Ending an LLC: Everything You Need to Know
To close an LLC you have to notify the agencies, along with your partners, creditors, and customers, that you are dissolving it.3 min read
2. Close the Business As Required By Your Business Articles
3. File With the State
4. Notify the IRS and State and Local Tax Agencies
Ending an LLC is not as simple as shutting your doors to consumers. You have to notify the agencies, along with your partners, creditors, and customers, that you are dissolving it. General speaking, to close an LLC, you must:
- Get approval from the LLC members if it's a partnership.
- Notify the state and federal agencies.
- Pay back taxes if you have any.
- Pay your final taxes.
- Notify your creditors and settle outstanding debt.
- Liquidate and distribute the assets.
Necessary Steps to Dissolve Your Company
No matter the reason you are closing your business, you must legally tie up loose ends. Closing your business is not as simple as clearing the premises and shutting the door for the last time. There are financial, regulatory, and company-related business activities that come with closing your business.
There are serious regulatory consequences if you do not properly close your business. You can face costly fees and penalties for an improper business shutdown.
Close the Business As Required By Your Business Articles
Firstly, get LLC members' consent to close the business. Follow the procedures you outlined in your business articles. If you do not have a defined process for closing your business, use your state's business statutes to guide you.
If you are a sole proprietor, you do not need anyone else's permission to close your business. Additionally, if you have a partnership and do not have a written agreement, let your partner know you want to dissolve the partnership. It is best to communicate it in writing. If you have a formal partnership agreement, you must follow the process outlined in the agreement. Usually, you need a majority vote to dissolve the business.
File With the State
If you are a sole proprietor, you do not have to file any notice with the state. However, you must resolve all matters with your creditors, suppliers, employees, and customers.
Limited or general partnerships that file with the state when they started their business must file dissolution papers with the state to close their business. Even if the state does not require partnerships to file dissolution papers, it is a good idea to do so anyway. This way, your creditors know that your business is no longer operating and, therefore, cannot incur any more debt. Plus, since you share liability for business debt with your partner, your state filing will keep your partner from incurring more debt on the business's behalf.
Once you vote to close your LLC, you must file the proper paperwork with the state so they know you're dissolving the business. You must file a certificate of dissolution (also known as articles of dissolution). The state you file in will determine whether you file the certificate first or notify your creditors before you file.
Include a cover letter with your articles of dissolution form with the following information:
- Your business name.
- Your LLC or corporation number.
- Your name, return address, and telephone number.
As a precaution, send the form via certified mail with a return receipt request. If there is a fee for filing in your state, include payment with the form. You must file paperwork with every state you registered your business.
You must resolve a creditor's claim in one of three ways:
- Pay the debt in full.
- Offer a compromise.
- Include it as part of a bankruptcy.
If your state does not let you close your business if you owe back taxes, then you will need to get a tax clearance from your state's tax agency. Learn more about filing with the state from either your online incorporator, registered agent, or your Secretary of State's office.
Notify the IRS and State and Local Tax Agencies
You must pay taxes for the prior and current year. Continue payroll deductions and payroll reporting for your employees. Make sure you file your taxes, as well as your capital gains and liquidations forms. Lastly, file all final tax forms for the business, like income tax, sales tax collected, and payroll taxes.
Don't risk costly repercussions for not tying up all your LLC's loose ends. If you decide to dissolve your company, meet with an attorney first.
If you need help with ending an LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.