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 to 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.
How to Dissolve an LLC
Dissolution is the first step to closing a business. Once you file all of the necessary paperwork, other processes need to be completed, including giving notice to your creditors 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 of events that would trigger a dissolution, such as the death of a business partner. Reference your LLC operating agreement on following proper procedures. You can also follow your state’s guidelines if you don’t have one.
Once everyone has voted and a majority agrees, dissolution-trigger has occurred, record the decision to dissolve the LLC and keep it with the company’s official records.
As an aside, it’s worth noting that there are other types of dissolutions possible—the decision may not be yours alone. One type is an administrative dissolution which is imposed by the Secretary of State. You could also be forced to dissolve your LLC because your business has failed to file an annual report of or comply with state law.
Another type, judicial dissolution, feels more serious due to the fact that’s issued by the court, whether you’ve failed to pay taxes or comply with regulations. In many cases, it’s a result of LLC members suing in order to dissociate from their ties to the business.
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.
2. File Your Final Tax Return
Some states will require you to get a tax clearance or a verification of good standing from the appropriate tax agency before dissolving. Filing your tax return and paying any taxes you may owe will satisfy this requirement — the IRS provides a list of forms you will need to submit depending on your business entity.
When filing the appropriate forms for your company, make sure to indicate somewhere that the documents will be your business’ final tax return. You’ll receive a clearance in the form or a certificate or letter from the tax agency stating you don’t have any more tax liability.
Even if your state doesn’t require this initial step, you’ll still want to file a final tax return at some point to ensure you’re on the IRS’s good side.
3. File an Article of Dissolution
An article of dissolution is a document in which you formally request 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 pack.
When submitting the form, create a cover letter stating your LLC’s phone number, business name and your personal contact information. Most states will charge a fee to file an article 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
Notifying creditors of your dissolution may be legally required by your state. They include lenders, insurance carriers, service providers and suppliers. Some LLCs may be required to publish a notice in their local newspaper—check to see if this is necessary in your state.
Even if it’s a requirement, letting your creditors know can help you, as you won’t be able to take on new debts after a specific amount of time. Then, use your business assets to pay them back.
5. Distribute Assets
Whatever assets — including any investments, profits and tangible goods — are left over, needs to be distributed to each of the LLC’s members. Here’s where you’ll want to rely on your operating agreement or other relevant legal documents to provide guidance. For example, if each member has a defined ownership interest, distribute the assets according to the appropriate percentages.
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, voiding contracts with clients, canceling leases and letting customers know when your last date of business will be.
It’s also a good idea to close your Federal Employer Identification Number (FEIN) and state tax identification number if you have one. Doing so tells the IRS your business won’t file any more tax returns because your business is closed.
Frequently Asked Questions (FAQs)
You will need to file the required documents with each state you’re registered to do business in. Cancel or withdraw your right to be able to conduct business in those states. Otherwise, you may be required to still pay fees and taxes, plus file annual reports even if you haven’t conducted any business activities. That’s because the state still assumes the business is still active.
Any business that doesn’t go through the proper process to dissolve their business may be fined. These fines, if not paid in full, can accrue over a long period of time. If you want to reinstate your business in the future, not typing up loose ends can also have dire consequences.
