An LLC, or limited liability company, is a business entity that protects its owners from personal liability for the LLC’s debts and liabilities.
Regardless of why you are dissolving an LLC, you will need to do specific things when closing a business. All 50 states have different processes and procedures for dissolving an LLC. However, certain steps are the same, or at least similar.
Why LLCs are dissolved
LLC can be dissolved voluntarily and involuntarily:
An LLC has failed to pay the appropriate taxes.
The company’s directors have committed fraud.
The company’s assets were not utilized for the company.
An LLC’s assets were wasted.
The company owners are in conflict and unable to come to a solution.
The company fails to show that they have a legal or registered office.
Can an LLC be dissolved involuntarily?
An LLC can be dissolved involuntarily in two ways:
1. Administrative dissolution
Administrative dissolution is done by the Secretary of State in the state of your LLC.
For instance, an LLC could be dissolved by the Secretary of State because of failure to file annual reports and maintain a registered agent.
2. Judicial dissolution
Judicial dissolution is a court-ordered dissolving of an LLC.
An LLC member can petition the court for dissolution based on various grounds, including:
- The membership is deadlocked on the vote.
- Conflict and disagreement among the LLC’s members prohibit the function of the business.
- LLC member misconduct.
Regardless of the reason, dissolving a business means you will need to complete any remaining steps to wrap up and conclude the business.
Why should I dissolve my LLC?
The process of dissolving an LLC is essential. If you fail to do so, you could be held personally liable for your LLC’s unpaid debts and taxes.
A lot of states will levy fees again for an LLC each year. Unless you dissolve your LLC, the costs will continue to add up.
Many states charge fees to open an LLC that does not file a tax return. If you fail to close your business, you may acquire fees.
Any property owned by the LLC will not get transferred back to the bank until you’ve dissolved the LLC.
You will want to close out all permits and give up your company name when formally dissolving an LLC. You do not want anyone else stepping in and using them.
How to dissolve an LLC
At a glance
- Hold a vote to dissolve the LLC
- File your last tax return
- File articles of dissolution
- Settle all outstanding debt
- Distribute assets
- Final business
1. Hold a vote to dissolve the LLC
Voluntary dissolution is when LLC members decide to dissolve a company. All members must cast a vote or follow specific guidelines for events that trigger a dissolution automatically. The procedures should be part of your operating agreement and articles of organization.
For example, the sudden death of one of the business owners may trigger a voluntary dissolution.
If the operating agreement does not lay out how to dissolve the LLC, you will need to follow the procedures that your state’s LLC laws outline.
Most states only require a simple majority to agree on dissolving the LLC. A written consent dissolution form is a simple way to document the vote. A record of the vote must be in the company’s official records.
2. File your last tax return
In some states, you might be required to get tax clearance or verification of good standing before you are permitted to file dissolution paperwork. You will obtain that information from your state tax agency.
You will need to indicate somewhere on your submitted paperwork that it is your final tax return for your business. You will get clearance by a certificate or letter from your tax agency stating you do not have a further tax liability.
Regardless of your state’s tax clearance mandate, you must still file a final tax return with the state and the IRS.
Also, you must file a final employment tax return. You could be held personally liable for any unpaid payroll taxes if you do not.
3. File articles of dissolution
Articles of dissolution is a document that asks the state of your LLC to dissolve your business officially. It can also be referred to as a certificate of dissolution or a certificate of cancellation.
You will find the form using your state’s Corporations Divison or Secretary of State website.
Most states require you to prove the same details about your LLC and its members.
- Limited Liability Company Business Name
- Signatures of all members
The form typically requires a notary public signature.
Some states may ask for additional details about your company, including whether any liabilities have been paid back.
You will have to pay filing fees to file the articles of dissolution. Check with your state to verify the cost.
The state will send you a certificate of dissolution, which you must keep for your company’s records.
4. Settle all outstanding debt
The state of your LLC might require that you notify all creditors before you can file the articles of dissolution. However, if your state does not have this requirement, it is still a good idea to send a notice to creditors.
- Insurance carriers
- Service providers
Depending on the state, you may have to publish a notice in a local publication in order to dissolve your LLC.
You will need to provide your creditors with a deadline for submitting claims. It must be specified to your creditors that the claims submitted after the decided deadline are barred.
The state law’s where your LLC is located will specify the deadline. The deadline is typically between 90-180 days.
5. Distribute assets
After debts and taxes are paid, all remaining LLC assets can be distributed to all of the members of the LLC.
The remaining assets may include:
- Tangible goods
The LLC operating agreement or your state’s law will guide you precisely on how to accolate funds and assets among its members during the dissolution process.
6. Final business
To finish dissolving an LLC, you must conduct all final business, including:
- Letting go of employees.
- Settling any severance packages.
- Pay final payroll taxes.
- Negotiate cancellations of contracts and leases.
- Cancel business licenses and permits
- Alerting customers or clients when the last day your business will be open.
- Close your business bank accounts.
- Close your Federal Employer Identification Number (FEIN) and tax identification number.
Do I need to hire a lawyer to dissolve my business?
Attorneys do not have to be involved in order to dissolve a business. However, it is advisable depending on certain things.
The type of business.
The business structure.
The business partners.
For unique situations that may arise.
You can choose a local business lawyer or contact an online provider such as to help you file an LLC dissolution.
LLC Service Providers
When dissolving an LLC, following the proper policies and procedures are the only way to ensure you do not have further liability down the road. There are LLC services are available to help uncomplicate the process and make moving on quicker.
ZenBusiness. $49+state fees: ZenBusiness offers services from the time you form an LLC until you dissolve it.
Northwest $39+state fees: Northwest registered agents help companies through the dissolution process and make the wind up as quick as possible.
IncFile $0+state fees: When you sign up, IncFile gives you a registered agent for a year for free.
How much does it cost to dissolve an LLC?
The cost of dissolving an LLC primarily depends on the state. It ranges from $24 to $500.
It takes most states 1-2 weeks to process the paperwork. You can expedite that process in some states by going to the office in person.
Can I dissolve my LLC in more than one state?
You must file the documents to dissolve your LLC and cancel your registration in each state your company is registered in.
If you do not, it may result in you having to pay fees and taxes. And you may have to file annual reports even if you’ve not conducted any business activities.
Your LLC’s state will require you to complete the short form LLC-4 and submit it to your Secretary of State.
Is there a difference between dissolving and terminating an LLC?
The two terms can be used interchangeably.
However, dissolution is the process of winding up the business and affairs of the business entity before dissolving it.
Termination is when a business entity ceases to exist.
Can I dissolve an inactive LLC?
You will dissolve an inactive LLC following the same steps. Just because it is inactive, it does not mean that you can skip any of the steps needed to dissolve an LLC.
What happens when you dissolve an LLC?
Dissolving an LLC means that your company is no longer expected to pay taxes, fees, or file further documents because they are no longer a legal business entity.