How To Dissolve An LLC In 6 Steps
By Bazal Razzaq
Updated: October 18, 2023
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- What is an LLC?
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Ready to close down your business? Before bidding a final goodbye to your limited liability company(LLC), you must wind up your business properly. While it’s never easy to shut down your LLC, the process also feels scary and intimidating. But there isn’t much to worry about when we’re right here, assisting you every step of the way!
In this article, we’ll guide you through the necessary steps to dissolve an LLC.
How To Dissolve An LLC
If you decide that dissolving an LLC is your ultimate action plan, the steps below will help you.
#1 Vote To Dissolve the LLC
The very first step is holding a meeting where the member officially votes for the dissolution of the LLC. You can check your company’s operating agreement and the articles of organization to work out the dissolution protocol.
And since we’re firm supporters of drafting an operating agreement for your LLC, we won’t leave this opportunity to mention that your agreement should specify the closing requirements, such as a collective or unanimous vote.
After the voting, you can document the decision in writing or minutes of the meeting document. If you do this, all members/owners know about the meeting and how the voting took place. Doing this helps prevent any legal conflicts and arguments.
So, always remember to keep a proper record of the decision-making process. It’s instrumental in maintaining transparency and avoiding potential conflicts.
#2 Complete Tax Returns and Get Tax Clearance
This step is important before going ahead with the dissolution process. In some states, obtaining tax clearance from the taxing authority (often the Department of Revenue or a similar agency) is important before officially closing your LLC.
Tax clearance, in general, means the state confirms you have paid all outstanding business taxes and filed all essential tax returns. It confirms from the state that you have met your tax obligations as an LLC owner.
Mostly, you’ve got to meet the requirements and receive a Certificate of Tax Clearance. But, some states don’t ask for a letter/certificate stating you’re clear of all taxes before shutting down your LLC. They are:
- New Jersey
- North Carolina
(Please remember that New Jersey doesn’t ask for a tax clearance certificate, but to be in good standing with the state.)
Regardless of whether you need to obtain tax clearance, it’s best to inform state and local tax agencies about the LLC’s dissolution. Also, you need to watch for specific requirements on your state agency’s website. For example, you may have to close your state business tax account in some states.
Finally, File Federal Tax Returns: Once you’ve dealt with your local state taxes, it’s time to clear your final federal tax return with the IRS. Please remember that for federal and state filings, you should clearly mention that it’s your LLC’s final return.
#3 File Articles of Dissolution
Before we proceed with this discussion, let’s get one confusion out of the way first.
What is it? Well, the form has many names, like,
- Certificate of Dissolution
- Articles of Dissolution
- Notice of Dissolution
- Statement of Dissolution
- and, Certificate of Cancellation.
Yes, they aren’t different forms or notices you need to file in different states.
You must file the essential dissolution documents with the state in which you’ve registered your LLC. When you file your dissolution papers with the state, make sure to include the following information:
- The name of your LLC
- LLC number(you’d received when you filed articles of organization)
- Your name and address
- a contact number and email,
- a return address.
The information requested in the form is usually straightforward. It asks for details that identify you and your LLC. However, some states may have additional questions, which again depend on your state. These questions may be whether the members/owners have cleared all debts and obligations and if the remaining assets have been distributed.
Like the Articles of Organization document, most states require a small fee to file the form. When submitting the form, you must review the instructions properly to determine the exact amount.
#4 Wind Up The Business of your LLC
Once you’ve filed your Articles of Dissolution, you need to wind up the affairs of your LLC. What we mean by this is to complete the remaining activities of your business and sort them for the closing. These activities may include:
- Ending lease agreements
- Cancelling Business licenses and permits
- Lay off employees and pay the final payroll taxes
- Terminating contracts with any service providers
By completing these tasks, you can successfully wind up the business of your LLC and tie up any loose ends. Before you leave the business, remember to communicate with relevant parties, follow proper procedures, and fulfill your obligations as an employer.
#5 Distribution of Assets
Once you’ve filed the articles of dissolution and settled debts and obligations, the remaining assets of the LLC need to be distributed among the members/owners. The whole distribution process should occur, as mentioned in the operating agreement. Your agreement may highlight the specific method.
If your agreement doesn’t outline the process, the state law will govern the distribution process. LLC members need to document the distribution of assets to avoid any future legal or official confusion and arguments.
There should be proper distribution documentation, and all members/owners receive their rightful share. Also, suppose the LLC has any intellectual property, real estate, or other assets. In that case, you need to consult with legal and tax experts to understand the complexities and formalities of asset distribution.
Once the assets are shared, your LLC is closed for business, and its legal existence no longer exists.
#6 Cost of Closing An LLC
Generally, the cost of canceling an LLC can be anything between a few hundred dollars to several thousand dollars. It depends on a lot of factors, like,
- Filing Paperwork: In most states, you must pay a filing fee when submitting the dissolution of your LLC. The fees range from $50 to a few hundred more, depending on your state.
- Legal and Professional Fees: If you seek professional help from a lawyer or an accountant to guide you through the dissolution process, remember they’ll charge their fees. The total amount will depend on the complexity of your LLC’s individual situation and the rates charged by the professionals you hire.
- Outstanding debts and obligations: Before you close down your llc forever, it’s important to clear any outstanding debts, taxes, and fees. The total cost will depend on the amount and nature of these obligations.
- Publication Requirements: In some states, LLCs must publish a notice of dissolution in local newspapers. This requirement may involve additional publication fees.
- Miscellaneous Costs: There may also be other costs, like getting certificates or copies of documents, fees, and any other special fees specific to your state.
We’d advise you to contact a legal or financial expert for a proper overview, who will guide you throughout the process and help you with your state’s total cost and requirements.
Can You Dissolve an LLC
Yes, you can dissolve an LLC. As the owner/member of the LLC, you have the authority to begin the dissolution process.
Closing an LLC could be done for many reasons, such as financial difficulties, changing business conditions, or pursuing new opportunities. To dissolve an LLC, you must follow the steps outlined by your state.
The laws and regulations typically involve filing paperwork, settling debts, distributing assets, and fulfilling any remaining obligations.
You can seek professional guidance from a lawyer, accountant, or business expert, which can help ensure a smooth and legally compliant dissolution.
Should You Dissolve an LLC
Well, it depends.
The choice to dissolve an LLC depends on your specific situation. If your LLC is no longer serving its purpose, is not making a profit, or has significant arguments among the members, it might be a good option to dissolve the LLC.
However, if your LLC is still profitable and achieving its targets, you can put its shutdown on hold.
Considering the legal and financial consequences carefully before making any major decisions, including assessing tax complications and any outstanding debts or obligations, is essential.
If the main concern lies among the LLC members, it might be beneficial to arrange a board meeting to address and resolve any differences for your company’s success.
In conclusion, the process of LLC dissolution requires careful consideration and planning toward legal requirements. One should not take it lightly. It’s best to seek professional help and follow the correct process to ensure a smooth and legally compliant dissolution, allowing owners/members to move on with new and different ventures.
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Frequently Asked Questions (FAQs)
If you’ve registered your LLC with more than one state, you need to cancel your registration with each state. You’ll still need to pay the required taxes and fees and file annual reports even if you haven’t conducted any business activities.
It depends on individual situations and the state where you set up your business. You can typically expect a few weeks to a few months for the dissolution of your LLC.
There are multiple reasons someone would dissolve their LLC, like frequent disagreements and fights between the owners/members, changes in management or ownership, or an important member choosing to leave, causing significant issues within the company. Sometimes people choose to invest, pursue a different venture and dissolve their business.