There are many reasons you may decide to close your LLC. For example, your business's operating agreement may state that it will dissolve if a member dies or wants to leave the LLC, or the LLC members might decide that it's time to move on to other ventures. Your LLC can also choose to voluntarily dissolve at any time with a vote by the members.
Closing an LLC is also called "winding up" and requires that all the assets are liquidated, creditors paid, and remaining funds distributed to the LLC members. All of these financial details must be concluded before the LLC can be officially closed.
To officially wind up your business, you can either follow the steps below or use an online service provider to help you with the process.
1. Liquidate assets.
To be able to pay the creditors, the LLC must liquidate its assets. If the LLC's operating agreement does not specify a procedure to do this, you must follow the procedures that are laid out in your state laws. You also need to let employees go and, as good business etiquette, notify clients that you are closing down the business.
2. Notify creditors.
Determine what the LLC's unpaid creditors are due. Most states require you to notify all creditors and give them a specific time period to submit final claims before closing down. You may even have to file a dissolution notice in a newspaper to notify all possible creditors.
3. File Articles of Dissolution.
File this document with the state agency that licenses business entities, usually the Secretary of State. All LLC members must sign this form. There may be a fee to file this form, which acts as the official notification to the state that you are closing your LLC.
4. Pay creditors.
Pay any creditors using the liquidated LLC assets. If your operating agreement does not specify a procedure for this process, follow state laws. State taxes and franchise fees must also be paid and generally take priority over other creditors. If you are unsure if you owe any state taxes or fees, check with the state tax department or state Secretary of State. If your LLC is taxed as a corporation, you must pay final corporate taxes to the Internal Revenue Service (IRS). It is also a good idea to close your employer identification number (EIN) with the IRS.
5. Distribute remaining assets.
Once the assets have been liquidated and all creditors have been paid, the remaining assets are distributed to the LLC members. Check the operating agreement for details on how to do this. If not specified, then check your state laws. Generally, each member would receive back his or her initial investment as well as a portion of the remaining assets that corresponds to their ownership share. For example, if there are three members and each owns a third, each would get back their initial investment and then receive a third of the remaining assets. If there are no remaining assets, then the owners receive nothing.
Once you have distributed all the assets, paid all the debts and filed Articles of Dissolution, your LLC is considered officially dissolved.
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