Closing your business can be a long, involved process. You need to take the proper time to wrap up all your affairs in a neat little bow. Following the proper procedures can shield you from any potential liabilities and help you move forward in your new endeavors as quickly as possible. Whatever the reason, here’s how to dissolve an LLC to ensure you get it right.
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How to Dissolve an LLC
Deciding to dissolve is the first step to closing a business. After that, you’ll need to do several things to get things moving, including giving notice to your creditors, filing final tax returns and notifying any applicable government agencies.
1. Vote to Dissolve the LLC
Members who decide to dissolve the company are taking part in something called a voluntary dissolution. To do so, all members need to cast a vote or follow the guidelines for events that automatically trigger a dissolution, such as the death of a business partner. Reference your LLC operating agreement for the proper procedures. If your operating agreement doesn’t address dissolution, follow the procedures outlined in your state’s LLC laws.
Once everyone has voted and a majority agrees (or a dissolution trigger has occurred), record the decision to dissolve the LLC and keep it with the company’s official records.
2. File Your Final Tax Return
Some states require you to get a tax clearance or a verification of good standing from your state tax agency before you’re allowed to file dissolution paperwork. Filing your tax returns and paying any taxes you may owe will satisfy this requirement.
When filing tax returns for your company, make sure to indicate somewhere that this will be your business’ final tax return. You’ll receive a clearance in the form of a certificate or letter from the tax agency stating you don’t have any more tax liability.
Even if your state doesn’t require a tax clearance, you’ll still need to file final tax returns at both the state and federal levels. You also need to file final employment tax returns–otherwise, you could be held personally liable for unpaid payroll taxes.
3. File an Article of Dissolution
Articles of dissolution is a document in which you ask the state to officially dissolve your business. Find the form at your state’s corporations division or Secretary of State website. In some cases, the form may be called a certificate of dissolution or certificate of cancellation.
The form typically requires you to provide details about your company and its members. You may also be required to indicate if and when any assets have been distributed and whether any liabilities have been paid back.
Most states charge a fee to file articles of dissolution, so make sure to include the correct amount.
Once approved, the state will send you a certificate of dissolution — keep this important document in your records.
4. Settle Outstanding Debts
Your state may require you to notify creditors before filing articles of dissolution. Creditors might include lenders, insurance carriers, service providers and suppliers. Some states also require dissolving LLCs to publish a notice in their local newspaper.
Your notice to creditors should give creditors a deadline for submitting claims and tell them that claims submitted after the deadline will be barred. Your state’s laws will specify the appropriate deadline, but it’s usually between 90 and 180 days.
Even if a notice to creditors isn’t required, it’s a good idea to send one. This allows you to pay all your obligations and reduces the chance you’ll have liabilities unexpectedly surface in the future.
5. Distribute Assets
Once you’ve paid your taxes and your creditors, any remaining assets — including any investments, profits and tangible goods — can be distributed to the LLC’s members. Your operating agreement (or state law, if you don’t have one) will guide you on how to allocate assets among the members.
6. Conduct Other Wind Down Processes
Properly concluding your business includes letting go of employees, (and settling any severance packages, if applicable), paying final payroll taxes, negotiating cancellations of contracts and leases canceling business licenses and permits and letting customers know when your last date of business will be.
At the end of the process, you’ll close your business bank accounts, Federal Employer Identification Number (FEIN) and state tax identification number if you have one.
Frequently Asked Questions (FAQs)
What happens if I register my business in more than one state?
If your business is registered in more than one state, you will need to file documents to cancel your registration with each state. Otherwise, you may still be required to pay fees and taxes, plus file annual reports even if you haven’t conducted any business activities.
Can my LLC be dissolved involuntarily?
Yes., an LLC could be dissolved involuntarily. There are two types of involuntary dissolution:
- An administrative dissolution is imposed by the Secretary of State. For example, your LLC could be dissolved because your business failed to file annual reports or maintain a registered agent.
- A judicial dissolution is issued by a court. An LLC member may petition a court for dissolution on various grounds, such as if the membership is deadlocked, there’s too much disagreement among the members for the business to function properly, or there’s member misconduct.
Whatever the reason for dissolution, you’ll need to complete the remaining steps to formally tie up loose ends and put your LLC behind you.
Do I need to consult with a lawyer to dissolve my business?
While it is not a requirement to consult with a lawyer when dissolving a business, it may be advisable to do so depending on your business, its structure and partners, finances and unique situation. You can work with a local business attorney or online providers, such as LegalZoom, can help you file an LLC dissolution. Learn more about what to expect when working with LegalZoom.
How long does it take to dissolve an LLC?
The length of time it takes to dissolve an LLC varies by state, but the process usually takes between one and two weeks. However, if there are issues, such as the liquidation of assets or unknown creditors making claims on the business, the process can take up to six weeks or longer. The process can also be expedited to take only a few days if you are willing to pay additional fees to your attorney.
What are some reasons to dissolve an LLC?
Some reasons that you might want to dissolve your LLC include if you are closing the business, whether due to financial difficulties, retirement, relocation, death of a key member of the corporate structure or for other reasons; there are disagreements between principal owners or members of the LLC and they cannot be resolved through other channels; or if the business was only meant to be a temporary one.
