How To Dissolve Your LLC The Right Way

how to dissolve llc correctly limited liability company dissolution

Being an entrepreneur or a new business owner, you must have been excited to form your LLC back in the day - and quite understandably so. You must have gone through each step of the LLC formation process the right way. 

However, when it comes to ending or dissolving an LLC, it is part of human nature to not have the same level of excitement which might lead to not wrapping up the business following the right procedure. 

In this guide, we will discuss the steps that you need to take to dissolve your LLC. 

Why Is It Important To Dissolve An LLC? 

If you do not formally dissolve an LLC, you might end up facing new liabilities, lawsuits or various government fees. 

When you formed your LLC, you must have submitted various documents with the Secretary of State, IRS (Internal Revenue Service) and other regulatory authorities. Through your LLC’s filing documents, those institutions got to know that your business is active. Unless you officially dissolve your LLC, your business will still be active to them. 

Members Vote For LLC Dissolution
Once you have made the decision, the first step is to get the vote of all LLC’s members for its dissolution. If your LLC’s operating agreement mentions the process about the company’s dissolution, you have to follow that. 

If it doesn’t, the relevant state’s LLC dissolution laws will have to be followed. Once you have the vote from all the members of the LLC, add to your LLC’s records in a written document. 

Notify Creditors, Tax Authorities And Licensing Agencies 

Before you officially submit any dissolution form, it is advised that you let your creditors know about your LLC’s closure. You will need to provide guidelines on how they can file their claims and a deadline within which they would have to do that (usually it’s between 90-180 days). 

Also, it is recommended that you notify local tax authorities about your LLC closure and they will let you know if you have any outstanding taxes to be paid to the state. In some states, you are not allowed to officially dissolve your LLC if you haven’t obtained a certificate of tax clearance (or good standing) with your relevant tax agency. 

You also need to inform licensing agencies about your decision in order to settle down any outstanding fees. 

Submit The Dissolution Form 

To dissolve your LLC, you will have to file a dissolution form or the articles of dissolution with your state - somewhat similar to when you submitted articles of organization at the time of your LLC formation. 

These dissolution documents officially separate each LLC member from the business entity. You can find the relevant dissolution form at your state’s secretary of state website. It might be referred to as a dissolution form, certificate of dissolution or articles of dissolution (varies from one state to another). 

This form usually inquires about the LLC’s identity and ownership, however, some states might inquire about any existing members’ liabilities and asset distribution. You can submit this form online or via mail at the address provided on the secretary of state’s website. 

File Out-Of-State Dissolution Form (If Applicable) 

If your LLC is registered to carry out business transactions in any other US state, you need to submit a form to cancel the registration. This form, usually referred to as termination of registration or application of withdrawal, serves as a legal notice to the authorities in another state about your LLC’s closure over there. 

If you do not submit this form, you might still have to pay annual report fees or taxes in that state. 

Final Steps To Wrap Up Your Business 

Once you have completed the above steps, you need to ensure all your LLC’s internal or external stakeholders are informed about the closure of your business. All your creditors and debtors should be aware of your decision to dissolve the LLC and that you intend to settle all outstanding claims or file a bankruptcy. 

All existing company’s assets and/or inventory should be properly liquidated among the members of the LLC, or as specified in the operating agreement. In case your operating agreement does not mention asset distribution or liquidation in case of LLC dissolution, it will be done as per state’s statutes. 

Lastly, make sure your existing or potential customers are aware of your business closure. Keeping them guessing will give a bad image to your brand name, and it will have a negative impact on any other business that you might be doing elsewhere or if you ever decide to re-enter the same line of business.

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