Closing a Michigan LLC: How to Dissolve and Wind Up the Right Way

When a business stops making money, or the owners are ready to move on, the easiest thing to do is nothing. The doors close, the bank account runs down, and the LLC is left to sit. Many owners assume the company will fade away on its own.

Under Michigan law, it does not. Merely stopping operations does not dissolve an LLC. Unless one of the events the statute lists occurs, the company and its obligations continue. The process the Michigan Limited Liability Company Act sets out for ending a company does more than tidy up the state’s records. Done properly, it lets the owners cut off old claims and pay out what is left in the right order.

What Happens if You Just Walk Away From a Michigan LLC?

A Michigan LLC generally must file an annual statement with the Michigan Department of Licensing and Regulatory Affairs (LARA) by February 15 of each year. An LLC formed after September 30 does not have to file on the February 15 that immediately follows (Michigan Compiled Laws (MCL) 450.4207(3)). If a company misses two years in a row and does not catch up within 60 days after LARA’s notice, it is no longer in good standing (MCL 450.4207a(2)-(3)).

Losing good standing is not the same as dissolving. The statute says that a company that is not in good standing “remains in existence and may continue to transact business in this state.” What it loses is its standing with the state: it cannot get a certificate of good standing, its name becomes available to other businesses, and LARA will not accept any filing from it except a certificate of restoration of good standing. That leaves the owners in an awkward position:

• The company still exists, so its debts, contracts, leases, and lawsuits do not go away. A creditor can still sue it.
• The procedures that let a company cut off old claims, discussed below, are available only to a dissolved company.
• To dissolve properly later, the company must first restore its good standing by filing every missing annual statement and paying the back fees plus a restoration fee. LARA currently lists $50 for the restoration and $25 for each missing statement.
• Walking away does nothing to end the owners’ personal obligations tied to the business, such as a personal guaranty or certain unpaid taxes.

How Does a Michigan LLC Dissolve?

Under MCL 450.4801, a Michigan LLC is dissolved, and must wind up its affairs, when the first of these occurs:

• A time stated in the articles of organization is reached.
• A vote of the members, or another event, specified in the articles of organization or an operating agreement takes place.
• The members entitled to vote unanimously vote for dissolution.
• A court enters a decree of judicial dissolution.
• A majority of the organizers vote to dissolve a company that never started business, never issued membership interests, has no debts or other liabilities, and either received no payments for membership interests or returned them after deducting amounts spent on expenses.

Start with the operating agreement, because it may set a different vote for dissolution. If it is silent, the vote must be unanimous. Either way, put the decision in a signed consent or resolution. A member’s death is not itself a statutory dissolution event, although the articles or operating agreement can make it one, as we covered in our post on what happens to a Michigan LLC when an owner dies.

When the members cannot agree, a member may ask the circuit court to order dissolution “whenever the company is unable to carry on business in conformity with the articles of organization or operating agreements” (MCL 450.4802).

What Do You File With the State?

When a company that dissolved by vote or by an event in its governing documents begins winding up, it must file a certificate of dissolution with LARA stating its name, the reason for dissolution, and any later effective date (MCL 450.4804(1)). LARA’s form is the Certificate of Dissolution, Form CSCL/CD 731, which allows an effective date no more than 90 days after LARA receives it. The filing fee is $10 (MCL 450.5101(1)(m)). A company that qualifies for dissolution by its organizers, the last item in the list above, files Form CSCL/CD 730 instead, and LARA’s instructions say no tax clearance is required for it.

For a Form 731 dissolution, LARA’s instructions say the company “must request a tax clearance within 60 days after submitting this certificate.” The request goes to the Michigan Department of Treasury on Form 5156, with Form 163, Notice of Change or Discontinuance, attached. One qualification: Treasury’s tax clearance FAQ says a business that was not registered for the business taxes administered under MCL 205.27a is not required to file Form 5156 and will not be eligible to receive a certificate of clearance.

