Looking for the steps on how to dissolve an LLC? Businesses choose to shut down permanently for a variety of reasons. The list continues on, from owner retirement to restricted financial flow to conflicts among members. Check our guide on Top LLC Filing Companies Of 2022.
Companies that can help you dissolve an LLC
Locking the doors and removing the notice isn’t enough. To formally dissolve your LLC, you must follow certain requirements.
Depending on the circumstances of your divorce, you may be annoyed by the need to file more papers and properly close things up. However, taking the effort to properly dissolve an LLC will assist reduce your liabilities in the future and make it simpler to go forward with other endeavors.
So, let’s get started with the steps on dissolving an LLC to ensure that you are no longer liable for paying annual fees, filing annual reports, and paying business taxes.
Types Of Limited Liability Company Dissolution
LLC dissolutions are often classified as voluntary, administrative, or judicial. Let’s see how each type can be classified below:
1. Dissolution Of An LLC Voluntarily
When the LLC members voluntarily elect to end the business, this is known as voluntary dissolution. It may occur as a result of a dissolution trigger previously established in the LLC operating agreement, such as a member’s death. Members can also vote at any moment to disband the company.
2. Dissolution Of An Administrative LLC
This happens when a company fails to meet state regulations. The Secretary of State’s office issues an administrative dissolution. While rules differ by state, LLCs can normally be dissolved at any moment for reasons deemed proper by the Secretary of State.
3. Dissolution Of Judicial LLC
This is a court-ordered dissolution, as the name indicates. If an LLC fails to comply with state laws, courts have the authority to dissolve it. It can also happen when businesses fail to pay their taxes. An unhappy LLC member who wants to leave the firm may file a lawsuit against it, resulting in a judicial dissolution.
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7 Steps On How To Dissolve An LLC
These are the exact steps you need to follow for Limited liability company dissolution:
- Step 1: Vote to Dissolve an LLC
- Step 2: File articles of dissolution
- Step 3: Notifying Creditors of Your LLC Dissolution
- Step 4: Distribute Assets
- Step 5: Obtain a Tax Clearance If Required
- Step 6: Wind Up Business
- Step 7: Conduct Other Wind Down Processes
Step 1: Vote To Dissolve an LLC
Your members must formally agree to dissolve an LLC before you may move forward. In accordance with the processes outlined in your organizational documents, vote to dissolve the business (articles of incorporation, articles of organization, or LLC operating agreement). Your state’s business statutes, if these documents are silent on the dissolution procedure. A written consent document or a resolution in the meeting minutes should be used to record the vote to dissolve the entity, and both should be kept in your LLC records book.
Step 2: File Articles Of Dissolution
Articles of dissolution are documents that ask the authorities to legally dissolve your business. The form may be found on the website of your state’s corporations section or the Secretary of State. In other circumstances, the paperwork is referred to as a certificate of dissolution or cancellation.
The form normally requests information about your firm and its members. You may also be needed to state whether or not assets have been divided and whether or not liabilities have been paid in full. Most states demand a fee to file articles of dissolution, so provide the appropriate amount. Once accepted, the state will mail you a certificate of dissolution, which you should maintain for your records.
Step 3: Notifying Creditors Of Your LLC Dissolution
Once you’ve decided to dissolve your LLC, you must inform your creditors that you will no longer be doing business. Inform them of the claim submission process and deadline in the notification.
The timeframe for filing claims in your state will be determined by the LLC legislation of your state, although it is often between 90 and 180 days from the date of the notice. Additionally, your notification should state that any claims submitted after the cutoff date would be invalid.
Step 4: Distribute Assets
Once all taxes and creditors have been paid off, the LLC can distribute the remaining assets – such as investments, profits, and physical belongings – among the members. Your operating agreement (or state law, if one doesn’t exist) will tell you how to divide up these assets among the members.
