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How to Dissolve an LLC? — Closing and Termination of Your LLC Business (2021)

Many business ventures come to an end due to different reasons and eventually find themselves filing articles of dissolution. As an owner trying to dissolve your LLC, there are complex legal processes and several documents you must file. 

To avoid any missteps, our experts will explain each step and guide you on how to dissolve an LLC so that you can close your business at ease. 

How to Dissolve an LLC?

Importance of Dissolving an LLC

Closing the doors of your company isn’t an occurrence anyone can predict, but it’s a crucial step to take even for small business owners. Although you can decide to walk away and close your LLC unofficially without the dissolution process, this would put your company at risk with unexpected lawsuits from creditors and other parties interested in the corporation assets.

people in meeting

Our team strongly advises filing dissolution papers ahead of time to notify the state properly. Not only does it limit liabilities, but it also allows you to avoid excess state taxes and be freed from other professional obligations like annual report submissions. 

Types of Dissolution

The process to dissolve the company varies between judicial, administrative, and voluntary dissolution. While the details are a bit different in each category and state, our team will provide the general gists of every step.

Judicial Dissolution

Should your business fail to abide by the law or pay the tax and fees required by the state, the court has the power to close the company according to judicial law. 

man reading document

However, there are some cases where LLC members could file for judicial dissolution after being dissatisfied with the non-binding mediation and binding arbitration process stated in the general provisions of the operating agreement

Administrative Dissolution

On the other hand, administrative dissolution may be imposed by the secretary of state office upon your company’s failure to submit legal paperwork like annual reports or any legal paperwork. The secretary of state has absolute power over the dissolution of any business under its jurisdiction for any grounds the office deemed fit.

Another way to wind up your company is through the vote of shareholders. Voluntarily closing your business may take place anytime should the majority of LLC members vote to dissolve, otherwise the business entity will remain operational. 

person writing on paper

Legal Dissolution

Legal dissolution may also proceed even without any vote to dissolve motion by the members if the provisions in LLC operating agreement , such as in the event of any member’s death.

Steps to Dissolve an LLC

Voting

Like previously mentioned, members of your LLC need to cast a majority vote before any filing of dissolution can happen. Your company’s operating agreement may have a written procedure your business must abide by. 

Upon the agreement of dissolving the LLC, we suggest you record all the final decisions made by the members during the meeting and memorialize it as a resolution. Keep it in a file as you may need these legal records in the event of disputes.  

Notify Creditors & Tax and Licensing Authorities

After the decision of dissolving becomes final through members’ approval, the first step business owners need to do is inform creditors. Companies need to put up a notice with information on how to file claims along with the deadlines. 

woman talking on the phone

The general time requirement given by the state to file new claims is between 90 and 180 days from the date of the notice. Although this procedure isn’t mandatory in some states, notifying creditors before you wind up the company leaves a good impression even amidst final negotiations. 

Settling with creditors and licensing authorities also prevents your business from dealing with additional paperwork and fees due to delay. If you absolutely have no idea how to dissolve an LLC, our team suggests availing professional service or seeking legal advice when going through this step. 

Submit Dissolution Papers

After the information for claims has been put up, it’s time to proceed with one of the most important steps a business needs to take seriously. As an LLC, you must file articles of dissolution in the same state agency your company was formed.

person handing a document

The filing form, fees, and procedures vary in different states before you can officially acquire a certificate of dissolution. This information is usually handed to the secretary of state, where it will be processed. 

Some states require an LLC to obtain a tax certificate to dissolve the company. Through this tax clearance, the states confirm that the business is free of tax liabilities.

Divide Remaining Assets

Once the dissolution of your LLC is filed, and all the business debts are paid off, assets can be distributed to members. These assets are allocated depending on the ownership percentage written in the operating agreement [1]

document on a table

If such information isn’t available in the document, your limited liability company has rights reserved to abide by the generic rules provided by the state. LLC assets can range from cash to real estate. In the event of distributing property, the members may decide to sell it and split proceeds according to the proper percentage. 

Accomplish Other State Requirements

If an LLC is operating in multiple states, all the requirements to pay taxes and cancel license to operate must be accomplished before one can be free of legal obligations such as annual reporting and fees. 

To avoid trouble with the Internal Revenue Service (IRS), our team of experts suggests filing your final tax returns and/or employment tax returns.

If forming a new LLC is your next step, consider the top-performing LLC formation companies we already reviewed here

FAQ

How much does it cost to dissolve LLC?

There’s no cost to dissolve LLC, except for the processing fee that can be required by the state during the submission. But if you choose to complete the entire procedure through a dependable registered agent service, there can be an additional fee, especially if you opt to avail of their express services.

What happens if you don't dissolve an LLC?

If you don’t dissolve your LLC, the state will still consider you an operational and active business entity. With that being said, you are still liable to comply with legal obligations like paying taxes. Your company will also be open to possible lawsuits in all the states where your business operates. 

For more business related concerns, you might want to know how to properly issue stocks here

Conclusion

All business ventures have their ups and downs, but closing the doors properly is as important as when you first formed your LLC. From settling the taxes, managing debts and assets, up to accomplishing other requirements all this could get you confused. 

Should you find yourself overwhelmed with the procedures on how to dissolve an LLC, you can always seek legal advice through a law firm or have an agency handle everything for you. 

If you are interested how different state dissolve an LLC, you can check the following pages, too: 

Charles McMillan
Charles McMillan
Charles is a family man, an entrepreneur, and a writer. He is skilled in finding the balance between efficiency, affordability, and high-quality offerings when it comes to business services. He’s on a continuing mission to discover and rediscover the most popular LLC services, while sharing his most accurate assessment and review to help business owners like himself.