7 Steps to Dissolving an LLC

Businesses close for many reasons. You might've had a drop in sales due to an economic downturn or decided to take a job at a large corporation for financial security. No doubt you've put your blood, sweat, and tears into running your business, and it can be hard to invest more of your limited time and money into closing it down.

But it's important to follow the appropriate procedure to formally shut down your limited liability company (LLC)—also known as "dissolving and winding up" the business.

Why Dissolve Your LLC

Formally dissolving your LLC is an important step to limit your and your company's liability. By dissolving your LLC, you'll no longer be liable for:

• paying annual fees
• filing annual reports, or
• paying business taxes.

If you don't dissolve your LLC, you could be looking at thousands of dollars in accumulated fees and penalties after a few years. Additionally, officially dissolving your business also puts creditors on notice that your business can no longer incur business debts. If you fail to properly dissolve and wind up your company, you and the other LLC owners might be personally liable for the business's debts.

Types of LLCs to Dissolve

There are two main types of LLCs: single-member and multi-member.

Single-Member LLCs

In a single-member LLC, the company has only one owner (or member). Single-member LLCs are usually formed by sole proprietors who want to take advantage of the limited liability an LLC offers. A single person can file articles of organization with their state to become an LLC and list themselves as the sole member. (For more information, see our article on the differences between sole proprietorships and LLCs.)

Multi-Member LLCs

In a multi-member LLC, the company has more than one owner. A multi-member LLC doesn't have a limit on the number of owners. They're usually formed by a group of two or more people who want to form a formal business. Multi-member LLCs are an alternative to partnerships and corporations.

How to Dissolve an LLC

You've decided to close your business, but you need to take care of several important steps to limit your liability for lawsuits and government fees.

You'll need to dissolve your entity with the secretary of state (SOS) or the corporations division in your state by filing a form or two. In addition to filing the dissolution paperwork with the state, you must complete other practical steps to wind up your business. These steps include notifying your creditors, selling off inventory and equipment, and settling your debts.

Generally, you can follow the steps below to dissolve your LLC. But every state can differ in its requirements. For state-specific rules, check out our guide to dissolving an LLC in your state.

(You can learn more by reviewing our checklist for closing your business.)

1. Vote to Dissolve the LLC

The first step to dissolving your company is for your members to officially agree to close the business. Check your company's organizational documents—its articles of organization and operating agreement—for the dissolution protocol. In some cases, one of those two documents will contain a section with rules for dissolution, including the procedure for voting to dissolve the business.

Dissolution Rules in Your LLC Operating Agreement

If you've addressed your LLC's dissolution in your operating agreement, you probably listed triggering events that can dissolve your LLC, such as the death or retirement of a member or a bankruptcy filing.

Additionally, agreements will often include a specific voting requirement to dissolve the LLC, including rules for:

• how the vote will happen (like whether the vote needs to be by an in-person or virtual meeting or through written consent)
• when the meeting will take place, and
• when and how the members will be notified of the vote (for example, the members might need to be notified in writing 30 days before the meeting takes place).

If your organizational documents are silent on when dissolution is triggered, your state's LLC laws will provide rules in their place.

State-Specific Rules for Voting to Dissolve Your LLC

Often, states allow LLCs to dissolve by a vote of the members. However, states differ on what kind of vote is needed to approve the dissolution. Some states don't specify that a vote of the LLC members can dissolve the company. So you should include a provision in your operating agreement that allows for a vote to dissolve.

Typically, states will allow you to dissolve your LLC under one of these three common voting methods:

• Consent, vote, or agreement by all members. Some states allow LLCs to be dissolved with unanimous member approval. These states might allow for a vote, written consent, or both.
• Majority vote by members. Other states require a majority (more than 50%) of the LLC members to vote in favor of the LLC's dissolution.
• Majority in interest vote. A majority in interest doesn't mean a majority of the members; it means a majority of the interest in an LLC. For example, suppose there are three members in an LLC. Member A owns a 60% interest in the LLC, and Members B and C own the remaining 40%. Even if Members B and C vote against the dissolution, a single vote by Member A can dissolve the LLC under Connecticut law because Member A owns more than a 50% interest in the LLC.

