Dissolution of a Business in Florida
Whereas starting a new business is usually accompanied by a hopeful and optimistic attitude, dissolving a business may or may not be an equally positive affair. It is true that, in some cases, formally closing a business may simply mean that it is time for its owner or owners to move on to new challenges and experiences. Sometimes, however, a business may be forced to end operations because of a failure to turn a profit, strife between or among partners, or a variety of legal problems that make it impossible for the enterprise to continue in its present form. Some companies may be shut down by their shareholders, some by their creditors, and some by a court edict.
However a business comes to the point where it must be dissolved, the process is more involved than just closing the doors and going home early. In all cases, assets and liabilities must be properly dealt with, creditors must be informed and remunerated, taxes must be paid, and certain forms and documents must be signed and filed with the appropriate government agencies. The exact rules for dissolving a business in Florida depends on the type of business it is: a sole proprietorship; a general or limited partnership; a limited liability company (LLC); or a private or publicly held corporation.
Dissolving a Sole Proprietorship
A sole proprietorship is a business entity owned only by a single individual who is legally responsible for all decisions regarding the business, including its termination. A sole proprietor can dissolve his or her business at any time. However, there are certain necessary steps that a person in this situation must take, both in order to comply with federal law, as well as to guard against the potential for personal legal and financial liability related to the business after closure:
- According to the federal Worker Adjustment and Retraining Notification (WARN) Act, businesses with more than 100 employees that work an average of more than 20 hours per week must be informed by written notice at least 60 days before any planned termination. Final pay checks and final tax paperwork must be provided for employees.
- Vendors and clients must be notified and arrangements made to complete any contracts and pay any outstanding invoices, fees, etc.
- Business licenses must be cancelled and the business’s sales tax ID number, deactivated. Outstanding sales taxes must be paid to the state of Florida.
- Business credit cards must be cancelled and bank accounts must be closed. Lease agreements must be terminated as well as contracts with local utilities.
- Property or merchandise need to be sold or otherwise disposed of.
- Final tax paperwork needs to be filed.
Dissolving a Partnership
A general partnership is a business entity formed by two or more people, with each partner contributing to the business, and, in most cases, sharing in its profits and losses according to the amount of equity initially contributed. All partners are legally and financially liable for the business’s operations. The Florida Revised Uniform Partnership Act (FRUPA) governs the formation, operations and dissolution of Florida general partnerships and the Florida Department of State’s Division of Corporations is the entity that deals with the dissolution of Florida partnerships.
To dissolve a Florida general partnership, the partners need to file a Certificate of Dissolution which will include the reason for the dissolution and the signatures of all the partners. Then they must liquidate the company’s assets, settle all outstanding liabilities, notify any entities with an interest in the company of its dissolution, i.e. creditors, customers, employees, etc., pay all taxes, distribute any remaining assets among themselves, and otherwise “wind up the business.”
A limited partnership is a business entity that has one or more general partners and one or more limited partners who have contributed equity to the business but are not legally or financially liable for the business’s operations beyond their initial investment. The Florida Revised Uniform Limited Partnership Act (FRULPA) governs the formation, operations and dissolution of Florida limited partnerships.
If you are dissolving a general or limited partnership in Florida, be sure to have a knowledgeable attorney advise you about the process and assist you in conforming to the state’s related statutes.
Dissolving a Limited Liability Company
A limited liability company (LLC) is a business entity that preserves certain aspects of a sole proprietorship or partnership, but is some respects is treated like a corporation. LLCs offer “pass-through taxation,” meaning that the business pays no corporate income tax in Florida – all of its income flows directly to its members who then must pay federal taxes on those earnings. However, its members have the same limited liability protections as corporations do.
An LLC can voluntarily dissolve by filing Articles of Dissolution with the Florida Department of State’s Division of Corporations, as long as it meets the requirements of the appropriate state statute. The Articles must state the effective date of the dissolution and the reasons for it. They must also substantiate that all debts and liabilities have been paid, or will be paid, and that there are no suits pending against the LLC, or that provisions have been made for the satisfaction of any judgment against it. Once the Department issues a Certificate of Dissolution, the LLC must cease conducting business except for whatever is necessary to wind up its affairs.
Key winding up tasks include:
- Discharging the company’s liabilities
- Disposing of any property that will not be distributed to its members
- Giving notice to employees, vendors, creditors and other claimants
- Distributing its assets to creditors
- Distributing any other assets to its members
In most cases, the company’s formational documents will contain a section with rules on how to dissolve the company. Often a vote of its members will be necessary. If there is no operating agreement extant, an alternative method allowed by Florida’s LLC Act is the written consent of all the company’s members. Florida’s LLC Act was recently, substantially rewritten, becoming effective this past January. If you are considering dissolving an LLC, you should contact an attorney who is knowledgeable concerning the current law.
Dissolving a Corporation in Florida
There are several ways in which a Florida corporation can be dissolved. If the corporation has not issued any shares, it can be dissolved by it incorporators or its directors by filing Articles of Dissolution with the Florida Department of State’s Division of Corporations. If there are shareholders, dissolution can be achieved either by a recommendation by its Board of Directors and a vote by its shareholders, or by a written consent of its shareholders, without any action by the Board. Once the decision to dissolve the corporation has been made and approved, Articles of Dissolution must be filed.
A dissolved corporation continues its corporate existence only to wind up and liquidate its business and affairs. The process includes:
- Collecting assets
- Disposing of property which will not be distributed in kind to shareholders
- Informing any employees, vendors, creditors and claimants
- Discharging or making provision for discharging liabilities
- Distributing any remaining property among shareholders
Contact an Experienced Orlando Business Attorney
Dissolving any Florida business is a complex procedure and should be accomplished only with the help of qualified legal counsel with experience to advise and aid you through the entire process. If you are considering or in the process the dissolution of a business, contact our office for a consultation.