What Does Winding Up Involve?

Winding up is the work of finishing the company’s business: collecting what it is owed, paying what it owes, and distributing what is left. Unless the articles or operating agreement provide otherwise, the members or managers who have not wrongfully dissolved the company handle it, though the circuit court can take over for good cause on application by a member or a member’s legal representative or assignee (MCL 450.4805(1)). Those winding up are held to no greater standard of conduct, and face no greater liabilities, than they would without the dissolution (MCL 450.4805(2)).

The company can still sue and be sued, and a lawsuit pending before dissolution continues (MCL 450.4805(3)).

How Can a Dissolved LLC Cut Off Old Claims?

This is the part owners give up when they simply walk away. The Act offers two notice procedures. Both are optional, but they create statutory deadlines for many claims.

Written Notice to Known Claimants

A dissolved LLC may send its existing claimants written notice that describes what a claim must include, gives a mailing address, sets a deadline at least six months after the notice takes effect, and states that a late claim will be barred (MCL 450.4806(1)). A claimant who misses the deadline is barred. If the company rejects a claim in writing, the claimant has 90 days after the rejection notice takes effect to start a proceeding, or the claim is barred (MCL 450.4806(3)). Written notice reaches only existing claims, not contingent liabilities or claims based on events after dissolution (MCL 450.4806(4)).

Published Notice for Everyone Else

A dissolved LLC may also publish notice once in a newspaper of general circulation in the county where its principal place of business is or was located, or, if it had none in Michigan, where its registered office is or was located (MCL 450.4807(2)). After publication, claimants who did not receive written notice, claimants whose timely claims were never acted on, and holders of contingent or post-dissolution claims are barred unless they start a proceeding within one year (MCL 450.4807(3)).

There is an important exception. A claimant whose existing claim was known to the company when it published, but who did not get written notice, is not barred until six months after that claimant has actual notice of the dissolution (MCL 450.4807(4)). The safer course is to do both: send written notice to every known claimant, and publish for the rest.

In What Order Does the Money Go Out?

MCL 450.4808 first requires the company to file its tax returns and pay its tax obligations under Michigan’s Revenue Act. It then sets the order for distributing what is left:

1. Creditors come first, including members who are creditors, to the extent the law allows. The company must also make reasonable provision for obligations that are not yet fixed in amount but will not be barred under the notice procedures.
2. Next, except as an operating agreement provides otherwise, members and former members already owed distributions under the Act’s distribution and withdrawal provisions (MCL 450.4304 and 450.4305).
3. Last, except as an operating agreement provides otherwise, whatever remains goes to the members and former members according to their shares.

Owners who pay themselves while creditors go unpaid take a risk from two directions. First, the LLC Act prohibits a distribution that would leave the company unable to pay its debts as they come due, or that would cause it to fail the balance-sheet test in MCL 450.4307(1)(b), which, put simply, asks whether the company’s assets would still cover its liabilities. Subject to the conditions in MCL 450.4308, members or managers who approve an unlawful distribution, and members who receive one knowing the facts that make it unlawful, may be liable to the company.

Second, a creditor may be able to undo the payout. Under Michigan’s Uniform Voidable Transactions Act, a transfer made without receiving reasonably equivalent value, by a debtor that was insolvent or became insolvent as a result, is voidable as to a creditor whose claim already existed (MCL 566.35(1)). The creditor may seek avoidance and other relief (MCL 566.37) and, subject to the limits and defenses in MCL 566.38, a judgment against the person who received the transfer or benefited from it. In a winding up, that can mean the owners who were paid. Our post on undoing a debtor’s transfer under Michigan law explains these claims.

What Taxes and Accounts Need to Be Closed?

On the state side, a business that quits must file a final return within 15 days for the taxes Treasury administers under the Revenue Act (MCL 205.27a(1)). Unemployment insurance is handled separately by the Michigan Unemployment Insurance Agency.

