How to Properly Dissolve a Minnesota Limited Liability Company

You may be closing a limited liability company for any number of reasons, from the sale of its assets to unprofitability or bankruptcy. Whatever the reason, once a dissolution event occurs, the company must wind up its activities. Minn. Stat. § 322C.0702, subd. 1. Two optional notice procedures can cut off old claims: notice in a record to known claimants, Minn. Stat. § 322C.0703, subds. 1-3, and published notice, Minn. Stat. § 322C.0704, subds. 1-3. A claim that is not barred can reach a member or transferee who received assets, to the extent of that person’s proportionate share of the claim or of the assets distributed to that person after dissolution, whichever is less, and never beyond the total distributed to that person. Minn. Stat. § 322C.0704, subd. 4.

The law that governs you is Minn. Stat. ch. 322C, the Minnesota Revised Uniform Limited Liability Company Act. It has governed every Minnesota LLC since January 1, 2018: “on and after January 1, 2018, this chapter governs all limited liability companies.” Minn. Stat. § 322C.1204, subd. 2. That includes companies formed under Minnesota’s original LLC statute, chapter 322B, which was repealed effective January 1, 2018 by Laws of Minnesota 2014, ch. 157, art. 1, § 91. “On or after August 1, 2015, a limited liability company may not be formed under chapter 322B.” Minn. Stat. § 322C.1204, subd. 1(a). If you find dissolution procedures in an older operating agreement or an article written before 2018, treat them with suspicion: much of that machinery no longer exists.

Dissolution and winding up are two different things. Dissolution is the triggering event. Winding up is everything you do afterward, and your company survives for that single purpose: “A dissolved limited liability company shall wind up its activities, and the company continues after dissolution only for the purpose of winding up.” Minn. Stat. § 322C.0702, subd. 1.

One expectation worth correcting at the outset. The paperwork runs from your company to the state: your company may file its own statement of dissolution and its own statement of termination. Minn. Stat. § 322C.0702, subd. 2. On request and payment of the requisite fee, the Secretary of State furnishes a certificate of existence for an LLC. Minn. Stat. § 322C.0207.

What Actually Dissolves a Minnesota LLC

Under Minn. Stat. § 322C.0701, subd. 1, a Minnesota LLC is dissolved, and its activities must be wound up, upon any of the following six events:

  1. an event or circumstance that the operating agreement states causes dissolution;
  2. the consent of all the members;
  3. following the admission of the initial member or members, the passage of 90 consecutive days during which the company has no members;
  4. entry by a court of an order dissolving the company, on a member’s application, on the grounds that the conduct of all or substantially all of the company’s activities is unlawful, or that it is not reasonably practicable to carry on the company’s activities in conformity with the articles of organization and the operating agreement;
  5. entry by a court of an order dissolving the company, on a member’s application, on the grounds that the managers, governors, or those members in control have acted, are acting, or will act illegally or fraudulently, or have acted or are acting oppressively in a way directly harmful to the applicant; and
  6. entry by a court of an order dissolving the company on the attorney general’s application under Minn. Stat. § 322C.0708.

Two items that older sources list are not on that list, and their absence matters to you.

A fixed term does not run out on its own. Your LLC “has perpetual duration.” Minn. Stat. § 322C.0104, subd. 3. No clause of the six-event list in Minn. Stat. § 322C.0701, subd. 1 names the expiration of a stated term, so a stated term ends the company only through clause (1), “an event or circumstance that the operating agreement states causes dissolution.”

A member’s departure does not dissolve the company either. Dissociation instead produces the consequences in Minn. Stat. § 322C.0603, subd. 1: the person’s right to participate as a member in management terminates, and any transferable interest the person owned as a member is thereafter owned solely as a transferee. By default a departure reaches dissolution only through clause (3), the 90-day no-member rule, unless your operating agreement names a member’s withdrawal or death as a dissolution event under clause (1). Minn. Stat. § 322C.0701, subd. 1(1), (3).

Clause (3), the 90-day no-member window in Minn. Stat. § 322C.0701, subd. 1(3), catches single-member companies in particular. Inside that window, the last member or that person’s legal representative may designate a successor member. Minn. Stat. § 322C.0401, subd. 4(4).

Approving the Dissolution

If you are closing the company voluntarily, start with your operating agreement. It controls first: clause (1) dissolves the company on whatever event or circumstance the agreement names. Where the agreement is silent, the statutory default applies, and the default is unanimity, not a majority vote. An LLC with members dissolves upon “the consent of all the members.” Minn. Stat. § 322C.0701, subd. 1(2). The chapter lets your operating agreement set a different threshold, because the agreement governs relations among the members and chapter 322C supplies the rule only where the agreement does not. Minn. Stat. § 322C.0110, subds. 1-3. If you want majority-vote dissolution, your operating agreement has to say so.

