How to Cancel an LLC: Everything You Need to Know
To cancel a limited liability company (LLC), there are a series of steps you need to take when you decide to end your LLC.3 min read
To cancel a limited liability company (LLC), there are a series of steps you need to take when you decide to end your LLC. Many business owners fail to take the necessary steps to wrap up their affairs when going out of business. Filing the necessary paperwork with your state and notifying your creditors and other stakeholders can help prevent liability associated with the end of your business.
You must notify the state, the IRS, and the local licensing and taxation authorities that your LLC is no longer in business. Otherwise, you will still be required to pay annual fees and minimum taxes as well as file annual reports. Officially dissolving your LLC puts an end to these requirements and lets your creditors know you can no longer take on new debt. If you don't go through the appropriate channels, you may be subject to fees, fines, and even lawsuits.
Wrapping Up Business Affairs
Business affairs that must be wrapped up before your LLC is canceled may include:
- Ongoing lawsuits
- Allocation of assets
- Outstanding federal and state taxes
- Disseminating or selling business property
- Outstanding loans, contracts, and creditor claims
- Business registrations in other states.
Voting to Terminate an LLC
All LLC members must agree to dissolve the company with a vote. The operating agreement or bylaws of your LLC should outline this process and indicate the approvals needed. When a corporation dissolves, the board of directors should draft a resolution to dissolve and present it to shareholders for approval. These actions should be documented in writing.
If your operating agreement doesn't indicate the procedure for dissolving your LLC, follow the appropriate laws in your state. You should also talk with an attorney or a tax professional to determine the effects of LLC cancellation.
Notifying Creditors of LLC Dissolution
After you have followed the procedures for LLC termination, let your creditors know you're ending your business and notify them of the claims-submission deadline. This date is specified by state law and is typically 90 to 180 days from the notice date. The notice should also state that claims after the deadline will not be honored.
Some states require you to notify creditors before officially dissolving your LLC. This is also considered good business practice, as it limits the possibility you will be subject to late fees or lawsuits over unpaid debts.
Notifying Tax and License Authorities
Get in touch with local and state taxing authorities to ensure your business taxes are paid up to date. You should also cancel your business licenses with the appropriate agencies and resolve any outstanding fees. After all financial obligations are paid, you can distribute remaining funds to LLC members.
Cancel your Employer Identification Number (EIN) with the IRS to alert the agency of the dissolution of your LLC. If your LLC has a registered DBA (doing business as) or fictitious name, cancel that as well.
Filing Dissolution Papers
Dissolution papers are filed with the same agency where you filed your LLC articles or organization, typically the secretary of state. Procedures, fees, and forms vary by state. Some states require you to certify that all state taxes are paid before you can dissolve your LLC.
Settling Creditors' Claims
Your LLC can either accept or reject claims submitted by your creditors. If you accept a claim, you can either:
- Pay in full
- Make repayment arrangements with the creditor.
To reject a claim, you must notify the creditor of the rejection in writing. An attorney can assist you with this process if you are unsure how to proceed.
Distributing Remaining Assets
Once your creditors' claims have been settled, any assets that remain can be distributed to the LLC members. This must be done in proportion to their ownership shares. These distributions must be reported on the members' tax returns.
Make sure to file dissolution papers in every state where your LLC is registered to do business. You'll also need to file final income tax returns for your LLC and final employment tax returns if applicable. Check the IRS website for a list of tax-related actions you need to take to close a business.
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