Law in the Marketplace: How to kill your LLC

For the Monitor
Published: 12/3/2022 4:57:46 PM
Modified: 12/3/2022 4:57:23 PM

Every year, thousands of New Hampshire people form a new LLC to conduct their businesses, to hold real property or other assets they own, or for other purposes, such as to replace trusts. But every year, hundreds of members of existing New Hampshire LLCs decide it’s time to terminate their LLCs — perhaps because they’ve decided to retire from their business; perhaps because, sadly, their business has failed; or for many other possible reasons.

All New Hampshire people who want to terminate their LLCs should know the following:

■The key technical term for terminating an LLC is the term “dissolve.” Contrary to what you might think, this term doesn’t mean ending the legal existence of an LLC. Rather, it means to change the purpose of the LLC — i.e., from that of a going entity to that of an entity that may only be wound up and liquidated. Winding up an LLC means ending its normal activities. Liquidating it means paying its creditors and distributing the balance of its assets, including its cash, to its members. These distributions must be done so that when they’re completed, all of the LLC’s members will have zero capital accounts.

■The New Hampshire LLC Act requires that in order to be in good standing, an LLC must pay the New Hampshire Secretary of State an annual fee of $100, and the act provides that if the LLC fails to pay this fee for two straight years, it will be administratively dissolved. Again, this doesn’t mean the end of the legal existence of the LLC; it merely means (i) that the LLC may not conduct its normal activities; (ii) that it may only be wound up and liquidated; (iii) that none of its normal activities during its administrative dissolution, such as the signing of contracts with customers, will be legally valid; but (iv) that these activities will become retroactively valid if the LLC pays its unpaid fees.

■Something that many LLC members and even a few LLC lawyers may not know is that an LLC will be dissolved not only if it fails to pay its annual fees but also if (i) it is without a registered agent for 60 days (e.g., because of the registered agent’s death or changing its address to a non-New Hampshire address); or (ii) it does not notify the Secretary of State within 60 days that its registered agent or office has been changed, that its registered agent has resigned, or that its registered office has been discontinued.

■Because of these rules, there are undoubtedly many New Hampshire LLCs — quite possibly hundreds of them — which are currently administratively dissolved, and whose activities are therefore legally invalid, without their members’ (or their lawyers’) even knowing it.

■Some LLC members may not want to just administratively dissolve their LLC; they may want to cancel its certificate of formation and thus terminate its legal existence. Unfortunately, this is a complicated procedure; it can be time-consuming; and if, for these reasons, LLC members want the help of a lawyer to handle the process, the lawyer’s fee may be a few hundred dollars.

■Why would LLC members want to not merely dissolve their LLC but to cancel its certificate of formation? The main reason is usually that they want to minimize the risk of suits against their LLC after it ceases its activities—for example, suits by third parties who believe (or pretend to believe) that they have a case against the LLC. In America, people love to sue each other.

 

John Cunningham is a lawyer licensed to practice law in New Hampshire and Massachusetts. He is of counsel to the law firm of McLane Middleton, P.A. Contact him at 856-7172 or lawjmc@comcast.net. His website is llc199a.com. For access to all of his Law in the Marketplace columns, visit concordmonitor.com.




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