LLC Termination Agreement: Everything You Need To Know

The LLC termination agreement establishes the terms and procedure for dissolving a limited liability company.3 min read

The LLC termination agreement establishes the terms and procedure for dissolving a limited liability company. It can be structured as a separate agreement or included as a clause in the LLC's operating agreement.

The Purpose of an LLC Operating Agreement

An LLC is a popular small business structure that combines elements of a partnership and corporation, including limited liability protection for its members and an informal management structure.

Your LLC operating agreement establishes all the policies and procedures for your company. This provides guidance for members as well as consequences for failure to follow the provisions of the agreement.

When the LLC is terminated, the operating agreement is automatically void.

Terminating Your LLC

Some LLCs have an agreement in place that specifies a termination date and/or the process for doing so. If this is not the case for your business, you can voluntarily dissolve your LLC in accordance with the laws in your state.

Not all states allow an LLC to exist indefinitely, so confirm whether you need to establish a termination date when you file articles of incorporation.

Some states require the company to be terminated if one of the members dies, goes bankrupt, or is no longer able to act as a member, unless all other members agree to continue the business. In some states, you must notify members and creditors whenever a dissolution event of this kind occurs.

In Nevada, you cannot file articles of dissolution until all remaining business liabilities are satisfied. In other states, like Michigan, you must apply for and receive a tax clearance certificate within 60 days after filing for termination of the business.

Many states require the unanimous consent of members to continue the business after a dissolution event. In some cases, certain members may force dissolution by refusing to consent. For this reason, many LLCs opt to establish a lesser consent requirement if state law allows. A specific majority is usually required by state law.