If your company was formed before August 1, 2015, read the old paperwork rather than assuming it lapsed. The language in the chapter 322B articles of organization, and in any bylaws, operating agreement, or member control agreement, “will operate as if that language were in the operating agreement.” Minn. Stat. § 322C.1204, subd. 3.

Winding Up: What You Must Do

The mandatory work is short to state and long to do. In winding up its activities, your LLC “shall discharge the company’s debts, obligations, or other liabilities, settle and close the company’s activities, and marshal and distribute the assets of the company.” Minn. Stat. § 322C.0702, subd. 2(1). Marshaling the assets is part of that duty. Minn. Stat. § 322C.0702, subd. 2(1). What customers still owe your company is a company asset, so gathering in those receivables falls inside that mandatory duty to marshal. Minn. Stat. § 322C.0702, subd. 2(1). Whether to sue on an unpaid account is a separate and discretionary choice: a company winding up “may” both “prosecute and defend actions and proceedings, whether civil, criminal, or administrative” and “perform other acts necessary or appropriate to the winding up,” which is where a lawsuit or another collection step belongs. Minn. Stat. § 322C.0702, subd. 2(2)(iii), (vii).

Those steps fall to whoever manages the company, and dissolution does not change that: “The dissolution of a limited liability company does not affect the applicability of this section.” Minn. Stat. § 322C.0407, subd. 6. Your LLC is member-managed unless the operating agreement expressly provides that it is manager-managed or board-managed, or includes words of similar import, and only a board-managed LLC is directed by a board of governors. Minn. Stat. § 322C.0407, subds. 1, 4. So in the default Minnesota LLC, the members do this work, not a board.

Two rules in the same section are worth knowing before you start. A member who does the winding-up work may be paid for it: the chapter “does not entitle a member to remuneration for services performed for a member-managed limited liability company, except for reasonable compensation for services rendered in winding up the activities of the company.” Minn. Stat. § 322C.0407, subd. 7. And a person who wrongfully causes the dissolution “loses the right to participate in management in any capacity.” Minn. Stat. § 322C.0407, subd. 6.

Winding up does not mean shutting the doors on day one. Your company may also preserve its activities and property as a going concern for a reasonable time, prosecute and defend civil, criminal, and administrative proceedings, transfer its property, and settle disputes by mediation or arbitration. Minn. Stat. § 322C.0702, subd. 2(2). That is what lets you finish a lawsuit, collect receivables, or sell the business intact rather than liquidating it piece by piece.

If your dissolved company has no members, section 322C.0702 looks first to the legal representative of the last person to have been a member. Minn. Stat. § 322C.0702, subd. 3. If that person declines or fails to act, transferees owning a majority of the rights to receive distributions may appoint someone, and that appointee “shall promptly file with the secretary of state an amendment to the company’s articles of organization” stating that the company has no members, that the person was appointed to wind up the company, and the person’s street address. Minn. Stat. § 322C.0702, subds. 3-4.

If your co-owners stall or mishandle the wind-up, you are not stuck. On a member’s application establishing good cause, the court may order judicial supervision of the winding up, including appointing a person to wind up the company’s activities. Minn. Stat. § 322C.0702, subd. 5.

Notifying Creditors

Notifying creditors is optional in Minnesota, and Minnesota gives you two separate ways to cut off claims: a dissolved company “may in a record notify its known claimants of the dissolution,” and it “may publish notice of its dissolution.” Minn. Stat. § 322C.0703, subd. 2; Minn. Stat. § 322C.0704, subd. 1. Neither one uses the four-week legal-newspaper cadence that applies to business corporations, whose notice, if given, “must be given by publishing the notice once each week for four successive weeks in a legal newspaper.” Minn. Stat. § 302A.727, subd. 1.

For claims you know about, your company “may in a record notify its known claimants of the dissolution.” The notice must specify the information a claim has to include, give a mailing address for claims, state the deadline for receipt of the claim, “which may not be less than 120 days after the date the notice is received by the claimant,” and state that the claim will be barred if not received by the deadline. Minn. Stat. § 322C.0703, subd. 2. A claim that misses the deadline is barred. A claim you receive on time and then reject is barred only if you send a further notice stating that the claim is rejected and will be barred unless the claimant sues within 90 days after receiving that notice, and the claimant does not sue within those 90 days. Minn. Stat. § 322C.0703, subd. 3. Known-claim notice does not reach a claim based on an event occurring after the effective date of dissolution or a liability that was contingent on that date. Minn. Stat. § 322C.0703, subd. 4.

