How to Dissolve an LLC

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 as it 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 its members

Going through a formal dissolution process can save you from potential fines and/or penalties in the future.

Steps to Dissolve an LLC

In order to officially dissolve your LLC, you will need to follow several steps. We’ve broken these down in more detail below.

Step 1: Conduct a Member Vote to Dissolve

This step appears to be simple, but can become much trickier unless all LLC members agree to dissolve. This is because most states require unanimous member consent to voluntarily dissolve an LLC.

In this case, you’ll need to start off by checking your LLC Operating Agreement, which should contain the terms and conditions that relate to your LLC’s dissolution (e.g., what percentage is required, etc.).

Most states also allow for a court action by dissident members to dissolve an LLC where they’ve reached a management impasse. Having said that, it’s generally both costly and time-consuming to go to court for such an issue, and so we encourage you to try to work this out with your fellow members first if possible.

Step 2: Inform Creditors of Your LLC’s Dissolution

Once you make your decision to close down your business, you’ll need to notify creditors that you’re about to dissolve your LLC.

This is because if they plan to file any kind of lawsuit against your company, they’ll need to know the time frame in which they can do so (often three to five years is allowed). This also gives creditors notice that your LLC can no longer take on debts.

Step 3: Obtain Tax Clearance From Your State’s Taxing Authority

When you formed your LLC, you likely filed documents with the state (i.e., your Articles of Organization), the Internal Revenue Service (IRS) (e.g., if you applied for an EIN, etc.), and local taxing or licensing authorities (if you needed a license or a sales tax permit).

These documents let the authorities know that your LLC was open for business. Until you inform them about your LLC’s dissolution, they’ll assume that your business entity is still active.

To obtain the necessary tax clearance, you will need to file final tax returns with the state and the IRS (e.g., final employment tax returns and income tax returns).

Fill out Schedule K-1 and give a copy to each member so that 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 terminate your employer identification number (EIN).

Note: As long as your LLC is active, you’ll be required to file annual reports and pay annual fees and/or pay minimum taxes.

Step 4: Close Your Business’s Financial Accounts

Once you decide to dissolve your LLC, you’ll also need to pay all outstanding bills and wrap up its financial obligations. Keep in mind that there could be outstanding bills for which you’ll need to set funds aside (in order 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.

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 (if applicable) and pay them for all days they’ve worked.

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 in your business account.

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.