How To Dissolve and Reform Your LLC

Key scenarios for dissolution and reformation

Dissolving and reforming your LLC is a significant decision that requires careful evaluation. While we previously introduced the concept of moving states with your LLC due to personal relocation, it's time to explore this topic more thoroughly by diving deeper into the factors you should evaluate to determine if relocating your LLC is the right choice for your business. 

Below, we've highlighted several key scenarios in which business owners might consider this option:

Relocating to a new state or unable to re-domesticate:

• • Re-domestication: If allowed by the new state, this process allows you to transfer your LLC’s registration while maintaining its historical records, S election, and EIN.  The purpose of this filing is to ensure a seamless transition of the LLC’s operations without losing its original history or legal standing.

• • Foreign registration: This option lets you operate in the new state while keeping your existing LLC intact, preserving records and history. No new EIN or operating agreement is needed.  This filing officially authorizes your LLC to conduct business in the new state as a "foreign" entity, meaning it's legally recognized even though it's based in another state. The purpose of this filing is to ensure that your LLC is compliant with state laws and can operate legally within the new jurisdiction without creating a new LLC. Note that your original LLC needs to remain active in the original state.

• • Merger: If re-domestication is not an option and maintaining business continuity is a priority, merging your existing LLC into a newly formed entity in the new state may be a possible solution. This allows the surviving entity to retain certain business aspects, such as contracts, EIN, and financial history. However, mergers come with added complexities, including liability transfer, compliance requirements, and financial entanglements. Since merging can be more time-consuming and intricate than other relocation options, it is essential to assess whether this approach aligns with your business’s long-term goals and regulatory obligations.

• • Dissolution and reformation: When neither of the above options is feasible, dissolution and reformation may be necessary. However, this means losing your LLC’s history, including your EIN, which could impact relationships with clients, vendors, and financial institutions. This process involves formally dissolving your LLC with the Secretary of State and establishing a new LLC & a new EIN.

Steps for formally dissolving your LLC

If you choose to dissolve your LLC, follow these necessary steps to ensure that the process is handled properly and legally:

1. Filing the dissolution paperwork with the Secretary of State:
   
   • Submit the required documentation to your state. This is often a Certificate of Dissolution which can be obtained from your Secretary of State. 

              Common information needed:

• • • LLC Name
    • Formation Date
    • A statement declaring dissolution
    • The reason for dissolution
    • Effective dissolution date

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2. Finalizing financial and legal obligations:
   
   • Settling Debts: Ensure any outstanding debts are cleared.
   • Tax Filings: File final tax returns with the IRS and state agencies.
   • Asset Distribution: Sell or distribute assets after debts are paid off.
   • Member Distribution: Distribute remaining funds to LLC members based on ownership stakes.

Forming a new LLC after dissolution

Once your LLC is officially dissolved with the Secretary of State, you can proceed with creating a new one. Here's a checklist to ensure a smooth transition:

1. Select a new LLC name: Ensure the name complies with your state’s requirements. Note, if you use the same exact name as your previous LLC, then there may be delays with obtaining your new EIN & some confusion with the IRS with having two EINs under the same business name. 
2. File articles of organization: Submit necessary formation documents to legally create your new LLC.
3. Appoint a registered agent: Choose someone to receive legal correspondence. If Collective is forming your LLC, we will automatically designate our 3rd party provider, RASi, as your registered agent. 
4. Create an operating agreement: This document will define ownership and management structures.
5. Obtain an Employer Identification Number (EIN): Apply for a new EIN through the IRS.
6. Register for state and local licenses: Ensure compliance with all regulatory requirements in your new location.
7. Choose S Corp taxation with the IRS: If it aligns with your financial strategy, you can apply for S Corp status after forming your new LLC.

S Corp election implications

• Dissolution of the old entity:
  • S Corp election tied to the original LLC or corporation is void once the entity is dissolved.
    
    
• New entity in the new state:
  • Reapply for S Corp status by filing IRS Form 2553 within 2 months and 15 days of forming the new entity.
  • The LLC’s name can remain the same if it is available and compliant with the new state's rules, noting the EIN issues mentioned above.
    
    
• Revocation of the S Corp election:
  • No need to revoke the S Corp election, as it automatically becomes void after dissolution.

In summary: 

Dissolving and reforming an LLC offers a fresh start but involves trade-offs. It’s most useful when relocating, unable to re-domesticate, or facing merger restrictions. However, it comes with challenges such as losing your LLC's history and relationships. Ensure you follow the Secretary of State’s procedures for dissolution and reformation, and take the necessary steps with the IRS to apply for a new EIN, and reapply for S Corp status (if applicable) after forming the new entity. Always consult with legal or financial advisors to ensure you're proceeding correctly.

Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.