MSN Law Office

Dissolutions
Columbus, Ohio

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Dissolutions

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Dissolutions

While some people endeavor to build businesses that will last for generations to come, others may decide to end one business and move on to other ideas and adventures. Or perhaps things simply aren’t working out with your fellow business partners and you’re ready to go your separate ways.

Before proceeding, make sure to sit down with your business accountant to clear up any outstanding tax obligations and close the business’s tax accounts. Don’t assume that you can just stop filing taxes! Most tax returns (whether it’s employment withholding, sales tax and vendor’s license, commercial activity tax, unemployment compensation, workers’ compensation policy, etc.) require a filing, even if you have $0 to report. If the business suddenly stops filing, the relevant taxing agency will often assume the worst and start assessing penalties and interest based on the amounts you used to owe. And even if you get it cleared up years later, you will likely still find yourself on the hook for late filing penalties. So sit down with the accountant and make sure those tax accounts are closed by filing final returns.

How do we dissolve our Ohio LLC?
Assuming the tax issues have been taken care of, dissolving an Ohio LLC is relatively straightforward. First, review the company’s operating agreement to ensure any dissolution procedures are followed. Typically, the operating agreement will address what events will lead to the dissolution of the LLC and, once a triggering event occurs, how to “wind up” the LLC’s affairs. For example, the operating agreement may require the unanimous consent of the members to dissolve the LLC. It may also provide for dissolution at a set date in the future (perhaps because the LLC was established for a project with a limited duration). Or it may address dissolution in the event a key member dies, becomes bankrupt, or can no longer work in the business. Regardless of the reason for the dissolution, the terms of the operating agreement must be followed. (In the absence of an operating agreement, see O.R.C. Section 1706.47.)

Once the dissolution has been approved, the LLC must be wound up. In simplest terms, winding up an LLC (or any other business for that matter) is the process of wrapping up operations, satisfying all outstanding obligations, selling off any remaining assets, paying off any outstanding debts, and then finally distributing the remaining amounts, if any, to the members of the LLC.

Once the LLC’s affairs have been properly wound up, a Certificate of Dissolution can be filed with the Ohio Secretary of State.

What additional steps are required to dissolve an Ohio corporation (including nonprofit corporations)?
While the process described above also applies to dissolving an Ohio corporation, there are a few additional considerations to keep in mind:

  • Corporations are generally subject to more formalities than LLCs. So the corporation’s board of directors, shareholders, or members (in the case of a nonprofit corporation) must adopt a formal resolution of dissolution.
  • Prior to filing the Certificate of Dissolution, for-profit corporations must notify the Ohio Bureau of Workers’ Compensation and Ohio Job & Family Services. Nonprofit corporations must notify the Ohio Department of Taxation and Ohio Job & Family Services. These notifications must also affirm that the corporation and its directors understand that the directors may be held personally liable for any improper distributions of the corporation’s assets.
  • For profit corporations must also attach an Affidavit of Personal Property identifying whether the corporation has any personal property in Ohio and whether it must pay any personal property taxes in Ohio.
  • Both for profit and nonprofit corporations must obtain a Certificate of Tax Clearance from the Ohio Department of Taxation. To do so, the corporation should work with its accountant to submit Form D5 “Notification of Dissolution or Surrender”. Form D5 must be submitted at least 30 days before the planned date of dissolution.
  • Nonprofit corporations must file a Final Annual Report and Asset Disposition Form with the Ohio Attorney General’s Charitable Division, essentially explaining what happened to the charity’s remaining assets.

Because of these additional notification requirements, corporations should work with both legal counsel and their tax advisor to plan out a dissolution, which can easily take 60-90 days or longer.