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Updated: Aug 2, 2024
New businesses often face the hardest challenges in their first few years. Only 25% of startups reach their 15-year mark. Most businesses fail due to financial loss, retirement, and lack of stability. Whatever the reason, knowing how to dissolve an LLC is extremely important.
So, how do you dissolve an LLC? It varies depending on the state rules but the general procedure is similar. This article will guide you through the process of closing LLCs properly so that it can be done as quickly and painlessly as possible.
There are several reasons you need to undergo a formal LLC dissolution process. You can’t just close your business and be done with it immediately. Dissolving an LLC properly gives creditors notice that your limited liability company can no longer take on debts.
It also means you’ll be less likely to be hit with a lawsuit for an unpaid debt and other hefty fines from the federal or state agency in the future. When you dissolve an LLC, you are no longer liable for paying annual fees, filing annual reports, and paying business taxes.
If you decide to cease operations, you should get your board of directors and shareholders to vote to dissolve your LLC. But before doing that, identify what type of dissolution your LLC falls into.
Business owners choose to dissolve LLC entities via judicial dissolution for various reasons. Judicial dissolution only happens when a court decides to terminate the business. This commonly occurs when there’s a fraudulent purpose behind the creation of an LLC. For instance, the owners formed the LLC to hide assets from creditors.
Paying taxes and filing annual reports are just some of the administrative responsibilities of LLC members. Failure to comply within a specified period may prompt the Secretary of State to permanently dissolve the company. During the administrative dissolution, the state administrator takes away the rights, powers, and authority of a corporation, LLC, or other business entities.
Members may voluntarily agree to close the business. An operating agreement stating the date and the conditions of the business closure will act as an intermediary between the involved parties.
Now that we know the three types of dissolution, let’s take a closer look at how to close an LLC and wind up business affairs by settling debts and distributing any remaining assets to the owners.
Once you’ve come up with a decision, make sure to notify your employees and pay final wages. If you have outstanding debts, contact your bank and other creditors such as property managers and service providers before closing business.
Some states require you to do this before filing dissolution papers. Consult with a lawyer to know the deadline for claim submission, which is typically 90 to 180 days from the date you’ve notified your creditors.
When you first formed your business, you may remember submitting LLC documents like Articles of Organization. Similarly, you must file a Certificate of Dissolution with the Secretary of State to dissolve your LLC and pay any filing fees, if applicable.
Once approved, your company is technically dissolved, but dissolution itself is not the final step. If your limited liability company conducted business in other states, you’ll need to file cancellation or withdrawal documents. This will help you avoid fines for not filing annual reports in those states.
Cancel your business licenses to ensure no one uses them. Next, notify your state and local taxing authorities and determine whether your limited liability company owes any state taxes so you can take care of that on your final tax returns to the IRS.
Lastly, if you run a brick-and-mortar business, you must contact the property owner. You might need to pay the remainder of your contract, but you can ask your landlord for a different arrangement.
Everything your business owns such as real estate, cash, and other investments are all considered assets. Consult your operating agreement on how to distribute any remaining assets to your members. For instance, you and another member agreed on a 60-40 ownership percentage split. If you cannot easily divide your properties, you can sell them and split the proceeds.
If you have one or more employees, you must pay them any final wages and compensation owed. You must also make final federal tax deposits to the IRS and report employment taxes. Don’t forget to provide a Form W-2, Wage and Tax Statement to each of your employees for the calendar year in which you pay them their final wages.
Lastly, if you provide a pension or benefit plan for your employees, find out how to Terminate a Retirement Plan. If you provide Health Savings Accounts or similar programs for your employees, refer to About Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.
Some small business owners decide to dissolve their LLCs on their own. However, consulting a lawyer is the best option if you have a larger LLC with several members on top of your assets and debts to pay off.
Here’s how a lawyer can help you with the business dissolution process:
Generally, it takes between 90 and 180 days from the date you filed your Articles of Dissolution. The time frame also depends on the state you’re in. However, if there are no issues and you’ve submitted all the required documents and paid your remaining taxes or debts, the process won’t take longer.
It’s best to consult with an attorney to help you dissolve your LLC. From reaching an agreement with your members to filing your final tax returns, a lawyer can ensure you’re on the right track.
For LLCs registered in more than one state, you’ll need to file articles of dissolution in every state where your business is active. Failure to do so will subject you to the annual fees of those states.
For LLCs registered in more than one state, you’ll need to file articles of dissolution in every state your business is active. Failure to do so will subject you to annual fees of those states.
Whatever reasons you have for closing your doors, understanding how to dissolve an LLC is important. It will prevent you from compounding the stress of an already stressful situation. But if you ever find yourself ready to form a new LLC, INC Authority can help you legitimize your startup anytime you need. Our setup LLC services are 100% free. Visit our website to learn more.
Incorporating is the most powerful thing you can do to legitimize your startup. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your new LLC today and enjoy the protection due to you and your business under the law.
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