Step 5: Obtain A Tax Clearance If Required
In certain states, you must get a tax clearance, agreement to dissolution, or proof of good standing from your state tax department before you may legally dissolve your LLC. If you have not submitted your last tax return (checking the “Final tax return” box and writing FINAL at the top) and paid all taxes outstanding, the secretary of state or companies division will not allow your LLC to dissolve in these states.
Step 6: Wind Up Business
You must perform additional practical actions to wind up your firm in addition to filing papers with the state. This involves informing your creditors, selling goods and equipment, liquidating your remaining assets, and negotiating a debt settlement. If you do not properly wind up your firm, you and the other owners may be personally accountable for the company’s obligations.
Step 7: Conduct Other Wind Down Processes
Allowing staff to leave (and settling any severance payments, if applicable), paying final payroll taxes, negotiating contract and lease cancellations, canceling company licenses and permits, and informing clients of your last day of operation are all part of properly closing your firm.
You will terminate your company bank accounts, Federal Employer Identification Number (FEIN), and state tax identification number at the completion of the procedure. Read our guide on What Is An EIN & Why It Is Important?
Next Steps On How To Dissolve An LLC
You must file paperwork with those states to revoke or terminate your right to conduct business there if you registered your LLC to do so in those other states. Though you don’t do this, even if you haven’t conducted any business, you can still be responsible for filing annual reports, paying fees, and paying minimal taxes.
Additionally, you will be in charge of submitting the LLC’s final income tax return as well as any necessary final employment tax reports. A checklist of tax-related steps you normally need to complete when ending a business is available from the Internal Revenue Service.
Choosing to dissolve an LLC is never easy. It’s crucial to keep running your LLC even if it goes out of business. You can cut down on future costs, liabilities, and legal trouble by dissolving an LLC.
Closing your business can be a difficult decision. However, you cannot simply walk away without properly dissolving the LLC. Failure to do so will make you accountable for taxes, yearly fees, and other business-related liabilities. Late fees and fines will accumulate over time. Before you go, make sure to wrap up any loose ends. It is to your best advantage to prepare for an LLC dissolution before it occurs. If your LLC operating agreement does not mention the dissolution process, you must follow your state laws for formal processes. When dissolving an LLC, always speak with your accountant and attorney.
So hope, that now it is clear how to dissolve an LLC company, if you have any other questions feel free to leave them in the comment section below!
Frequently Asked Questions (FAQs)
1. What if I register my company in more than one state?
If your company is registered in more than one state, you must file documentation with each state to revoke your registration. Otherwise, even if you haven’t done any commercial activity, you may still be compelled to pay fees and taxes, as well as file yearly reports.
2. Can my LLC be involuntarily dissolved?
An LLC can be dissolved involuntarily. Involuntary dissolution can be of two types:
1. The Secretary of State orders an administrative dissolution. For example, your LLC might be dissolved if you fail to produce yearly reports or keep a registered agent.
2. A court issues a judicial dissolution. An LLC member may petition a court for dissolution for a variety of reasons, including impasse in the membership, too much dispute among the members for the firm to run effectively, or member wrongdoing.
3. Do I need to hire a lawyer to dissolve an LLC company?
While consulting with a lawyer is not required when dissolving a business, it may be beneficial depending on your firm, its structure and partners, finances, and unique scenario. You can file an LLC dissolution using a local company attorney or online services such as LegalZoom.
4. How long does it take to dissolve an LLC (limited liability company)?
The time it takes to dissolve an LLC varies by state, but the procedure typically takes one to two weeks. However, if there are complications, such as asset liquidation or unknown creditors placing claims on the firm, the procedure might take up to six weeks or more.
5. Do I Need to File a Tax Return for an LLC With No Activity?
Even if your LLC did not conduct any business in the previous year, you may be required to submit a federal tax return.
6. Can an LLC Transfer to Another State?
If you’re shifting your firm to another state, you should probably register there as well. Here’s how to go about it.
7. Can a dissolved LLC business still operate?
A dissolved company cannot function or conduct any business other than that required to wind up its affairs and liquidate its assets.