Closing a limited liability company (LLC) can be an uncertain time both professionally and personally, but you can remove some stress by making sure you properly dissolve the business. This process usually requires filing articles of dissolution and abiding by the rules of the state in which you registered your company's articles of organization.
The Importance of Properly Dissolving an LLC
By following the proper steps to dissolve your LLC, you can avoid paying annual LLC fees charged by the state and minimize the possibility of personal liability for any debts, fees, taxes, and lawsuits that could arise after dissolution. You also want to make sure that no one can step in and use your LLC's name, licenses, and permits in your absence, which could expose you to potential legal issues or cause problems if you want to open another business later.
Property owned by the LLC does not automatically revert back to you unless you officially dissolve the company, so that could be a concern as well.
Steps for Dissolving an LLC
If you're ready to close your business, here are the 10 steps to follow to ensure you protect yourself and other LLC members.
1. Vote to dissolve.
Call a formal meeting of LLC members to decide to close the business. State requirements vary regarding the number of votes necessary to dissolve a company—you may need a simple majority, two-thirds majority, or even a unanimous vote in writing. Check both state provisions and your own LLC's operating agreement for guidance on how to carry out the dissolution vote.
2. Close employer tax accounts.
Close the LLC's employer tax accounts with state and federal authorities. Make sure all payroll withholding taxes are up to date. If your LLC collected sales tax, make sure you have complied with state law regarding the final forms and any funds due. Some states require a “consent to dissolution" or “tax clearance" from the state tax board, affirming that the LLC has paid all outstanding taxes, before you can dissolve the company.
Notify the Internal Revenue Service (IRS) that the LLC's employer identification number (EIN) will no longer be in use. Cancelling the EIN avoids the accumulation of unpaid payroll taxes, for which LLC members could be held personally liable.
3. Resolve debts.
Pay creditors and make provisions for any future obligations that may arise and of which the members are aware. An LLC must pay debts before making any distributions to members. In other words, members cannot simply close the doors and loot the company for their share of liquid assets. After dissolution, members could be held personally liable for any debts that had not been paid before distributions were made.
4. Distribute assets.
Close out each member's capital account and distribute any remaining assets in proportion to each member's ownership interest. If you are selling off assets, you must also file the appropriate forms with the IRS, explained more fully in IRS Publication 544, Sales and Other Dispositions of Assets.
5. File the paperwork.
File articles of dissolution with the same state agency that accepted the LLC's articles of organization, usually the Secretary of State. The agency's website often has the appropriate forms ready to download.
6. File final taxes.
Both federal and state forms have places to indicate that the LLC will not be filing future returns. Distribute Schedule K-1, Partner's Share of Income, Deductions, Credits, Etc. (Form 1065), to members to indicate the proportion of company profits and losses members should include on their individual tax returns.
7. Cancel accounts and permits.
Cancel bank, credit, and insurance accounts; registrations, including any fictitious business names (FBN), or doing business as (DBA) names; and permits and licenses. With a DBA, you may have to publish notice in a local newspaper that you are abandoning the name, so it is important to check state law for requirements.
8. Notify customers and providers.
If you haven't already done so, notify customers, suppliers, service providers, employees, landlords, and creditors that you're closing up shop. Pay special attention to state laws regarding employees' final paychecks. Some states, for example, require companies to pay out unused vacation days.
9. Record and store documentation.
Finalize company records and make provisions to store the records for up to seven years, in case of financial audit or legal action.
10. Cover yourself legally.
Check the state's LLC statute for dissolution notice requirements and the length of time during which a creditor can bring suit against an LLC after dissolution. Some states require an LLC to publish notice of dissolution in a newspaper, which could protect members against lawsuits after dissolution.
Also note the statutory length of time a creditor has to bring a lawsuit against a dissolved LLC, which usually ranges from three to five years. If you were in the type of business where a subsequent claim could arise, plan accordingly.
This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.