An inactive business still exists in the eyes of the law. It simply means that it does not engage in any type of transactions or business. Even when a business is inactive, this doesn’t mean it’s not subject to certain reporting requirements.
Whether you are fully terminating the business or merely plan to put it on hold for a year matters in determining how you handle the LLC’s inactivity. As long as the LLC exists and is authorized by the state, it is required to file an annual report with the secretary of state’s office in the state where it is organized. An LLC can help you avoid double taxation unless you structure the entity as a corporation for tax purposes.
If inactive, the state may dissolve it and impose penalties. Owners may become personally liable for any outstanding tax liability as a result. Dissolving simplifies taxes and can protect personal assets.
- A limited liability company (LLC) is a hybrid form of business that has some of the characteristics of a corporation and some of the characteristics of a partnership or sole proprietorship.
- An LLC classified as a partnership is terminated for tax purposes if its business is discontinued and its assets are distributed to its members.
- A single member LLC files a Schedule C. An LLC must file Form 1065 and send each member a Schedule K-1.
Can you use an LLC name that is inactive? If inactive, you may not use its name. Names with an Inactive status are available, while active names are not available.
An inactive business exists legally but has no transactions or business. Until dissolved, it exists and has reporting requirements when inactive. If administrative dissolution occurs, it cannot legally transact business. This impacts the organization.