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What is the Difference Between Dissolution and Cancellation of an LLC in Maryland?

Closing an LLC in Maryland is a more involved process than what is required for most other corporate entities. To ensure that all of the business’ debts are satisfied prior to closing its doors, Maryland law requires several filings to be submitted to the government.

Before the LLC can be closed, the first step is submitting Articles of Dissolution to the state. Dissolving the LLC essentially serves as notice to the government and all creditors that the closing process is underway. Cancellation is the final step of closing an LLC in Maryland and can only occur once all outstanding issues have been addressed.

To learn more about this process and what is required, schedule a free initial case assessment with one of the dedicated Maryland business attorneys at Heyman Law Firm by calling (410) 305-9287.

What are Dissolution and Cancellation of an LLC in Maryland?

When you want to close down a business in Maryland, the manner of how this is achieved depends on the type of business at hand. For sole proprietorships, for example, the business owner may simply declare that the business is closed without having to file any paperwork. However, this is not the case for an LLC.

LLC stands for “Limited Liability Company.” The significance of this corporate structure is that it shields members of the LLC from personal liability. In other words, debts that another type of business incurs may be pursued against the business’ owner, but not in the case of an LLC.

For this reason, creditors face risks when an LLC shutters, since they may be left without an opportunity to recover any balance that the LLC might owe them. That is why Maryland law requires LLCs close the LLC in phases. Dissolution happens first and signals the beginning of the closing process and the end of business operations, while cancellation signifies the resolution of all outstanding issues related to closing and represents the end of the LLC as an entity.

What is the Dissolution Process of an LLC in Maryland?

Depending on the organization documents of your LLC, there may already be language on the books that explains why and when dissolution should occur. This language is not legally required under Maryland law, but many articles of organization feature these terms to make matters simpler.

In any case, the State of Maryland does have laws that apply if there are no specified terms of dissolution. According to statutory guidance, an LLC in Maryland can only be dissolved in one of three ways:

  • Unanimous vote by all members of the LLC
  • The LLC has no members for a period of at least 90 consecutive days
  • Judicial dissolution

Judicial dissolution, also referred to as the “corporate death penalty,” is a rarely seen legal procedure where a court forces a corporation to dissolve in light of the significant harm it causes to society. It is unlikely that judicial dissolution will come into play in most cases, so if your LLC has members, you will likely need to achieve a unanimous vote to succeed in the dissolution step.

If a decision to dissolve the LLC has been reached, members or representatives of the LLC must file formal Articles of Dissolution with the Maryland State Department of Assessments and Taxation (SDAT). The form should include the name of the LLC and the date that it was founded, the intended date of dissolution, and affidavits about tangible assets owned by the LLC.

Required Steps Between Dissolution and Cancellation of an LLC in Maryland

Once a decision has been reached to dissolve an LLC, there are certain business matters that must be handled before proceeding to cancellation. These matters mostly concern any assets or debts that are on the books of the LLC at the time of dissolution.

For all debts, members must create a plan to handle all outstanding debts with the various creditors or lenders involved. Once this plan is created, the LLC members must notify these parties of their intentions and a schedule for enacting them. The plan must also include the payment of outstanding wages to employees, satisfaction of any outstanding tax balances, and cancellation of registrations or licenses under the LLC’s control.

If there are still assets under the LLC’s control after the proposed handling of debts, the members must then decide how these remaining assets should be distributed amongst the members themselves. This is commonly addressed in the formation documents, but if not, the assets should be distributed proportionally based on each member’s capital interest in the LLC.

Filing for Cancellation of an LLC in Maryland

Once the above issues have been addressed, the time has come to complete Articles of Cancellation and submit them to SDAT. The Articles of Cancellation should be signed by an LLC member and also by the LLC’s registered agent. The registered agent must have an physical address within the State of Maryland, which cannot be a P.O. box and must be included in the Articles of Cancellation in full.

The Articles of Cancellation also require a signed statement that all creditors were properly notified of the LLC’s dissolution and plan for handling all outstanding debts at issue. Never submit Articles of Cancellation without first ensuring that all outstanding debts have been sorted out and that the parties involved are aware of the dissolution.

This includes notifying the creditors of the intent to file Articles of Cancellation. Before submitting the Articles of Cancellation to SDAT, copies of these documents should also be sent to the creditors. Once this step is taken, the original document should be submitted to SDAT, and may be expedited for a nominal fee. Unless stated otherwise in the form, the LLC is officially dissolved on the day that the Articles of Cancellation are mailed to SDAT.

Heyman Law Firm Can Help You Dissolve Your LLC in Maryland Today

To get your first-time case evaluation for free, reach out to the seasoned Maryland business attorneys at Heyman Law Firm by calling our offices today at (410) 305-9287.

  • Bennet Heyman
  • Bennet Heyman
  • Bennet Heyman
  • Bennet Heyman

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