Dissolving an LLC is equally important once you are done running the business. You cannot just leave your business stranded once you have decided not to continue further.
You must follow proper procedures to close your business and dissolve an LLC to shield yourself from future liabilities.
Dissolving an LLC is similar to the formation of an LLC all across the United States. However, some states might have slightly different procedures to dissolve an LLC. Therefore, make sure that you won’t be in the middle of any confusion while dissolving an LLC by reading the complete article.
What is LLC Dissolution?
LLC Dissolution is the process of closing a business legally following legal procedures. There are several reasons why a dissolution takes place usually.
- Voluntary dissolution: When a business owner chooses to dissolve his/her own business.
- Administrative dissolution: When a business owner goes to bankruptcy and fails to pay taxes or file an annual report.
- Judicial dissolution: When a business is ordered to dissolve legally from the court’s order.
Why Dissolve an LLC?
The dissolution of an LLC is essential to inform the Internal Revenue Service that the business is no longer active. Until and unless you do not inform the IRS regarding your business closing, the IRS thinks your business is active and the taxes you were paying before keeps on adding on every year.
So, to prevent from paying taxes, and annual fees and file annual reports annually, it is essential to dissolve an LLC and let IRS know that the business is no longer active.
How to Dissolve an LLC?
Dissolution of an LLC is held by either the secretary of state (SOS) or the corporate secretary in your state. Before filing the paperwork to dissolve an LLC, there are certain things you need to complete first.
- Notify your creditors
- Selling off inventory and equipment
- Settling your debts
After that, you can follow the below steps to dissolve an LLC. However, different states might have slightly different steps and processes.
1. Vote of Dissolution
One of the initial steps for the dissolution of the LLC is to make sure all of the business members agree to close the business by voting. The operating agreement of your LLC might have certain policies for voting on dissolution which shall be followed during the voting.
If not, you can follow the procedure that has been filed by your state’s LLC. Once the voting is completed with a maximum vote to dissolve the LLC, you can record the decision for your LLC’s official records.
2. File your Final Tax Return
Tax clearance is a must before applying to dissolve an LLC. You have to pay all the leftover business taxes and file all tax returns for your final year of the business.
You need to obtain tax clearance and submit the tax clearance request to the state within 60 days of filing your dissolution. Similarly, while filing the final tax return make sure this will be your final business tax return.
Submitting the final tax return at both the state and federal levels with make you eligible to apply for dissolution of your LLC.
3. File an Article of Dissolution
An article of dissolution, certification of dissolution, or certificate of cancellation is a document where you mention to officially dissolve your business. You can fill out the form on your state’s corporation division on the Secretary of State website.
The document usually requires your business details including the business name, LLC number, address, email address, and more. Similarly, according to the different states, the cost of filing the form varies from $20 to $60.
One more thing to consider before filing an article of dissolution is some states won’t allow you to complete the form unless you have completed the final tax payment.
4. Settle Business Debts and distribute remaining assets
Before moving forward you shall notify all your creditors and settle the business debts beforehand. The creditors include individuals or entities such as lenders, insurance carriers, service providers, and others.
Also, you can sell the properties belonging to the business such as land, buildings, vehicles, equipment, etc, and distribute the amount among the LLC’s members.
5. Close all accounts and cancel licenses
After paying all the business debts and distributing the assets to the LLC members, you can now proceed in closing your business accounts such as your business bank accounts.
Similarly, if you have other business licenses or permits, you can also proceed with closing them.
6. Withdraw LLC from other states
Lastly, you shall check whether your LLC is registered in other states. In this case, you have to dissolve your business from all the other states as well. To dissolve your business from other states, you have to fill out an application of withdrawal.
In case you miss out on dissolving your business from other states, you might be liable for paying annual report fees to those states.
Frequently Asked Questions (FAQs)
How long does it take to dissolve an LLC?
Usually, the time frame depends upon the state of your business location. However, with all the processes completed in time and without any issues arising in between the process such as the issues of debts or taxes, the process can be completed in less than two weeks.
How do I dissolve an LLC of multiple states?
If your LLC is active in more than one state, you need to file articles of dissolution in every state you have registered in. If you miss out on dissolving an LLC from other states, you might have to keep paying the annual fees of that state.
Can you dissolve an LLC online?
Most states allow the dissolution of an LLC online. However, you must check beforehand whether your LLC state allows you to dissolve an LLC online or not. For that, you can check your secretary of state’s website.
Do I need to hire a lawyer to dissolve my LLC?
It is not necessary to hire a lawyer to dissolve your LLC. However, if you require guidance and support then, you can get help with an EasyFiling to have a smooth process.
Nabin Adhikari