Regardless of the specific rule, the vote to dissolve the LLC should be recorded in a resolution in the minutes of a meeting or with a written consent form. You should keep the resolution in your LLC records book.

2. File Final Tax Returns and Obtain Tax Clearance

Some states require that you receive tax clearance from your state's taxing authority (usually the department of revenue or other similar agency) before you can officially dissolve your LLC. Tax clearance simply means that the state confirms that you've:

• paid all outstanding business taxes, and
• filed all tax returns.

You might be required to obtain tax clearance before you can file your dissolution documents or within a certain time after filing your dissolution documents with the state. For example, you might need to submit a tax clearance request to the department of revenue within 60 days of filing your certificate of dissolution.

Inform your state tax department about your business closure. Regardless of whether you're required to receive tax clearance, you should inform state and local taxing departments or agencies of your company's dissolution. You might also need to close out a state business tax account. You should check your state tax agency's website for details.

File final tax returns. When you resolve your state taxes, you should also file your final federal tax return with the IRS. For both your federal and state filings, you should indicate that it's your business's final return.

If you have a long list of assets and liabilities to report or don't have much experience doing your business's taxes, consider talking to an accountant or other tax professional. They can file your taxes for you to make sure your final returns are submitted properly and you're taking advantage of all business deductions.

3. File Articles or Certificate of Dissolution

Next, visit your state's SOS or corporations division website to find the appropriate dissolution form to file. This form might be called the:

• "articles of dissolution"
• "certificate of dissolution"
• "statement of dissolution"
• "notice of dissolution," or
• "certificate of cancellation."

You might also need to file more than one form. Check your state's laws for specific requirements.

In some states, you need to file the dissolution paperwork before you begin winding things up. Other states require that you file the dissolution form only after you've finished winding up your business—that is, after you've paid your debts, distributed your assets, and closed any business accounts, registrations, licenses, and permits. Alternatively, your state might require you to submit dissolution documents before and after winding up your business.

Typically, the dissolution form merely asks for information that identifies you and your company. But some states also ask whether the owners have paid all debts and liabilities and whether the remaining assets, if any, were distributed. Most states charge a small fee for filing the form—check the form instructions for the amount.

When you file your dissolution paperwork with the state, add a cover letter with your business's information including:

• the LLC's name
• the LLC's number (assigned when you filed your articles of organization)
• your name
• a return address, and
• a telephone number or email address.

If there's a fee, be sure to include it. If you're mailing in the form (instead of submitting it electronically), send the form by certified mail, with return receipt requested. The state should send you back a certificate of dissolution or similar document, which you should file in your LLC records book. If you have questions about the paperwork, most states provide very clear rules for dissolution on their websites.

4. Notify Creditors About Your LLC's Dissolution

After filing your dissolution documents, you should notify your creditors that you're closing your business. In most states, giving notice is optional. However, giving notice will help limit your liability. And if no creditors come forward with claims, you and the other LLC members can feel more confident taking any remaining assets for yourself.

Usually, providing proper notice can allow an LLC to dispose of (dismiss) any claims a creditor might have against them. For example, if you give a creditor notice of your dissolution and provide them with a deadline to submit a claim and they don't, then they no longer have a valid claim against you. We'll discuss some of the deadlines for creditor claims below.

Giving Notice to Known Creditors of Your LLC's Dissolution

Laws vary slightly among states, but in most cases, one way to give notice is by sending a letter directly to known creditors (those you're aware of) after dissolving your LLC. Generally, the written notice should:

• describe the information that must be included in a claim (such as the amount owed and the reason for the debt)
• provide a mailing address where a claim can be sent
• give a deadline for bringing the claim (generally, there's a minimum length of time for this deadline, as discussed below), and
• declare that the claim will be barred (or isn't valid) if it's not received by the deadline.

Most states require you to give known creditors a minimum length of time to submit their claims. Typically, the clock starts ticking once you send notice to the known creditors of your LLC's dissolution. The most common deadlines are:

• 90 days
• 120 days
• four months
• six months, and
• two years.

You should look at your state's LLC laws to determine your state's rules for notifying known creditors.

