How to Dissolve an LLC Properly? (In a Few Easy Steps)
Dissolving a limited liability company entails certain procedures that will expedite the process legally.
According to the US Small Business Administration, 965,995 establishments in the United States closed between March 2021 and March 2022, highlighting the importance for LLC owners to have a comprehensive understanding of the dissolution process.
After consulting our team of legal experts and business professionals, we will enumerate and discuss the steps for properly dissolving an LLC and the documents needed to be filed with the state.
Quick Summary
- To properly dissolve an LLC, consult and follow the protocol, vote, settle debts, notify creditors, and close all tax accounts.
- Before owners dissolve their LLC the members must vote and agree on the dissolution decision.
- With nearly half of all U.S. businesses failing within the first five years, as indicated by a 48.4% rate reported by LendingTree, the importance of a well-structured dissolution plan for LLCs cannot be overstated.
- I always remind my clients that, when terminating an LLC, an LLC dissolution form, a dissolution notice, and a final tax return should be filed.
6 Steps to Dissolving an LLC
To begin the dissolution process, you will have to follow a procedure that includes several steps:
1. Vote to Dissolve the LLC
The operating agreement also contains the outline of dissolution steps.
In the majority of cases, the members will vote on whether to dissolve the business or not. There are different types of votes: a unanimous vote, a majority vote, and a two-thirds vote.
In our case, we had a unanimous vote where all LLC members agreed to vote yes.
The Majority vote must have more than 50% of the votes for a decision to be made, and a two-thirds vote requires a ¾ majority or 66 percent approval from voting members. Dissolving an LLC vote must have a vote from all members.
This is why it's important to vote on dissolution and vote for decision-making in the LLC Operating Agreement at formation.
2. Notify Creditors About Your LLC's Dissolution
In addition to voiding contracts and canceling leases, you must settle any remaining debts and notify creditors about the dissolution.
The deadline to submit claims will differ depending on the state laws.
Suppose you are no longer going to do business. In that case, creditors must get a message from your company about how they can submit claims and receive whatever money or remaining assets may be left over after you pay off all debts.
Notifying our creditors of the dissolution allowed them to inform us of any debts that were still owed.
Creditors can submit these claims in writing or through a representative, using the information available on your state's Secretary of State website and submitting it to either the LLC office address or registered agent.
3. File Final Tax Returns and Obtain Tax Clearance
Before filing for the dissolution of an LLC, it is important that all outstanding state taxes are settled and any tax returns from previous years have been submitted in full.
It also applies to tax clearance.
This process can be very time-consuming; therefore, we advise you to start this task as early as possible so that there will not be a last-minute rush.
An LLC must have an accountant or tax adviser registered with the relevant tax authority (e.g., Internal Revenue Service) to close any business bank accounts that are still open and submit claims for refunds of taxes paid in previous years if applicable.
In our case, it was only after all the financial and tax obligations of our LLC had been settled that we could distribute the remaining assets to the members.
4. File Articles or Certificate of Dissolution
Filing the Articles of Dissolution (also called a certificate of dissolution) is one of the final steps for dissolving an LLC.
The Articles of Dissolution are equivalent to the Articles of Organization you had to file when you set up your LLC [1].
During our LLC closure, we filed the Articles of Dissolution with the state agency in charge of handling our formation paperwork.
The deadline for filing dissolution paperwork will differ based on the state law and what assets are being distributed, so it is important to look into your specific state's guidelines when filing your dissolution paperwork.
Some states will require you to pay any remaining taxes before you can even file articles of dissolution.
5. Distribute Assets
Distributing assets during an LLC dissolution in the United States involves a multifaceted approach that goes beyond a simple division of property.
In this process, it's essential to consider not only the fair valuation of physical and intangible assets but also the alignment with members' preferences and plans.
Some members may want to continue using certain assets in their future endeavors, and facilitating these arrangements can be mutually beneficial.
Additionally, exploring creative solutions such as asset swaps or joint ventures among members can add a unique dimension to the asset distribution process, maximizing the value each member derives from the dissolution.
"Ensure all company debts are settled and assets distributed according to the LLC's operating agreement before filing for dissolution."
- Jon Morgan, CEO, Co-Founder and Editor-in-Chief of Venture Smarter
6. Close All Accounts and Cancel Licenses and Permits
Closing accounts and canceling licenses and permits is a pivotal step in the LLC dissolution process, requiring precision and foresight.
Contact your banks and all financial institutions to cancel your business checking and savings accounts as well as credit cards.
Ensure all debts have been cleared and the accounts have a zero balance.
Because our business relied on cloud services, software licenses, and online platforms, we ensured that the account data was locked and securely archived, preventing disruption to ongoing operations and future audits.
You should also contact the licensing agencies and initiate the process of canceling any active business permits.
How to Dissolve an LLC - Custom State Guides:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- Washington D.C.
- West Virginia
- Wisconsin
- Wyoming
FAQs
How Much Does It Cost to Dissolve an LLC?
It costs from \$0 to \$100 to dissolve an LLC, depending on the specific state and legal processes. This includes the filing fee for submitting the dissolution paperwork. If you need copies of the certificate, additional fees can be applied.
How Long Does It Take to Dissolve an LLC?
Depending on the state it can take days to weeks to dissolve an LLC. The total time the Secretary of State to process the dissolution documents varies depending on the filing requirements of the volume of submissions.
Can You Reopen a Dissolved LLC?
Potentially, you can reopen a dissolved LLC in some states that are more lenient with this process and will allow you to apply for a reinstatement of the limited liability company. It can be difficult to reopen an LLC that was originally formed years ago, as many jurisdictions will not allow a turnaround on this process and will require you to apply as a new entity.
What Happens to Debt When an LLC Fails?
When an LLC fails, outstanding debts are paid off through the assets of the company. LLC assets are separated from their owners because LLCs are disregarded entities in the eyes of the IRS.
References:
- https://www.upcounsel.com/articles-of-dissolution
hi,
this year I form LLC in Michigan but now decided i don’t need anymore so I want to close my LLC and also close my EIN from IRS please guide me how to do it.
Thank you
Hello,
Please check our guide – https://venturesmarter.com/how-to-dissolve-an-llc/
Let us know if is something you struggle with 🙂
The reminder to settle outstanding debts before dissolution is really helpful. I didn’t realize leaving loose ends could cause legal issues down the line.