For unknown, contingent, and unacted-on claims, your company may publish notice of its dissolution. If you publish, the notice must be published at least once in a newspaper of general circulation in the county or counties in Minnesota where the company’s principal office is located, or, if the company has none in this state, in the county or counties where its registered office is or was last located. It must describe the information a claim must contain, give a mailing address for claims, and state that a claim is barred unless an action to enforce it is commenced within five years after publication. Minn. Stat. § 322C.0704, subds. 1-2.

Publishing starts a five-year bar, and it reaches exactly three groups: a claimant that did not receive notice in a record under section 322C.0703, a claimant whose claim was timely sent to the company but not acted on, and a claimant whose claim is contingent at, or based on an event occurring after, the effective date of dissolution. Minn. Stat. § 322C.0704, subd. 3.

Skipping creditor notice does not delay anything. The winding-up section sets no waiting period and no minimum term before your company may file a statement of termination, which it lists among the acts a company may take in winding up. Minn. Stat. § 322C.0702, subd. 2(2)(vi). What skipping notice costs you is certainty, and the exposure is personal. A claim not barred under section 322C.0704 may be enforced against the dissolved company to the extent of its undistributed assets and, if assets have been distributed after dissolution, “against a member or transferee to the extent of that person’s proportionate share of the claim or of the assets distributed to the member or transferee after dissolution, whichever is less,” capped overall at the total distributed to that person. Minn. Stat. § 322C.0704, subd. 4. That is the concrete reason to give notice and to hold back a reserve before you distribute anything.

Collecting Debts and Distributing Assets

Pay creditors first, including yourself if you lent the company money: “In winding up its activities, a limited liability company must apply its assets to discharge its obligations to creditors, including members that are creditors.” Minn. Stat. § 322C.0707, subd. 1.

Only then is there a surplus to divide, and the statute fixes the order, subject to any charging order in effect under section 322C.0503. The surplus goes first to each person owning a transferable interest that reflects contributions made by a member and not previously returned, in an amount equal to the value of those unreturned contributions, and then in equal shares among members and dissociated members, “except to the extent necessary to comply with any transfer effective under section 322C.0502.” Minn. Stat. § 322C.0707, subd. 2. Note who is on that list: owners of transferable interests and dissociated members, not only your current members.

Two rules at the end of a wind-up catch owners by surprise. If the surplus cannot return everyone’s contributions, it “must be distributed among the owners of transferable interests in proportion to the value of their respective unreturned contributions,” so the shortfall is shared pro rata rather than equally. Minn. Stat. § 322C.0707, subd. 3. And “[a]ll distributions made under subdivisions 2 and 3 must be paid in money.” Minn. Stat. § 322C.0707, subd. 4. If a member wants the truck, the equipment, or the building, plan a purchase from the company rather than an in-kind distribution.

These are default rules. Your operating agreement may allocate the surplus differently. And if your LLC was formed before August 1, 2015, then subject to that agreement, distributions of cash or other assets, including distributions on termination, “must be allocated in proportion to the value of the contributions of the members reflected in the records required by item (i).” Those are the contribution values your company’s own required records show. Minn. Stat. § 322C.1204, subd. 3.

The Two Filings, Both Optional

Chapter 322C’s dissolution filings are styled statements rather than articles: a statement of dissolution and a statement of termination. Minn. Stat. § 322C.0702, subd. 2. The chapter 322B sections that carried the older instruments were repealed effective January 1, 2018. Laws of Minnesota 2014, ch. 157, art. 1, § 91. Chapter 322C lists both of its filings among the acts a company winding up “may” perform:

  1. a statement of dissolution, filed with the Secretary of State, “stating the name of the company and that the company is dissolved”; and
  2. a statement of termination, “stating the name of the company and that the company is terminated.”

Minn. Stat. § 322C.0702, subd. 2. Those two items are the entire required content of each filing. Nothing requires you to recite that debts have been paid, that assets have been distributed, or that no legal, administrative, or arbitration proceedings are pending. Paying creditors and distributing assets are duties you owe, not sentences you put in a form.

Who signs is simpler than it used to be as well. A record filed on behalf of your company “must be signed by a person authorized by the company,” and a record filed on behalf of a dissolved LLC that has no members is signed by the person winding up its activities under section 322C.0702, subdivision 3, or the person appointed under subdivision 4. Minn. Stat. § 322C.0203, subd. 1. No majority of organizers or governors is needed.

