
Winding Up Tasks
Under Texas business law, once you begin the winding up tasks, your business can no longer hold business in the state. While the LLC is technically still in existence in Texas, you cannot sell products or services anymore. However, your LLC should focus on tasks such as:
- Paying dues and other financial obligations
- Negotiating provisions for repayment to creditors
- Terminating any leases
- Paying employees
- Notifying claimants directly or indirectly (by publication) about the process of dissolution, so they could send claims against the LLC
- Selling LLC property and leftover inventory
- Dealing with lawsuits
- Liquidating assets
- Distributing assets to LLC members once all financial obligations are fulfilled
If you need help listing down the tasks to include in the winding-up phase, a State of Texas registered agent familiar with the rules of LLC in Texas, or an attorney in business law could provide assistance.
This is especially true if the reason you decided to dissolve your LLC is lack of funds and you end up filing for Chapter 7 bankruptcy. You have to bring in an attorney to help you make a plan in paying off debts the LLC incurred.
2. Get Your Texas Tax Clearance
The Certificate of Account Status is required in terminating an LLC. It is submitted alongside the actual Certificate of Termination (explained below) to dissolve your LLC.
- Request a Certificate of Account Status (Form #05-305) from the Texas Comptroller of Public Accounts (CPA)
- Indicate that your LLC has paid all necessary taxes (such as annual franchise tax, withholding tax for employees, etc.) and that the business is in good standing
- Indicate the purpose for the certificate of termination of your business.
- You must file the form via the Texas Comptroller's website (with instructions found here).
Although filing this certificate may only take an hour or so, it may take the CPA an average of 30 days to process your request.
To obtain a certificate of Account Status, you must file Form 05-359 to request one from the CPA. You can find other relevant information on the CPA website. It will take 4-6 weeks for the CPA to process your request.
You may also call the toll-free number (800) 252-1381, send an e-mail to the Texas Comptroller of Public Accounts, or contact them at Tax Assistance Section, Comptroller of Public Accounts, in Austin, TX.
3. Obtain Your LLC's Certificate of Termination From Texas Secretary Of State
Once you receive your certificate of account status, you may now file a Certificate of Termination with the Secretary of State (SOS). It must include details:
- LLC name and file number
- Name and address of an authorized manager of the LLC
- Indicate if the LLC dissolution was voluntary or involuntary
- A statement that your LLC has submitted all the governing documents BOC required and winding up tasks processed
- The effective date of the dissolution (this can either be the date of filing, any date in the future as long as it is not over 90 days since you signed the certificate).
- Signature of the authorized managing LLC member
4. Filing Your Dissolution Documents
There is a slight difference between dissolving a domestic LLC and a foreign LLC. It all boils down to where the LLC was originally formed.
Dissolution of a domestic LLC
Under Texas law, if you filed your LLC in Texas, your LLC is considered a domestic entity. In this case, you must file two signed copies of a Certificate of Termination of a Domestic Entity (Form 651).
Dissolution of a foreign LLC
If you formed your LLC in another state other than Texas, your business is considered a foreign LLC. The requirements will vary on a case-to-case basis. For example:
- If the LLC is still existing in the state it was formed, you have to submit two signed copies of a Certificate of Withdrawal of Registration (Form 608) and pay a $15 filing fee.
- If the LLC is already properly dissolved in the state it was formed, you only need to file two signed copies of a Termination of Registration (Form 612), and pay a $15 filing fee.
Whichever form you fill out, remember that the authorized manager has to sign the documents and that you must attach the dissolution certificate along with the Certificate of Account Status.
How Much Does it Cost to Dissolve an LLC in Texas?
As you have learned, the Secretary of State charges a $40 filing fee for dissolving an LLC regardless of method. You can pay via credit card (by fax), online via the website, or by checks mailed and made payable to the secretary of state.
Others may legally use your LLC business name once your certificate of termination is processed.
Why is it Important to Avoid Involuntary Dissolution
Nobody really intends to open up a business for it to only close. But if the reasons for dissolution outweigh the advantages of running it, deciding to close an LLC can be a good thing.
What isn't good is if you do not dissolve the LLC properly. The Texas tax code states that all business entities should file an annual Texas Franchise Tax Report (Form 05-158-A). You are given several weeks to submit this report, but if it is 45 days past due, the LLC loses its right to transact business in Texas. After 120 days past due, the LLC registration will be involuntarily forfeited.
If you think you're off the hook with your responsibilities once your permit to operate within the state is forfeited by the Texas SOS, think again. The local government will be imposing a 5% penalty immediately (and another 5% penalty 30 days later) for business entities that do not file franchise tax reports. This penalty increases to a 1% prime rate once 60 days have passed.
Because of how quickly penalties incur, it is always best to handle the dissolution or termination of LLC voluntarily. This way you'd be paying only the minimal fees as possible, you still comply with Texas law, and you'd be preventing any potential legal issues.