Step 3: Winding Up
There is the misconception that dissolution is the final step in the process. Unfortunately, after dissolution and before termination an LLC must go through a series of activities dedicated to ending the business called “winding up.”
To properly wind up the business, PA law requires an LLC to:
- discharge its debts, obligations, and liabilities; 15 Pa. C.S.A. § 8872(b)(1).
- settle its affairs; and
- collect and distribute its assets.
Example: Suppose AI 1000 is a Pennsylvania LLC that has three members: Al, Ben, and Charlie. The three members have equal membership interests and all agree to dissolve the business. After liquidating its assets, the company has $100,000 to distribute.
First, the LLC must pay off its creditors. So, the business pays the remaining $10,000 on a loan and $5,000 in taxes, leaving $85,000. Second, the company must pay Charlie back for the $10,000 she contributed to the business when it first started out. Third, the LLC can distribute the remaining $75,000 to the members in proportion to their membership shares. Because the members have equal interests, each member will receive $25,000.
Distribution of Assets
a) The LLC should first pay creditors including any members who are creditors.
b) The LLC should also pay all applicable taxes. 15 Pa. C.S.A. § 8877(a).
c) Next assets should be distributed to members as outlined by the operating agreement.
d) If there is no operating agreement, then the remaining assets should be distributed in cash to each owner. The amount should include all
unreturned contributions and any distributions in proportion to their ownership share. 15 Pa. C.S.A. § 8877(b).
Notifying Claimants
The dissolved LLC should give a notice as outlined by PA law to any potential claimants stating that any claims must be in writing, sent to a designated address and within two years of the public notice or else the claim will be barred. This notification protects the LLC and its members against both known and unknown legal obligations after dissolution.
Proper Notice to Claimants: Pennsylvania allows you to dispose of claims against your business if you send notice to the creditors and they don’t submit their claims to you. However, your notice must meet certain requirements. Specifically, your notice to creditors you know about should state
- any information creditors must include in a claim
- that the claim must be in writing
- the deadline for receiving the claim—which can’t be less than 120 days after the claimant receives your notice; and
- a claim will be barred if not received by the deadline.
(15 Pa. Cons. Stat. § 8874 (2023).)
Newspaper Notice: You should also put a notice of your LLC’s dissolution in a local newspaper to notify any creditors you’re not aware of. You can dispose of these unknown claims as well as long as you follow Pennsylvania’s notice requirements. For more details about Pennsylvania’s notice publication rules, check 15 Pa. Cons. Stat. § 8875 (2023).
Publishing a dissolution notice can help protect you from liability. For example, a creditor probably couldn’t argue that you intentionally avoided paying a debt by secretly dissolving your business if you published your dissolution in the newspaper.
Depending on your business and profession, you might be required to have different licenses and permits. You should cancel any licenses, permits, and registrations associated with your business.
You also need to close any bank accounts in your business name. In addition, make sure to end or settle any contractual obligations.
If you need assistance dissolving and terminating your LLC, don’t hesitate to contact me at 215.551.7109. Let’s discuss how I can help you navigate this process smoothly.
Useful Links
- City of Philadelphia Closing a Business: