Generally, the Close LLC designation is for single-member LLCs and when members are closely related, such as family and friends. This setup allows for simpler operations with fewer bureaucratic hurdles compared to traditional LLCs. It is particularly beneficial for closely held family companies where there might be a desire to prevent members from selling shares to outsiders. In a Close LLC, members must offer their shares to other members before selling them to third parties, and all members must approve any sale of shares.
To close an LLC, you must file Articles of Dissolution or Cancellation and settle any outstanding state taxes and fees. Closing an LLC refers to dissolving it, which is the initial step in the termination procedures. This process legally ends the LLC’s business operations, except for activities related to winding up the company’s affairs.
Steps for Closing an LLC:
- File Articles of Dissolution or Cancellation.
- Settle state taxes and fees.
- Cease business except for winding up activities.
Officially dissolving an LLC is crucial to protect former members from future liabilities and to ensure proper distribution of any remaining assets. Even after dissolution, the company’s EIN remains with the entity and can be reused if the LLC is correctly closed. It’s important to file a final tax return and distribute a Schedule K-1 to each member, illustrating their share of losses or gains.
A close corporation is designed to function without the formalities typically required of corporations. They can opt to operate with a structure more similar to a partnership.
Key Points:
- Close corporations and Close LLCs allow operations with less formal structure.
- Certain businesses, such as those with notable public interest, may not opt for the LLC structure.
- The IRS treats an LLC as a corporation, partnership, or a disregarded entity depending on elections made and the number of members.
There are three types of LLC dissolutions: judicial, administrative, and voluntary. Owners interested in the flexibility of an LLC combined with the partnership structure might consider a statutory close corporation.
Famous examples of LLCs include Anheuser-Busch and Blockbuster. However, not every business type is eligible to become an LLC. Additionally, Close corporations may choose to operate in an informal manner akin to partnerships.