How to Dissolve an LLC?

Closing a limited liability company (LLC) doesn’t necessarily mean that the business has failed. Many form companies with a specific venture or timeline in mind, and once those are concluded, they no longer need to keep the business open.

Still, following the proper dissolvement approach is important since costs and procedures differ from state to state. Luckily, the most important parts of the process are essentially the same wherever your business is based.

Types of LLC Dissolutions

There are three types of dissolutions you should be aware of:

Judicial Dissolution

A judicial dissolution is a process through which the courts order the termination of a business entity. This can result from an LLC’s failure to comply with state laws or pay taxes owed.

Dissatisfied LLC members can also file a lawsuit, demand the LLC’s dissolution, and ask for the distribution of the remaining assets. 

Administrative Dissolution

Administrative dissolution is an action taken by the Secretary of State. The three most common reasons for LLCs getting dissolved administratively include not paying franchise taxes, failing to file annual reports, and not maintaining a registered agent.

Keep in mind that although these might be the most prevailing grounds for LLC closures, the Secretary of State has the authority to dissolve an LLC for any reason they see fit.

Voluntary Dissolution

Voluntary dissolution is a self-imposed dissolution and the main subject of our guide. Members can vote to dissolve an LLC at any time. Additionally, dissolution triggers can be added to the LLC’s operating agreement, including the death, departure, or bankruptcy of one of the members. 

Should You Close Your Business?

Whether or not you should close your business is a tough decision to make. It’s one thing to close it when you set up an LLC to address a specific need and have no more use for the company. But it’s a whole other story if you actually had long-term plans that didn’t pan out.

Sometimes dissolving an LLC is necessary even if everything seems perfect: you came up with a great idea and had plenty of motivation and persistence. Unfortunately, that’s not always enough. You could run out of money, a key member could become disinterested, or your product could simply not be in very high demand.

In such situations, many prefer to cut their losses and walk away. Others continue to hope that somewhere along the line, circumstances will improve and that “pausing” their business for a time might help. However, the longer you delay closing an LLC, the higher the closing costs will eventually be.

The States have no way of knowing that you’ve stopped conducting business permanently or otherwise, which is why they will keep billing you until you officially notify them of dissolution.

Seeing as debt doesn’t just disappear after you shut your company’s doors, you need to inform all relevant authorities about your decision.

If you’re unsure about what the best course of action is, you can take advantage of the free consultations that most LLC assistance services offer.

Dissolving an LLC: A Step by Step Explanation

We’ve compiled a list to help you keep track of all the obligations that you must fulfill in order to close your business.

Agree to Dissolve 

To begin the dissolution process, you must hold a vote first. Depending on the state, you may need every member, the majority or two-thirds of the members to agree on this proposal.

Make sure your operating agreement covers LLC dissolution procedures, which are often quite useful. Of course, if you’re the sole member of an LLC, you should just disregard this step and move on to the next one.

Notify Creditors and the Appropriate Authorities

It might be one of the more aggravating tasks, but it’s one you must complete nonetheless. You must notify your creditors about your decision to dissolve your business and give them a deadline to submit claims and lawsuits.

The deadline should be specified in your dissolution notice, and it should be in accordance with the regulations of the state in which your LLC is registered.

Certain businesses require specific permits to operate. If you fall into that category, you also need to contact the appropriate authorities to cancel those licenses and pay any outstanding fees.

File the Official Paperwork

In most cases, you’ll need to file articles of dissolution with the Secretary of State to dissolve your business. Before you start scouring the internet for those forms, check to see if your state has a different name for them or if you’re obligated to submit any additional documents.

Furthermore, be prepared to pay the LLC termination fees, which are, again, determined by each individual state.

If your LLC is registered in multiple states, you’ll have to file documents with all of them individually.

Take Care of the Finances

You must settle any debts that the LLC has, and it’s advisable to prepare for obligations that your creditors are yet to inform you of. Not to mention that you should collect outstanding payments from your customers and let your vendors know that you’ll no longer be needing their services.

File a Tax Return

Filing final tax returns is another step to completely terminating an LLC. You’ll need to get around to filing final employment tax returns and final tax returns with both the state tax agency and the IRS. 

You can send an electronic or postal request to the tax department to obtain their approval. You will get a letter or certificate stating that you have no tax liability if you are submitting tax returns and paying state taxes on time.

Another smart move is to cancel your Federal Employer Identification Number (FEIN). This tells the IRS that your company is shutting down and won’t be filing any taxes in the future.

If you have employees, you’ll also have to pay the final payroll taxes. Additionally, you should revoke any business licenses that have been granted to your LLC. Seeing as an LLC can be classified as several different business entities for tax purposes, you have to be careful about finding the documents that are appropriate for your company.

Divide It All Up

The very last step in closing a business involves dividing all of its assets among its members. This can be done by distributing everything equally or, as is more common with larger LLCs, according to the specifications laid down in the LLC operating agreement.

Final Advice

All you have to do is follow these steps meticulously and remember to keep your business records for at least seven years so as to avoid any future troubles.

We know that the entire process can take time, but try to be patient, and if you run into any overly complicated bureaucratic issues, don’t hesitate to consult legal professionals.