Key Takeaways:

  • Closing an LLC requires following legal procedures to avoid ongoing liabilities, penalties, and fees.
  • Proper dissolution includes filing Articles of Dissolution, settling debts, canceling permits, and notifying authorities.
  • If an LLC is not closed correctly, members may still be liable for taxes, fees, or lawsuits.
  • Involuntary dissolution can occur if an LLC fails to meet state compliance requirements.
  • There are additional considerations such as handling remaining assets, notifying creditors, and obtaining tax clearance.
  • Certain states allow LLC conversion to corporations without dissolution.
  • Legal and financial guidance from an attorney can help avoid complications during LLC dissolution.

How to close an LLC?

To close an LLC, the members need to surrender the authority of the company to do business. They can do this by sending a complete Articles of Dissolution to the secretary of state. However, filing these dissolution papers is one part of closing a limited liability company. The LLC is registered with the state where the articles of organization were filed. Dissolution resolution, Articles of dissolution, and IRS form 966 are required to cancel a LLC. Read our step by step process below and get help from an UpCounsel lawyer once you are ready.

What could happen if you don't properly dissolve your LLC?

  • If you don't dissolve a limited liability company properly, you could face personal liability for the following:
    • Unpaid taxes
    • Unpaid debts
    • Lawsuits
  • In many states, limited liability companies are required to pay a fee. If you don't dissolve the company properly, you could be required to pay this fee every year. Other states only charge a fee if the limited liability company is open and doesn't file a tax return. Therefore, if you don't close the LLC properly and don't file a tax return, you could face a fee.
  • If you own property in the name of the limited liability company, you will not receive the property back until the limited liability company is dissolved properly.
  • It is essential that you complete a formal LLC dissolution to give up the company name and to close the permits. That way, no one will be able to use the company name or permits. If you leave the limited liability company active and neglect to monitor it, someone else could use the LLC and put you in legal trouble.

Common Mistakes to Avoid When Closing an LLC

Failing to dissolve your LLC correctly can result in financial and legal consequences. Here are some common mistakes business owners make during the dissolution process:

  • Not Consulting the Operating Agreement – Many LLCs have specific dissolution procedures outlined in their operating agreement.
  • Neglecting to File Dissolution Documents – Without filing the Articles of Dissolution, the state may still recognize the LLC as active.
  • Ignoring Outstanding Taxes and Fees – Even if your business stops operating, unpaid taxes can lead to penalties or even personal liability.
  • Failing to Notify Creditors and Clients – Creditors have the right to file claims against the LLC, and clients should be informed of service terminations.
  • Not Closing Business Accounts and Licenses – Keeping these active can expose members to financial risks.

Voluntary LLC Dissolution

For Voluntary Dissolution of a LLC, Articles of Dissolution or Cancellation with the state agency that helps form the LLC needs to be filed. All-State Taxes and Fees are required to be settled at the time of filing of the article of dissolution is required by most state agencies.

Tax Considerations When Dissolving an LLC

Before officially closing an LLC, members must settle all tax obligations:

  • Final Federal Tax Filings – File IRS Form 966 if required and mark the final tax return accordingly.
  • State and Local Tax Clearance – Some states require tax clearance before approving dissolution.
  • Employment Taxes – If your LLC had employees, ensure final payroll taxes and W-2s are filed.
  • Sales Tax and Franchise Fees – Any remaining obligations must be paid to avoid future penalties. Consult a tax professional to ensure compliance with all necessary tax requirements.

Involuntary LLC Dissolution

In some states, being idle will cause the state to coerce involuntary dissolution of the LLC for not adhering to the state's requirements which need to be filed yearly. Abandonment is the process in which a state cancels or dissolves a charter that has failed to maintain to upkeep the state's filing requirements.

Reinstating an LLC After Involuntary Dissolution

If an LLC was dissolved involuntarily due to noncompliance, it may be possible to reinstate it:

  1. Determine the Cause of Dissolution – Check state regulations to understand why the LLC was dissolved.
  2. File for Reinstatement – Many states allow LLCs to file reinstatement paperwork within a certain timeframe.
  3. Settle Outstanding Obligations – Pay back taxes, fees, and any required penalties.
  4. Update Compliance Filings – Ensure the LLC meets annual reporting and other state requirements.
  5. Receive a Certificate of Good Standing – If reinstatement is approved, the LLC can legally resume business operations.

Steps to Cancelling an LLC

If your reason for dissolving the LLC is to form a corporation, check the state rules to transfer. Some states allow LLC to be converted to corporations without having to go through the process of LLC dissolution and corporate formation. The following is the typical dissolution process:

Step 1: Vote to dissolve your LLC

If you have a board of directors for your Limited Liability Company, the Articles of Organization usually require a vote by the board to dissolve the LLC. if the LLC does not have a board of directors, the principal members named in the Articles of Organization may hold a vote or follow the rules outlined in the LLC's bylaws to begin dissolution.

Some LLCs require votes representing the bulk of shares, and some necessitate unanimous consent, depending on state law and the requirements of any operating agreement that might be in effect. Before dissolving a LLC, get tax and legal advice. One of the first things you need to check on is your Buy-Sell Agreement which sets out the rules for Limited Liability Companies when they dissolve or when an LLC member chooses to move on. Buy-Sell might have pertinent information for this process but if it doesn't you might consider making one before dissolving in earnest.

