What happens to our LLC’s debts and assets if we dissolve it?

What happens to our LLC’s debts and assets if we dissolve it?

| Mar 31, 2021 | Small Business |

For whatever reason, you and your business partners have decided that it’s time to retire the LLC that you worked so hard to build up from nothing. Your LLC probably has assets, such as office supplies and furniture, work equipment, vehicles, real estate and client lists. It might also have debts. What happens to all of that when you dissolve your LLC?

Company debts

Georgia law establishes the procedure whereby directors can dissolve their companies. You will have to file a Notice of Intent to Dissolve and Articles of Dissolution with the Georgia Secretary of State before your company will cease to exist. If you file the forms on paper, there will be a service fee. If you file online, it’s free.

Before you file, though, you will have to take care of all company debts. The first step to winding down a business, even before asset distribution, is the satisfaction of all company debts out of company assets. You might have to sell some company assets in order to pay off all the debts.

Company assets

Once your LLC is totally debt-free, then you can start to distribute the remaining assets among the partners.

Georgia courts will always enforce a company’s articles of incorporation if they are applicable. In other words, if you included in your articles of incorporation a provision that outlines how assets will be distributed, it’s best to follow that closely in order to avoid landing yourself a lawsuit from one of your business partners down the road.

If your articles of incorporation don’t contain a dissolution plan, then you’ll have to establish a plan with your partners. Best practice to avoid conflict is to divide company assets proportionally according to each partner’s ownership share in the company. If one of you owns 70% of the company, they should get 70% of the assets, and so forth.

Don’t forget to factor in the relative weight of each asset according to each partner’s desires. For example, if you are planning on continuing the business on your own, but your partners just want out, then the client list might be much more valuable to you than liquid cash or other assets that you can easily re-purchase.

Although your business venture has come to a close, hopefully you will be able to dispose of your company assets and debts in a way that leaves everyone happy and minimizes the likelihood of litigation.