There are many reasons why business owners need to dissolve their business. Dissolving a limited liability company (LLC) doesn’t always mean a business has “failed.” Sometimes, dissolving a business is just the next step in your business journey. Officially dissolving your LLC can help you avoid fines or legal hassles.

There are several steps you must take before you can finally close down your LLC. Here, we take you through the key steps on how to dissolve your LLC in all 50 states.

When Should You Dissolve an LLC?

There are several reasons to dissolve an LLC. A few of the most common ones include:

• The LLC is going out of business.
• You’re retiring as a business owner.
• The business was intended to be temporary.
• Disputes arose between members.

Going through a formal dissolution process saves you from potential lawsuits for an unpaid debt or a fee or fine from the government in the future.

Steps to Dissolve an LLC

Here are the main steps you’ll need to follow in order to dissolve an LLC.

Step 1: Conduct a Member Vote to Dissolve

This step appears simple enough, but what if all LLC members don’t agree to dissolve? First, check your LLC’s Operating Agreement to see what member voting percentage it requires for dissolution. Your Operating Agreement should contain the terms and conditions for your LLC’s dissolution. Most states require unanimous member consent to voluntarily dissolve an LLC.

Most states also allow for a court action by dissident members to dissolve an LLC where they’ve reached a management impasse. It’s costly and time-consuming to go to court for such an issue, therefore, try to work it out with your fellow members before embarking on such a path.

Step 2: Inform Creditors of Your LLC’s Dissolution

Once you make your decision to close down the business, you need to let your creditors know you’re about to dissolve the company. Why? If they plan to file any kind of lawsuit against the company, they’ll know the time frame in which they can do so (often three to five years is allowed). This also gives creditors notice that the LLC can no longer take on debts.

Step 3: Obtain Tax Clearance From the State Taxing Authority

When you formed your LLC, you filed documents with the state, the Internal Revenue Service (IRS), and local taxing or licensing authorities. These documents let the authorities know the LLC was open for business. Until you inform them about your LLC’s dissolution, they’ll assume the business remains active.

To obtain the necessary tax clearance, you must file a final tax return with the state and the IRS. Make sure you check the box to show this is the final return for your LLC.

Fill out Schedule K-1 and give a copy to each member so they know what to report on their own personal taxes in terms of losses and gains. The members of the LLC are personally liable for these taxes if they’re not paid.

You also need to contact the IRS and close out your employer identification number (EIN).

As long as your LLC is active, you’re required to file annual reports, pay annual fees, and pay minimum taxes. Formally dissolving an LLC puts an end to these requirements.

Step 4: Close Your Business’s Financial Accounts

Once you decide to dissolve your LLC, you also need to pay all outstanding bills it has and wrap up all your financial obligations. There could be outstanding bills for which you’ll need to set aside funds to pay them in the coming months.

You also must pay all of your LLC’s debts before you can distribute company assets to the members upon dissolution.

LLC members are personally liable to the company’s creditors so you must ensure you pay those creditors before taking the remaining assets.

Make sure to close all utility accounts, cancel all accounts with vendors, and let clients or customers know you’re closing (and collect any outstanding payments due from them).

You’ll also want to inform any employees of your closing date, and you’ll pay them until the last day they work.

Step 5: File a Certificate of Dissolution With the Secretary of State’s Office

You must file Articles of Dissolution or a similar document to dissolve your LLC in the state where you originally organized your LLC. You’ll file these papers with the same state agency that handed your original LLC formation (usually the Secretary of State). Forms, filing procedures, and fees vary from state to state.

In some states, you must get a certification from the state taxing agency confirming that your LLC is current in all its state taxes and file it with your dissolution papers.

Other Steps

You also may want to take one or both of these additional steps to help ensure you formally close down your LLC correctly and in compliance with the state.

Transfer Asset Ownership

Any property owned in the name of your LLC isn’t transferred back to you until you officially do an LLC dissolution so you want to be sure to transfer the ownership of any remaining assets.

Surrender Your Company Name and Close Any Permits

Closing all of your permits and giving up the name to your company in a formal LLC dissolution ensures no one else can step in and use them.

If you leave these active, someone else could use them without your knowledge and place you in legal jeopardy.

To finish dissolving your LLC, you’ll want to ensure you complete each step to fully protect you and all the other members. Correctly dissolving your LLC will allow you to move on in your next business journey without any stress and worries.