How to Dissolve an LLC: A Step-by-Step Guide
Not all businesses are built to last, and, occasionally, the time comes to close your LLC. If you were excited about starting it, this could be a stressful moment, but there are also those looking forward to ending things, as it can be the lesser of two evils.
Whatever the case may be, terminating a company requires some know-how. Luckily, if you were worried about how to dissolve an LLC, we’re here to go through the process with you and discuss the steps you need to take.
Several factors affect this process, including the laws of the state your company was registered and operated in, the number of LLC members, and whether there is an LLC Operating Agreement in place. Ultimately, there are different kinds of dissolutions for different kinds of LLCs, so you need to discern which category yours is in and what is required to complete the process.
Why Would You Need To Dissolve an LLC?
“Forgetting” to do so is, unfortunately, a common solution, especially for small businesses without employees or companies that were never actually used. This is certainly the path of least resistance in the short-term, but ending things properly has its benefits. For one, you won’t be surprised by a fine from a government agency or, even worse, a lawsuit for unpaid debt.
As an LLC owner, you are legally required to file annual reports, pay yearly fees, and minimum taxes. These will stack up, along with their late fees, until you take the necessary steps to dissolve an LLC.
Step 1: Voting on Dissolution
If you are the sole member of your LLC, then you skip this altogether. However, if you’re not the only founder, all LLC members must vote on dissolution before any action is taken. This is also where an LLC Operating Agreement could come in handy – provided you created one when establishing your LLC – as it usually sets the rules for voting on dissolution.
Step 2: Filing for Dissolution
This step could either come second or last, depending on your state’s rules. Nevertheless, you need to file the necessary papers, usually the Articles of Dissolution, with the relevant authority. It is usually the same place where you filed the papers to open your LLC in the first place, most likely the Secretary of State.
Keep in mind that these procedures and their accompanying fees vary between states, particularly if your LLC operated in more than one. While checking everything might sound troublesome, it’s a lot less so than the potential tax issues you might be ending up with otherwise.
Step 3: Filing for a Final Tax Return
Wondering how to dissolve an LLC with the IRS? Closing your company means you have to check in with the Internal Revenue Service (IRS), and your first order of business is filing a final tax return for your LLC.
For example, if you have employees, you must pay out their final wages and compensations, if any are owed. In addition, you have to make final federal tax deposits, report employment taxes, and all payments to contract owners exceeding $600.
Once you pay the taxes you owe, the last step is to cancel your EIN business number and close your IRS business account. To avoid any confusion, you can always check the IRS’s business closing checklist.
Step 4: Notify Your Creditors
Some guides on how to dissolve an LLC suggest this as the first step, simply because it is good business practice. In truth, it is entirely up to you when you’ll do it, so long as you get it done.
Notifying your creditors will help you keep all your finances in check. However, the rules here also differ according to state: You might be eligible for claims from companies you’ve never worked with. Some states require you to put up a notice within your local newspaper, too.
Still, whatever the state-specific rules, you must notify your creditors when dissolving an LLC. The memo you send should contain:
- A notice that your LLC has been dissolved or is in the process of dissolution
- The deadline for submitting their claims, the information they should include in them, as well as the mailing address to send them to
- A statement barring claims not received by the deadline
Step 5: Dividing the Assets
The last step on our list does not apply to all LLCs, but it’s crucial when there are two or more LLC members. LLC assets are typically distributed depending on the percentage of ownership.
How much does it cost to dissolve an LLC?
On average, the Secretary of State fee stands at around $100. However, this price varies per state, so you should check your state’s requirements to be sure.
Can one member dissolve an LLC?
Yes, but only in certain circumstances. Consult your lawyer to get familiar with your state’s laws and whether such a thing is possible in your situation.
What happens if you don’t dissolve an LLC?
Some states can close inactive LLCs by administrative dissolution, but you shouldn’t rely on that. We recommend you follow the procedure outlined in this how to dissolve an LLC guide, as leaving your LLC open while inactive could backfire significantly in the future. For one thing, an active LLC could accrue various fees and fines. Considering the limited liability of inactive owners will be void, you could be personally responsible for paying them.