LLC Dissolution: Everything You Need to Know
LLC dissolution is the legal process of formally ending a limited liability corporation (LLC).3 min read
Why Should You Dissolve an LLC?
LLC dissolution is the legal process of formally ending a limited liability corporation (LLC). If you're going out of business, it's important to file the correct state paperwork and notify your creditors. Taking these steps will reduce your potential liability, giving you a clean slate to move on with your career. If you don't properly notify state and local authorities and the IRS that your LLC is no longer doing business, you'll still be responsible for annual reports, fees, and minimum taxes. Formally dissolving the LLC also notifies your creditors that you can no longer accept new debt. Completing the formal dissolution reduces the chances that you'll be used for an unpaid debt or be fined by a government agency.
Voting to Close an LLC
All members of the LLC must agree to dissolve the company with a vote. This should follow either the procedure in your LLC's operating agreement or the procedure outlined by the laws of your state. After the vote is complete, the approval of the dissolution should be recorded in writing via an official resolution that will be filed with your LLC's legal records. Your operating agreement and/or bylaws should outline any other official dissolution procedures. Sole-member LLCs should abide by the state's dissolution bylaws.
Notifying Creditors of Your LLC Dissolution
After the dissolution has been approved, you'll need to let your creditors know that the business is closing and establish a process and deadline for submission of final claims. This deadline should be between 90 and 180 days from notification depending on state laws. Indicate that claims received after the deadline will not be accepted. Note the mailing address where claims should be sent and the information that should be included. In some states, you'll also need to post this notice in the newspaper. Other states allow claims from additional creditors after dissolution.
In some states, you must first notify creditors, then file legal papers for dissolution. Although doing so is not legally required in every state, this is good business practice that helps you wrap up any financial obligations and avoid future late fees or lawsuits for unpaid bills.
Claims can be accepted or rejected based on their validity. Accepted claims should either be paid or subject to agreed-upon repayment terms. If you are rejecting a claim, you'll need to notify the creditor in question in writing. An attorney can guide you on the state laws for this process.
Notifying Taxing and Licensing Authorities
The IRS has a checklist of the tax actions you are required to take when closing a business.
- Contact state and local tax agencies to let them know you are closing and make arrangement to pay any outstanding tax debt.
- Cancel your business licenses with the pertinent agencies and pay any remaining due fees. If you plan to create another business entity, inquire whether your business licenses are transferrable.
- After financial obligations are covered, remaining LLC assets should be distributed to its members.
- You'll also need to file the business's final income tax return and employment tax returns if applicable.
Filing Dissolution Papers
Articles of dissolution or a related document must be filed with the same state agency through which you originally formed your LLC, typically the office of the secretary of state. Some states require you to receive official certification from the taxation agency stating that your business is current on all state taxes and file this document with your dissolution papers. States also vary on whether you should file for official dissolution before or after you notify your creditors.
Additional Steps in the Dissolution of the LLC
You'll need to follow the official dissolution process in every state where your LLC is registered to conduct business. Cancel your business's fictitious name, or DBA, and employee identification number through the IRS.
Distribution of Remaining Assets
If you and your partner each own 50 percent of the business, you each receive 50 percent of remaining assets after outstanding obligations are paid. Report any distributions to the IRS. For LLCs that have multiple stock classes, follow the corporate bylaws when distributing assets to shareholders.
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