How to Dissolve a Limited Liability Company

Dissolution is the official process of canceling a business entity’s legal existence. In simpler terms, it’s how you close your business.

There are many reasons to dissolve an LLC:

• Voluntary Dissolution: Where you choose to cease business operations on your own accord
• Administrative Dissolution: Where you’re forced to close due to bankruptcy, failing to file annual reports or failing to pay taxes
• Judicial Dissolution: Where a court orders you to close due to disagreement among members

A well-crafted LLC operating agreement should outline the dissolution process. If yours does, follow that procedure. If your operating agreement doesn’t mention dissolution, you’ll have to follow your state’s default rules.

The first step in the dissolution process is getting members to agree to terminate the business. This is normally done by gathering all members of the LLC and putting the issue to a vote.

If you’re using the state’s default rules, check how many votes are needed to approve dissolution. Some states only require a simple majority, others require 2/3 and some require a unanimous vote. Still, if your operating agreement has a dissolution process, that’s what you’ll follow.

Once enough members of the LLC agree to terminate the business, you should start to notify others that may be affected by your business closing. Keep in mind you may be required by law to notify certain parties such as creditors, licensing agencies and taxing authorities.

If your business has any creditors, you’ll likely be required to notify them of your business’s dissolution. This gives creditors a chance to submit any claims for outstanding obligations before you liquidate the LLC’s assets. Depending on your state’s laws, creditors will usually have between 90 to 180 days to submit a claim. Any claims made after this deadline will be barred. Some states won’t require you to give creditors notice, but you should anyway. It’s a good business practice since it ensures you won’t have any unexpected debts down the road.

You’ll want to notify your state and local taxing authorities as early as possible. This way you can determine and confirm how much your business owes before filing your final tax forms.

Before you can dissolve your LLC, you’ll have to make sure you’re current on any and all taxes the company owes. This includes both federal and state taxes.

To finalize your federal taxes, you’ll have to close your LLC’s tax account with the IRS. This can be done by filing your final federal tax return and making sure all payroll withholdings and sales taxes are current and correct. If your LLC has employees, you’ll also have to close out your employer identification number (EIN), and file a final employment tax return.

You’ll also have to file a final tax return at the state level and pay all taxes owed. If you have a state tax identification number, you’ll want to close this as well. Once you’ve done this, you should receive a certificate called a “tax clearance” from the state tax agency.

Just as you were required to file documents with the state to tell them you’re starting to conduct business (i.e., filing articles of organization), you’ll have to tell them you’re finished doing business as well. This will be done using your dissolution papers.

You can find the appropriate form for dissolution papers on your state’s secretary of state or corporations division website. It may be referred to as a “articles of dissolution,” “certificate of dissolution” or “certificate of cancellation.”Once you’ve filled out this form, you can submit it to the state along with the required filing fee. Depending on your state, this will range anywhere from $20 to $200. However, most states only charge between $20 and $60.

Some states won’t allow you to file dissolution papers without a proper tax clearance from the state tax agency. A tax clearance verifies that you’re in good standing and no longer have a tax liability to the state. This means you’re current and correct on all your state taxes and have submitted your final state tax return. Once this is in order, you can request a tax clearance online which will normally be found on your secretary of state’s website.

Once you’ve paid all your taxes and settled any debts with creditors, you can start to distribute the remaining assets of the LLC among the members. Sometimes this will be done by selling the assets and splitting the proceeds. This is known as “liquidating assets.”

If your operating agreement doesn’t specify how the remaining assets should be allocated, just follow your state’s laws.

Depending on the nature of your business, there may be some additional tasks you should complete when going through dissolution. For instance, you’ll want to close any business bank accounts and credit cards you opened for the LLC. You’ll also want to cancel any business licenses or permits your LLC was using to avoid paying additional fees. You’ll need to inform your employees to settle severance packages if necessary – as well as any landlords, insurers, suppliers, vendors or customers.

Legal Disclaimer: This article contains general legal information, but does not constitute professional legal advice for your particular situation and should not be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed in your jurisdiction.

Authored by: Joseph Kellman, J.D. Joe earned his Juris Doctorate from the Charleston School of Law. Before transitioning to legal content creation, he worked at a complex civil litigation firm handling class-action, trust litigation and legal malpractice. In his spare time, you can find Joe rooting for the New York Knicks or the Virginia Tech Hokies.

Reviewed by: Laura Jackson, Esq. Laura graduated from Emory University School of Law with her Juris Doctorate and is an active member of the Georgia Bar Association. After several years of appellate advocacy and regulatory experience, Laura turned to full-time freelance legal writing. She currently writes for law firms, websites, and other publications on a range of issues.