There are many reasons you may wish to shut down your business. No matter why the business is closing, you must still properly dissolve your LLC—or you could get stuck with fines, penalties, and state taxes.
Reasons for Dissolving an LLC
Although this is not a definitive list, the following are some of the more common reasons why owners might choose to wind down an LLC:
- The Articles of Organization state that your LLC exists for a limited time only.
- One of the LLC's key members has died.
- The LLC has been inactive, so the state has closed it administratively.
- The business failed.
- A court ruled that you must close the business.
- You just don't want to run the company anymore.
LLC Dissolution Process
In order to dissolve your LLC, there are steps you must take to do so properly. You can go through the process yourself or hire an attorney, which can give you peace of mind that the process has been completed properly. If you're going it alone, follow these steps:
- Check the Articles of Organization. The document may include a section that states how to dissolve the LLC. If not, then the members must vote on whether or not to dissolve. Usually, a majority vote permits voluntary dissolution, unless something in the articles or your state law requires otherwise. Check with your state entity that regulates businesses—usually the Secretary of State—on the rules to follow should the vote not be unanimous.
- Create a memorandum or resolution. Put the memorandum in writing and state that the members have voted to dissolve the LLC.
- Pay creditors and vendors, if you're able. If not, you need to consider filing for bankruptcy, as you could be sued for what you owe. Pay your landlord and utility companies. Try to void all contracts the LLC did not complete. Failure to do so could expose your members to lawsuits for breach of contract.
- Inform necessary parties of the dissolution. This includes vendors, utilities, and other creditors, as well as your registered agent. It's also good etiquette to notify clients and customers—plus, you might want to keep in touch with them if you start a new business.
- Pay any outstanding taxes. This includes sales taxes, other state taxes, etc.
- Cancel any licenses and permits that are no longer needed. Pay any fees owed on the licenses. Common examples of licenses a business might hold include state and federal licenses, such as those for dry cleaning and selling liquor, providing child care services, commercial fishing licenses, operating permits, and any license or permit you no longer need after you dissolve the LLC. Professional licenses are not included, such as a law license or a psychotherapy license, because you retain them even after you dissolve the LLC.
- Pay assets to members—if there's money left over to do so. Members are usually paid the same percentage they originally put into the company. For example, someone who put in 40 percent of the startup costs gets 40 percent of the assets that remain after the company pays all creditors and taxes.
- File the articles of dissolution and, if needed, a tax certificate. The articles of dissolution is also known by other names, such as a certificate of dissolution, depending on your state. File this document with your Secretary of State. As a separate step, some states also require you to file a tax certificate. Check with your Secretary of State to determine whether this step is also required.
- Inform the Internal Revenue Service (IRS). While the LLC doesn't pay federal tax as an entity to the IRS, you still need to close your employer identification number (EIN). If you are a multiple-member LLC, you must then also file U.S. Return of Partnership Income (Form 1065); single-member LLCs do not need to file this form.
- File the proper IRS form. Only businesses operating as a C corporation or cooperative must file Corporate Dissolution or Liquidation (Form 966) with the IRS; all other business types are exempt. When in doubt, check with your tax lawyer or accountant, or with the IRS. Remember, however, that the IRS cannot give you business or legal advice.
- Dissolve your LLC in all states where it had a place of business. You do not need to do so in states where you're planning to keep the LLC open.
Failure to Properly Dissolve Your LLC
If you do not properly complete this process, the state licensing or taxing authority may contact LLC members or your registered agent for payment of outstanding taxes, fines, and penalties. These can add up quickly, so make sure you complete all the required steps as promptly as possible.
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.