At some point, LLC owners may decide to terminate their company. Dissolving a limited liability company entails certain procedures that will expedite the process legally.
However, many resources are available that will walk you through the process step-by-step and answer any questions you may have.
After consulting our team of legal experts and business professionals, we will enumerate and discuss the steps on properly dissolving an LLC and the documents needed to be filed with the state.
- To properly dissolve an LLC, consult and follow the operating agreement protocol, vote, settle debts, notify creditors and close all tax accounts.
- The reasons why owners dissolve an LLC may be due to completion of the business, economic unviability of the product or service and personal decisions.
- An LLC dissolution form, a dissolution notice and final tax return should be filed when terminating an LLC.
Reasons Why Owners Dissolve LLCs
Here are the reasons why owners dissolve LLCs:
- Voluntary LLC dissolution is decided upon by the members when the company has the completed the business purpose or the LLC ceases to be economically viable.
- LLC owners are no longer interested in operating the business or have reached the end of their term.
- If a member dies, becomes ill, or is no longer available to work on the LLC.
- In addition, LLC members might dissolve their LLCs because of personal reasons, such as member disagreement, relocating or employment changes.
Whatever the case may be, there are procedures and paperwork you have to complete to officially dissolve your LLC.
What Documents Must Be Filed When Terminating an LLC?
The documents that must be filed when terminating a limited liability company include an LLC dissolution form, dissolution notice and a final tax return.
Steps to Closing Your LLC
To begin the dissolution process, you will have to follow a procedure that includes a number of steps:
Consult Your LLC Operating Agreement
The LLC 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.
If there are any disputes on dissolution, they could be settled in court if needed.
In short, if you have an operating agreement, it's just a matter of following its steps for dissolving your LLC.
It would also make sense to consult with a law firm with some experience in this area because they will know the ins and outs of dissolution.
Read More: What Forms Are Needed to Dissolve an LLC
There are a few types of vote: unanimous vote, majority vote, and a two-thirds vote.
A unanimous vote is when all LLC members agree to vote yes, no matter how many people are in agreement.
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 LLC dissolution and vote for decision-making in the LLC Operating Agreement at formation.
Settling Debts and Notifying Creditors
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, it is important that creditors 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 them of this dissolution also allows them to inform you of any debts that are 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.
Read More: What Happens to Assets of a Dissolved Company
Closing Tax Accounts
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.
This process can be very time-consuming; therefore, we advise you to start this task as early on during your year as possible so that there will not be a last-minute rush.
An LLC must have an accountant registered with the relevant tax authority (e.g., IRS) to close any accounts that are still open and submit claims for refunds of taxes paid in previous years if applicable.
It is only after all the financial obligations of your LLC have been settled that you can distribute the remaining LLC assets to the members.
Filing Articles 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.
You file the Articles of Dissolution with the state agency in charge of handling your formation paperwork.
The deadline for filing paperwork will differ based on the state laws 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.
How to Dissolve an LLC - Custom State Guides:
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- Washington D.C.
- West Virginia
How Much Does It Cost to Dissolve LLC?
Depending on the specific state and legal processes, it costs around $100 to dissolve an LLC. This includes the filing fee for submitting the dissolution paperwork.
If you need copies of the certificate, additional fees can be applied.
Can You Walk Away From an LLC?
You can't simply walk away from an LLC since there are legal procedures to follow.
You can either dissolve or withdraw, but it is best to seek legal advice beforehand for assistance with this process. Every state has different requirements when dissolving or leaving an LLC.
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.
Can an LLC Be Sued After It Is Dissolved?
Yes, an LLC can still be sued after it is dissolved.
In case you fail to file articles of dissolution and terminate the business properly, there will be grounds for a lawsuit from creditors or other aggrieved parties, for example.
What Happens to Debt When an LLC Fails?
When an LLC fails, outstanding debts are paid off through the assets of the company.
Creditors can take measures such as putting a lien on the company's assets or submitting claims in case of dissolution to recoup the debt owed by the business.
LLC assets are separated from their owners because LLCs are disregarded entities in the eyes of the IRS.
Can You Freeze an LLC?
Technically, you cannot freeze an LLC. Your company will have to comply with state laws, continue sending tax filings and maintain a good standing regardless of generating any revenue.
Can You Take the Name of an Inactive LLC?
No, you can't take the name of an inactive LLC unless the entity has been dissolved and officially terminated.
If the LLC has been inactive, the company failed to file necessary documents and was consequently made inactive. That doesn't mean the LLC is dissolved and no other company can take its name.
Dissolving an LLC
Dissolving a business can be a complex procedure. For this reason, it is best to consult a service from a specialized company like IncFile before taking any action.
Make sure to contact your Secretary of State's office and inquire about the dissolution process.
Each state has its laws regarding the procedures needed to dissolve a business, so make sure you know your company's requirements by reviewing this information in advance.
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