When individuals form entities in Washington State, they most commonly set up Limited liability Companies (“LLCs”), which provide significant tax and liability benefits. People form LLCs in numerous different industries and for a large variety of reasons, including to limit their liability for business carried out by the LLC. Eventually, however, the LLC will run its course, whether because its LLC Agreement has an express termination date, its members agree to terminate, or the LLC is administratively or judicially dissolved. We have previously discussed procedures and considerations surrounding the dissolution of an LLC here.
Sometimes, members of an LLC will fail to follow the proper procedures to dissolve their LLC and simply allow it to exist without formally winding up its affairs. Most of the time, in such circumstances, the members will stop paying their annual fees to Washington State, leading to administrative dissolution of the LLC by the Secretary of State. The members may believe that the administrative dissolution of the LLC means that the LLC has ceased to exist, and that this will protect them against any claims down the road. It does not. This common misconception can leave LLC members exposed to future claims that they may have avoided by properly dissolving and winding up their LLC. To be clear, administrative dissolution does not cut off liability for the LLC.
Instead, an LLC should undergo a proper winding up and dissolution process. This process typically includes filing the certificate of dissolution, gathering together the LLC’s assets, notifying creditors of the dissolution, making reasonable provision for creditors, and well as distributing any balance in accordance with the LLC Agreement or LLC Act.
If the members properly wind up and dissolve their LLC, this commences the statute of limitations against claimants seeking to assert claims against the LLC. Specifically, RCW 25.15.301 provides guidance on how an LLC can address known claims, stating that a dissolved LLC can notify its known claimants of the dissolution with a notice that must:
- Specify the information required to be included in a known claim;
- Provide a mailing address to which the known claim must be sent;
- State the deadline for receipt of the known claim, no less than 120 days after the claimant receives the notice; and
- State that the known claim will be barred if not received by the deadline.
If the LLC does not receive the claim by the deadline, or if the LLC receives the claims and rejects it and the claimant does not commence an action within 90 days of receipt of the notice of rejection, that claim will be barred.
With regard to unknown claims not addressed in the process outlined above, RCW 25.15.309 provides that a claimant must bring a claim against the LLC within three (3) years of filing the certificate of dissolution or risk the statute of limitations time barring the claim.
LLC members often face numerous issues pertaining to their business, and ensuring proper wind up and dissolution can provide comfort that the possibility of liability has some finality. The lawyers at Beresford Booth have substantial experience in representing LLCs and their members, guiding them through formation, litigation, wind-up and dissolution, and more.
For any questions regarding Winding Up and Dissolving Your LLC to Cut Off Liability, email me at info@beresfordlaw.com or give me a call at (425) 776-4100.