Giving Notice to Unknown Creditors of Your LLC's Dissolution

In some states, you're required to give notice to unknown creditors (those you're not aware that you owe money to), usually by publishing a notice of your LLC's dissolution in a local newspaper. As with sending direct notice to known creditors, states can have specific rules for giving notice through publication. For instance, a state might specify what information you should include in the notice or when and where you should publish the notice.

Many states specify a window of time when unknown creditors can submit their claims—as is usually the case with known creditors. After that window passes, unknown creditors can no longer submit valid claims against your LLC. The window is usually longer for unknown creditors than for known creditors and is typically between one and five years.

Some states don't give specific directions on when and how to notify creditors. In such cases, you should still notify creditors and give them a reasonable time to submit their claims.

Statute of limitations. Generally, if a claim is barred earlier than the above deadlines by a statute of limitations, then creditors will only have as long as the relevant statute of limitations allows. For example, suppose a creditor has a claim for rent that your LLC owes. The statute of limitations laws in your state says that a creditor has two years to submit a claim for unpaid rent. But the notice you provide that creditor gives them three years. Even though your notice gives them extra time, their claim for unpaid rent will be barred after two years.

Providing notice before filing for dissolution. It's important to check your state's laws for notice at the start of the dissolution process. Some states require you to notify your creditors before you file for dissolution.

5. Settle Debts and Distribute Remaining Assets

Once you've filed your dissolution paperwork and notified creditors, you should start settling debts and distributing any remaining assets. Take an account of your company's assets. Sell any real and personal property belonging to the business, including:

• buildings
• land
• vehicles
• equipment, and
• inventory.

Once you've sold (or "liquidated") the company assets, you can have a good idea of what money you have available to pay your debts. If you're able to satisfy all of your debts and there's money left over, you can take what's left and divide that amount among the LLC's members.

Prioritize and Settle Your Business Debts

Almost all states require that you first pay creditors before you distribute your assets to anyone else. If you have more debts than assets, you'll need to prioritize your business debts and try to negotiate settlements with your creditors. Pay any debts that you might be personally liable for first. A benefit of forming an LLC is that you have limited personal liability for business debts and obligations. But there are some business debts that you might be personally liable for.

You might be personally liable for debts if:

• you personally guaranteed or co-signed on a loan
• you pledged your personal property as collateral for a business loan, or
• the corporate veil is pierced—usually when you've done some wrongdoing (like committed fraud) or the line between you and your LLC's existence is blurred (such as by comingling funds).

If you have any secured debt, you can either return the secured property or sell it and pay off the remaining balance on your business loan. If your secured property is worth more than the money you owe on the property's loan, you should sell it.

State Laws on Distributing Your LLC's Assets

Perhaps where state LLC dissolution laws differ the most is in how assets are distributed. Almost all states require a specific order for how assets are distributed. And some states allow terms in your operating agreement to alter the order set out in state law—to a certain extent. You should review your state's LLC laws or talk to an attorney about whether you should follow your operating agreement or state law.

Most states require that you first pay creditors, including any LLC members who are creditors. It's particularly important that you pay all taxes owed. Owing taxes can prevent you from dissolving your LLC. After paying creditors, your distribution order will depend on your state's laws or your operating agreement.

6. Close All Accounts and Cancel Licenses and Permits

Once you've paid your debts and distributed any money that's left over, your business bank accounts should have a balance of zero. Now's the time to close your bank accounts.

If you have any business licenses or permits, you should cancel them as well. For example, if your state requires a general business license, you should cancel it.

7. Cancel Registrations in Other States

Finally, if your LLC has qualified (registered) to do business in other states, you'll also need to file a form to withdraw your right to transact business in that state. This form might be called an "application of withdrawal," "certificate of termination of existence," "termination of registration," or "certificate of surrender of right to transact business."

If you don't file these additional termination forms, you'll continue to be liable for paying annual report fees and minimum business taxes to those states, even if you cease all operations.

Consulting a Small Business Lawyer

Many LLCs are small, and some owners find that they can dissolve their LLCs on their own. But if you have a larger LLC with employees or a range of assets and liabilities to liquidate and pay off, consider talking to an attorney with experience dissolving LLCs.

The procedure to dissolve an LLC is specific to your state and an experienced lawyer can help you navigate these requirements to help limit your liability. They can also file the appropriate dissolution paperwork, help you notify creditors, and negotiate debt settlements.

