Understanding Inactive Businesses and LLCs
An inactive business still exists but has no activity. This means no transactions during a specific year.
Legal Implications and Liabilities
When a company is inactive, it still exists legally but has no activity. If not dissolved, the inactive company continues to incur penalties for outstanding taxes. Owners become personally liable for any outstanding tax liability.
Dissolution legally terminates an entity like a business. Even when a business is inactive, it does not mean it’s free from reporting requirements. Owners of a dissolved entity have unlimited liability and limited court access.
Taxation and Reporting Requirements
- If inactive, state fees may not apply.
- Dissolving simplifies taxes and can protect personal assets.
- A single member LLC files a Schedule C.
- An LLC must file Form 1065 and send each member a Schedule K-1.
Reinstating or Dissolving an LLC
If your LLC makes no money, it still has a legal identity until dissolved. Reinstating an LLC after it becomes inactive involves filling penalties and fees. Dissolving an LLC involves the following steps:
- Dissolving the legal entity (LLC or Corporation) with the state.
- Paying any outstanding bills.
- Cancelling any business licenses or permits.
- Filing final federal and state tax returns.
Availability of an Inactive LLC’s Name
- If the company is inactive, the name could be available for use.
- The company may be listed as inactive or dissolved if they are no longer using the name. If inactive, you may not be able to use its name.
Additional Information
An inactive business becomes a consideration when relaunching, but owners may not want to incur expenses. Dissolving an LLC simplifies taxes and has implications for personal assets protection. How long it takes to dissolve an LLC depends on the jurisdiction; in Delaware, it typically takes two to three weeks.
In summary, while an inactive business still exists legally, it may lead to liabilities if not properly managed or dissolved. It is essential to understand the implications and steps involved in having an inactive status or dissolving an LLC.