The Secretary of State does not hand back a certificate. On filing, it sends an image of the filed record, and a certified copy comes only on request and payment of the fee. Minn. Stat. § 322C.0205, subds. 1-2. The filing takes effect on the date and at the time it is filed unless the record itself specifies an effective time or a delayed effective date, which may run no later than the 90th day after filing. Minn. Stat. § 322C.0205, subd. 3. If you want termination to line up with a fiscal year end, that delayed date is the tool.

Under chapter 322C the only certificate carrying the word termination is the administrative one: the Secretary of State issues a certificate of administrative termination when a Minnesota LLC fails to file its annual renewal. Minn. Stat. § 322C.0705. That is an involuntary termination for nonfiling, the opposite of an orderly wind-up, and it is the source of most of the confusion on this point.

One more expectation to reset: chapter 322C sets out no procedure for revoking or rescinding a voluntary dissolution. Its dissolution and winding-up sections, Minn. Stat. § 322C.0701 and Minn. Stat. § 322C.0702, contain none. What the members cannot do by agreement is waive the wind-up itself: an operating agreement may not “vary the requirement to wind up a limited liability company’s business as specified in section 322C.0702, subdivisions 1 and 2, clause (1).” Minn. Stat. § 322C.0110, subd. 3. Reinstatement under Minn. Stat. § 322C.0706 returns a company to active status, and it is available to a company that was administratively terminated or that had its authority to do business in Minnesota revoked, both of which follow from not filing the annual renewal. Minn. Stat. § 322C.0705.

Minnesota LLC Dissolved by Court Order

A court may dissolve your LLC in several circumstances. Minn. Stat. § 322C.0701, subd. 1 states the member-application grounds and, for the attorney general’s action, dissolves the company “on grounds specified in section 322C.0708.” Subdivision 1 authorizes a dissolution order only “on application by a member” or “on application by the attorney general.”

As a member, you may petition on four grounds: the conduct of all or substantially all of the company’s activities is unlawful; it is not reasonably practicable to carry on those activities in conformity with the articles of organization and the operating agreement; the managers, governors, or those members in control have acted, are acting, or will act illegally or fraudulently; or those same people have acted or are acting oppressively in a manner directly harmful to you.

Before you file, know what else the court can order. In a proceeding on the illegality, fraud, or oppression ground, “the court may order a remedy other than dissolution, which may include the sale for fair value of all membership interests a member owns in a limited liability company to the limited liability company or one or more of the other members,” and such a remedy “may be ordered in any case where that remedy would be appropriate under all the facts and circumstances of the case.” Minn. Stat. § 322C.0701, subd. 2. So a petition to dissolve can end in a buyout rather than a wind-up.

Venue is fixed for that claim. A proceeding on the illegality, fraud, or oppression ground “must be brought in a court within the county in which the registered office of the limited liability company is located,” and it “is not necessary to make members parties to the action or proceeding unless relief is sought against them personally.” Minn. Stat. § 322C.0701, subd. 3.

The attorney general may also seek dissolution. Under Minn. Stat. § 322C.0708, a court may involuntarily dissolve, wind up, and terminate an LLC in an action filed by the attorney general when it is established that the articles of organization were procured through fraud, that the company was organized for a purpose the chapter does not permit, that it failed to comply with the requirements essential to organization, that it flagrantly violated a provision of the chapter or violated one provision more than once or more than one provision, or that it acted or failed to act in a manner constituting surrender or abandonment of the LLC privileges or enterprise. The company gets warning first: the action may not be commenced until 30 days after the attorney general gives notice of the reason for filing, plus 30 additional days to cure where the problem can be corrected.

Separate from dissolution itself, a court may supervise a wind-up already under way. On a member’s application establishing good cause, the court may order judicial supervision of the winding up and appoint a person to conduct it. A transferee may apply only where the company has no members, the legal representative of the last member declines or fails to wind up, and no one has been appointed within a reasonable time. Minn. Stat. § 322C.0702, subd. 5.

Weigh that route carefully. The court’s real latitude is over the remedy and over who runs the wind-up: in a proceeding brought on the illegality, fraud, or oppression ground, Minn. Stat. § 322C.0701, subd. 2 lets the court order a remedy other than dissolution, and Minn. Stat. § 322C.0702, subd. 5 lets it supervise the winding up and appoint the person who conducts it. The order in which assets are applied and distributed is set by statute, subject to any charging order in effect under section 322C.0503. Minn. Stat. § 322C.0707. Court supervision also adds cost and delay, so compare it honestly against finishing the wind-up yourselves.