Step 2: Filing federal, state, and local tax forms (e.g. IRS Form 966)

Draw up a written resolution stating the purpose to dissolve the LLC, have every member who voted for the dissolution sign and date it, and dispenses a copy to every member, because this might become significant if the validity of the dissolution is tested later. The procedure for filing the Certificate of Dissolution (also called Articles of Dissolution) differs by state.

Some states need filing documents before informing creditors and resolving claims; others need filing after that process. Certain states need tax clearance for the business before the Certificate of Dissolution may be filed. In these cases, any back-taxes due by the company or LLC has to first be paid. Contact your registered agent, online incorporator, or Secretary of State's office to learn more. File Form 966 with the IRS within 30 days of the date of the dissolution resolution, so that the Limited Liability Company won’t be subject to federal tax filing obligations.

Step 3: Cancel all LLC licenses and permits

Contact the government agencies that issued the permits and licenses for the LLC, and inquire how to cancel said licenses and permits. In some cases, entering into another business structure or LLC, you may be able to transfer an LLC's licenses and permits to that business entity.

Satisfy creditors and the tax authorities. Each known LLC debts need to be paid before any LLC assets can be dispersed to members. Get a tax certificate from the state government, founding that the business is current on its tax reporting duties if this is required by the state.

Contact the IRS to cancel the LLC’s Employer Identification Number. Technically speaking, the IRS does not actually cancel an Employer Identification Number; it refers to EIN cancellation as "account closure." Cancel or withdraw the LLC’s fictitious name or DBA with the state or local government agency that issued it. Ending operations does not end tax reporting obligations.

Step 4: Notifying creditors your company is ending

All the company's creditors must be noticed by mail, and explain that the company has been dissolved or has filed the statement of intent to dissolve. Your state might allow for claims from creditors that aren’t known to the business at the time of dissolution. Communicate the dissolution in:

  • Public notice in the local paper about the dissolution may be required is mandated by the state.
  • Mail clients a letter to inform them the LLC is dissolving.
  • Mail creditors of intent to pay the full balance owed by the LLC, a settlement offer, or intention to file bankruptcy.

Step 5: Settling claims from creditors

Creditor claims can be acknowledged or rejected by a liquidated business. Accepted claims have to be paid or satisfactory arrangements made with creditors for repayment.

Rejected claims should be advised of in writing.

Consult with an attorney to assist proper notice of all creditors affected by the impending dissolution. Creditors are subject to a deadline for filing claims that varies according to state law.

Step 6: Distribution of assets remaining

After paying claims, outstanding assets can be dispersed to business owners in proportion to the share of ownership. Dispersals have to be reported to the Internal Revenue Service. If your corporation has numerous stock classes, corporate bylaws characteristically outline the procedure for dispensing assets to these shareholders.

For details on distribution and your ongoing contingent liabilities, contact an accountant or tax adviser. Follow state law in addition to the Limited Liability Company's bylaws and equitably distribute any LLC assets to all members.

Step 7: Final Filing of Articles

File Articles of Dissolution, or your state's equivalent, with the Secretary of State of the state in that the Limited Liability Company was formed meaning you’ll need to give the name of the LLC, the active date of dissolution, and the motive for dissolution. Many states offer an online form on the Secretary of State's website. You will have to pay a small filing fee. There is a small filing fee to file Articles of Dissolution. File the LLC’s final tax return with the IRS and state tax authorities. File the articles and other paperwork with the Secretary of State or corporations division of your state.

How to Handle Remaining LLC Assets

Once debts are paid, remaining assets must be distributed according to the LLC’s operating agreement:

  • Liquidating Business Assets – Sell off inventory, equipment, and property, and distribute proceeds.
  • Dividing Financial Holdings – Bank accounts and investments should be closed, with funds divided among members.
  • Handling Intellectual Property – If the LLC owns trademarks, patents, or copyrights, these should be transferred or sold.
  • Recording Distributions – Keep detailed records for tax and legal purposes.

Who to Notify After Dissolving your LLC

After formally dissolving an LLC, you must notify those that may have an interest in the entity’s activities (i.e. bank, clients). The Secretary of State in the state jurisdiction where the business is maintained is the proper point of contact for the official notice.

Closing Business Accounts and Contracts

To fully wrap up LLC operations, ensure all business accounts and contracts are properly closed:

  • Bank Accounts – Close business checking, savings, and credit accounts.
  • Lease Agreements – Notify landlords and terminate lease agreements if applicable.
  • Utility and Service Providers – Cancel internet, phone, insurance, and other service contracts.
  • Vendor and Supplier Agreements – Notify vendors and settle any outstanding balances.
  • Business Insurance Policies – Cancel business insurance coverage once the LLC is officially closed.

Frequently Asked Questions

  1. How long does it take to dissolve an LLC?
    The timeline varies by state but typically takes a few weeks to a few months, depending on processing times and whether tax clearance is required.
  2. Can I reopen a dissolved LLC?
    Yes, in many states, an LLC can be reinstated if dissolution was involuntary due to noncompliance. The business must file reinstatement paperwork and settle outstanding obligations.
  3. Do I need a lawyer to close my LLC?
    While not required, consulting an attorney can help ensure compliance with legal and tax obligations, especially for complex LLC structures.
  4. What happens to LLC debts after dissolution?
    The LLC must settle all debts before dissolution. If debts remain unpaid, creditors may pursue claims against members depending on state laws and the LLC’s liability protections.
  5. Can I dissolve my LLC if I still have contracts with clients?
    Yes, but you should notify clients, fulfill contractual obligations, or negotiate contract terminations before officially closing the business.

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