FAQ: Dissolving an LLC

You can find answers to many frequently asked questions about dissolving an LLC.

What is the difference between dissolving and winding up an LLC?

You "dissolve" your LLC by voting to end your company and filing the dissolution paperwork with your state. You "wind up" your LLC by wrapping up your company's business obligations and operations. The winding-up process includes:

• notifying creditors
• filing final tax returns
• selling assets
• paying off debts
• ending active business contracts
• closing bank accounts, and
• canceling licenses, permits, and registrations.

What is the difference between terminating and dissolving an LLC?

"Dissolving" an LLC refers to the process of voting to end your LLC and filing the dissolution paperwork with your state. "Terminating" an LLC can have different meanings.

Sometimes "terminating" an LLC is used interchangeably with "dissolving" an LLC and is meant to refer to the same process. In some states, you'll file articles of termination rather than articles of dissolution to legally end your business with the state. Other times, "terminated" refers to when an LLC is completely dissolved and winded up and the business has ended its operations.

How much does it cost to dissolve an LLC?

The filing fee varies by state. Usually, the fee ranges between $25 and $100. Some states have no filing fee. There might be other costs related to dissolving your LLC, such as the fee to obtain a tax clearance certificate, a publication fee, or attorneys' fees.

Can you dissolve an LLC online?

Most states allow you to file for dissolution online. You can check your secretary of state's website for more information on how to file your LLC dissolution.

How long does it take to dissolve an LLC?

The time it takes to dissolve an LLC depends on many factors. The dissolution process of voting to end the LLC and filing the paperwork can take as little as a day. The winding-up process usually takes longer, especially if you have to go through the process of selling off company assets or negotiating with creditors. The process could take weeks or months.

Do I need to dissolve my LLC? What happens if I don't file the dissolution documents?

Yes, you need to dissolve your LLC. Failing to dissolve your LLC can leave you open to liability. If your LLC still exists with the state, you'll be responsible for filing annual reports and taxes. Missing these filings can result in fines, and your LLC will be involuntarily dissolved (usually by a court).

Can one member dissolve an LLC?

An LLC is usually dissolved by a vote of a majority of the members. Your articles of organization or operating agreement might tell you how many members are required to vote in favor of dissolution. For instance, your LLC operating agreement might say that a majority vote by the members is required to dissolve the LLC. In that case, if you have three members, then two will need to vote to dissolve.

If your articles of organization and operating agreement don't specify any requirements or procedures, then you should follow your state's laws. Check your state's laws on LLCs to find out whether one member can dissolve an LLC.

What happens to my EIN when my LLC is dissolved?

Your EIN will remain active and assigned to your business. The IRS doesn't cancel or reassign EINs even if a company no longer has any use for its EIN. Instead, after dissolving your LLC, you should cancel your business account with the IRS by sending the IRS a letter with the following information:

• the legal name of your LLC
• your EIN
• your business address, and
• the reason you want to close your account.

Can someone sue my LLC after it's dissolved?

Yes, as long as their claim is still within the statute of limitations. The statute of limitations for a claim is the amount of time a person has to file their claim before their claim is no longer legally valid or enforceable. For example, your state law might say that a person has three years from the date that you dissolve your LLC to file a claim. If they file after three years, then their claim will be dismissed.

States have different statutes of limitations and laws for how long someone has to file a claim against your business, even after it's dissolved. You should check your state's laws for more information.

Can you reinstate a dissolved LLC?

The answer depends on your state's laws. Some states allow you to reinstate your LLC only if it was administratively or involuntarily dissolved. Your LLC is administratively or involuntarily dissolved (usually by a court) when you don't follow state requirements, such as filing annual reports or paying taxes.

Usually, you have to resolve whatever caused your involuntary dissolution before your LLC can be reinstated. For example, if your LLC was dissolved by a court because you didn't file an annual report for the last two years, you'll need to first file those reports and pay the filing fees before your LLC can be reinstated.

Some states allow you to reinstate your LLC if you voluntarily dissolved it. After a voluntary dissolution, you might want to reinstate your LLC rather than file for a new one if you want to take back your existing business name.