Unpaid taxes can also follow the owners personally. For certain taxes, including sales tax, use tax collected from customers, and income tax withheld from wages, Treasury can hold a “responsible person” personally liable: a member, or a manager of a manager-managed LLC, who was responsible for filing the returns or paying the tax and willfully failed to do so. The statute is direct: “The dissolution of a business does not discharge a responsible person’s liability for a prior failure of the business to file a return or pay the tax due” (MCL 205.27a(5), (14), (15)).

On the federal side, the IRS’s guidance on closing a business calls for a final return that matches how the company is taxed:

• An LLC taxed as a partnership files a final Form 1065 and final Schedules K-1.
• An LLC taxed as an S corporation files a final Form 1120-S and final Schedules K-1.
• An LLC taxed as a C corporation files a final Form 1120, and may also have to file Form 966 within 30 days after adopting its plan of dissolution or liquidation.
• A single-member LLC owned by an individual and treated as a disregarded entity generally reports its final year on the owner’s own return.

A company with employees also files final employment tax returns and gives each employee a Form W-2. To close the company’s IRS account, send the IRS a letter with the company’s legal name, Employer Identification Number (EIN), address, and reason for closing. The IRS will not close the account until all returns are filed and all taxes are paid. Keep the records afterward; the IRS says to keep employment tax records for at least four years.

What About Debts You Personally Guaranteed?

Dissolving the LLC does not end a personal guaranty. A guaranty is the owner’s own promise to pay the company’s debt, so the lender or landlord can still look to the guarantor after the company is gone. The same goes for a business credit card opened on personal liability. Our posts on personal guaranties and business credit cards cover these obligations.

A Checklist for Closing a Michigan LLC

1. Read the operating agreement and articles, approve the dissolution by the required vote, and document it in writing.
2. Check the company’s status with LARA, and restore good standing first if needed.
3. File the Certificate of Dissolution with LARA: Form CSCL/CD 731 in most cases, or Form CSCL/CD 730 for a company that qualifies for organizer dissolution under MCL 450.4801(e).
4. For a Form 731 dissolution, request a tax clearance within 60 days on Form 5156 with Form 163, unless the company was never registered for the taxes Treasury administers under MCL 205.27a.
5. Send written notice to known claimants, and consider publishing notice in the county newspaper.
6. Collect receivables, sell assets, and finish or end contracts and leases.
7. File final state and federal returns, including employment tax returns, and close the tax accounts.
8. Pay creditors, and set aside a reasonable reserve for claims not yet fixed.
9. Distribute what remains to the members under the operating agreement and the Act.
10. Cancel licenses, permits, and assumed names, close the bank account, and keep the records.

Frequently Asked Questions

Does a Michigan LLC dissolve automatically if I stop filing annual statements?

No. It loses its good standing, but the statute says it “remains in existence.” Unless one of the Act’s dissolution events occurs, the company and its obligations continue.

How much does it cost to file a certificate of dissolution in Michigan?

The state filing fee is currently $10. A company that is not in good standing must first pay the restoration fee and the fees for any missing annual statements.

Can a creditor still sue my LLC after it dissolves?

Yes. A dissolved Michigan LLC can sue and be sued, and a pending lawsuit continues. The notice procedures in MCL 450.4806 and 450.4807 can put deadlines on many claims, but only if the company uses them.

Do I have to publish a notice of dissolution in the newspaper?

No, but publication starts a one-year deadline for claimants who did not receive written notice and for contingent claims. A known creditor who was not notified still has until six months after learning of the dissolution.

Related reading: how an LLC lawyer can help you close a company the right way, what belongs in a Michigan LLC operating agreement, when Michigan courts hold LLC owners personally liable, and working with a Grand Blanc business lawyer.

Please note: This article is provided for general educational and informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship between you and the Law Offices of Maynard F. Newman, P.L.L.C. The law may change, and the outcome of any case depends on its specific facts; confirm the current law and consult a qualified attorney before acting. This content may also be considered attorney advertising.