How to Close a LLC: Everything You Need to Know
Closing an LLC requires following several steps. Failure to complete the tasks could result in the owners being held responsible for any taxes and unpaid debts.3 min read
How to Close an LLC
Knowing how to close an LLC requires following several steps. When you make the decision to close your business, you might feel some stress. The instinct for some business owners is to walk away and be done, but you must follow certain steps to end the status as an LLC and legally close down the business. Following these steps to perform an official dissolution of an LLC is important. Failure to complete the necessary tasks could result in the members being held personally responsible for any taxes and unpaid debts of the LLC.
Some states require LLCs to pay a fee each year. Without properly dissolving the LLC, your business will continue to be charged that fee, if applicable. The LLC could also be held responsible for failing to file tax returns, which can be a requirement of all LLCs operating in certain states. Any property owned in the LLC's name wouldn't be transferred back to the members unless the LLC is properly dissolved. This valuable asset is important to have transferred back to your ownership, so it's one critical reason to follow the steps to dissolve an LLC.
Any permits held in the LLC's name should also be closed out. During the formal process of LLC dissolution, the members will also give up the registered name. Leaving permits or business names in an active status could result in someone else using them. Because you likely won't be monitoring the business-related activity after closing your LLC, you could end up in legal trouble.
Agree to Dissolve
The first step you need to take in closing an LLC is formally making the decision to end business operations. All members of the LLC should meet and vote to serve as an official decision for dissolution. The state in which your business operates will outline the requirements for the LLC member vote.
Some of the requirements include:
- Unanimous agreement in writing
- Two-thirds vote to dissolve
- A majority vote to dissolve
Check the rules in your state to make sure you follow proper protocol to start the dissolution process. Your LLC's operating agreement could also include procedures for closing the business, so review that document.
Make It Official
The next step is checking the secretary of state's website to find the necessary form to indicate the dissolution of an LLC. Fill out the form and file it per the provided instructions with the secretary of state's office. By filing this form, your LLC's name will be officially closed.
After the LLC members have decided to close the company, the third step is notifying all creditors of the decision to dissolve the business. This step allows creditors to take any legal action during the specified timeframe, which is typically between three and five years. States maintain their own requirements for providing official notice, so check these requirements before you take this step. You may be required to give a certain amount of time and/or post the notice in the local newspaper.
Wrap Up the Finances
The members of the LLC are also responsible for paying any outstanding bills owed by the company. In addition, this step includes planning ahead for any potential financial obligations. Your business could have outstanding bills or obligations of which you're not aware, but you would need to set aside money to pay these amounts in the months during and following the dissolution process. All debts must be paid off before any company assets can be distributed to the LLC members.
The members become personally liable to business creditors, so following this step is critical. All creditors must be paid before a member can take any type of asset. During this process, make sure all accounts are paid off and closed, including vendor and utility accounts. You should also inform your customers that the business will be closing and inform them of any outstanding payments that are due, as well as a deadline for paying them.
If your LLC has employees, you will need to inform them of the date of closing. The employees must receive payment through their last day of work. Your state may also require payment for unused vacation time.
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