Starting a limited liability company (LLC) is no simple endeavor, but permanently shutting down an LLC can be even more difficult.
For one thing, it’s not an enjoyable process by any means ― you’ve poured time, money, and energy into your business, and shutting it down can be hard in several different ways.
To top it off, there are extensive requirements for appropriately dissolving the LLC, and you’ll need to complete the process correctly to avoid legal trouble. With this guide, we’ll cover how dissolving an LLC works. That way, you’ll be prepared if and when you decide to dissolve your business.
Rocket Tip: Most online LLC services (who are best known for offering services to create an LLC) can also dissolve an LLC on your behalf for a small fee.
Select a state below to officially dissolve your LLC. We'll outline the important details and how to take care of the paperwork.
Pass a Resolution to Dissolve
The first step to dissolve an LLC is handled by your members; together, you will vote to dissolve the business. Your operating agreement should tell you how many members need to vote for the resolution to pass.
Once you’ve made this vote, you should document the decision by writing a formal resolution. This resolution should include a description of your voting process, the signatures of your members, and the date you intend to officially dissolve.
File the Articles of Dissolution
Once your LLC’s members have decided to dissolve, it’s time to let others know. There are several different parties you’ll need to inform, but the first step is to notify the state(s) where your business is officially registered.
To notify the state and officially dissolve your business, you need to file the articles of dissolution (or the equivalent document in your state). As part of this filing, the state will request the effective date for your dissolution. Please note that you cannot conduct any business outside of winding up after that date. So, if you intend to conduct regular business for a few more weeks, you should set a different effective date than the date of filing.
Some states require you to file a statement of intent to dissolve before filing these articles, however. You should contact your Secretary of State for more information about these whether these documents are required in your state.
If you fail to file the articles of dissolution and simply stop operating, the state will treat you as an active business. That means that you’d be expected to continue filing annual reports and paying the associated fees, filing income tax reports, and more. As a result, you could unintentionally rack up a lot of fees and expenses without realizing it.
Notify Your Creditors
After you notify the state about your dissolution, you also need to notify your creditors. You should send them a written letter informing them that the LLC is no longer in existence.
If any creditors have a legitimate claim to a portion of your assets, this is the time for them to make that claim. The letter should let them know how long they have to make those claims ― if a creditor makes a claim after that specified period, you usually are not held liable for it.
This notification also lets your creditors know that, from this point on, the business no longer exists and cannot incur any more debt. That’s one reason failing to notify your creditors could make you vulnerable to litigation.
Liquidate Your Assets
A key part of the dissolution process is divvying up the LLC’s assets, such as finances, company cars, office equipment, and property. To do that fairly, you’ll need to liquidate these assets by selling them and splitting the funds. Granted, your operating agreement might say that certain assets go to a specific member; if so, those terms should be followed.
Please note that if you have any known creditors with legitimate claims, they must be paid before the money is split among the members. Once all creditors have been paid, the remaining money will go to the members as dictated by the operating agreement.
Get a Tax Clearance Certificate
All dissolving LLCs are required to settle their debts and financial obligations, which includes any outstanding taxes. In some states, you need to get a certificate of tax clearance, a document that certifies your business does not have any unpaid taxes. You can apply for this document with your state’s tax office.
If a state requires this certificate, then it will not accept your articles of dissolution until you have this document in hand. Obtaining the certificate itself can take some time, so you should time your application accordingly.
Even in states where tax clearances are not required, you should absolutely make sure that your business has fulfilled all of its tax obligations before you dissolve your LLC.
Cancel Business Licenses
Each business has a unique list of licenses and permits it obtained when it first began operating. When closing up shop, you will need to cancel your business or occupational licenses. You should consult with your licensing boards to learn about canceling these licenses.
If you don’t cancel a license, the state could still expect you to renew it annually. Late fees could pile up, and you’d be expected to pay them.
Withdraw Your Certificate of Authority in Other States
Some LLCs have a presence in multiple states. If you do, you don’t have to complete the entire dissolution process in each state ― you only need to file the articles of dissolution with the state where you first formed your business. After that, you’ll need to let the “foreign” states know that you’re ending your business.
To do so, you need to file a specific form for foreign LLCs, which is usually called an application for certificate of withdrawal, or some similar name. You should complete this step for each state where you operated your LLC.
The state in question will issue you a certificate of withdrawal, which means that the state has revoked your authority to conduct business in that state. If you overlook this step, you could remain on the hook for state fees, annual reports and taxes, and more.
After your dissolution is complete, you should keep the records from the process. This includes your dissolution paperwork, communications to and from your creditors, payment records, liquidation records, tax clearance certificate (if applicable), and more.
While most states only require that you hold onto these records for a certain period of time, we recommend hanging onto them indefinitely. You never know when or how they could come in handy, even if your business is past the point of being audited or sued.
A Note on Administrative Dissolutions
The majority of this article has addressed the process for a voluntary dissolution, or in other words, one that you and your members choose to complete.
However, it is possible for an LLC to be administratively dissolved, or dissolved by the state by force. This can occur when a business falls out of compliance, usually for failing to file annual reports, neglecting fees or penalties, and/or refusing to honor debts.
Reinstating an LLC that has been administratively dissolved is possible, but the process can be a hassle, and it usually has some rather steep fees attached. Reinstatement varies from one state to another ― usually it involves correcting the problem that caused the dissolution, submitting an application for reinstatement, and paying some sort of penalty.
As a general rule, it’s far easier to stay up-to-date on your compliance requirements to avoid administrative dissolution than it is to reinstate a dissolved business.
LLC Dissolution Services
If the dissolution process sounds too stressful or difficult, there are other options. Namely, if you want to make sure your LLC is appropriately dissolved, you can hire a business services provider to handle the process for you. While this does cost some money, these companies can dissolve your LLC for much less money than a lawyer would charge you to do the same thing.
If you’re looking for a company to dissolve your LLC for you, we strongly recommend checking out the top LLC services, which can both form an LLC as well as dissolve it.
As you can see, dissolving an LLC can be a long and complicated process, and skipping even one of these steps could spell legal trouble for you and your fellow members. Fortunately, by completing the process carefully, you can close down your business without a hitch.
Closing up shop and shutting down your business is never a fun process, but we hope that this article helped you develop your understanding of how the dissolution process works for LLCs.