Sometimes in a business owner’s life, there comes a point when it’s time to dissolve your LLC. This decision does not come lightly and is often made at the end of a long, arduous journey of exhausting all other options. Even if your journey as a business owner is coming to an end, take a moment to reflect upon the good times and the successes, and give yourself credit for your hard work and perseverance, and then start working your way through the process of dissolving your business entity.
As in all things business, educating yourself on the steps toward your end goal is a good place to start. Here are more details on how to dissolve an LLC.
When Should You Dissolve an LLC?
There are a number of reasons to dissolve an LLC. A few of the most common circumstances:
The business is closing: If you are retiring, going out of business or closing your business, you may also choose to dissolve the LLC behind it.
The business was intended to be temporary: If the LLC was formed for a specific, temporary purpose and was not intended to be an ongoing business operation, and that business purpose has been completed, it makes sense to dissolve the LLC as well.
Disagreement between members: If you are operating your LLC with business partners and you are having unresolvable disagreements or conflicts about how to run the business, dissolving the LLC could be the only available solution.
Dissolving an LLC doesn’t always mean that a business has “failed;” sometimes dissolving a business is just the next necessary step in the business owner’s journey. Not every business lasts forever. Each business is unique, and the reasons behind dissolving an LLC can be similarly distinctive. The important thing to realize is that dissolving your LLC is a legal action with lasting consequences, so be sure you are absolutely certain about dissolving your LLC before you begin the process.
How to Dissolve Your LLC: The Process
Dissolving your LLC means that you will remove its legal status as an independent business entity. In order to dissolve your LLC, follow these five steps:
Decide to dissolve your LLC. Depending on the number of stakeholders, this could require a majority vote. If you are a sole proprietorship LLC, this decision will be left up to you. The decision to dissolve the LLC should be formally recorded and signed by all owners.
File Articles of Dissolution with the state in which you filed Articles of Incorporation.
File with the Secretary of State
If Articles of Dissolution are not filed with the state, you may continue to be liable for taxes and fees
Notify the IRS. Pay all federal and state taxes due in order to receive “consent to dissolution” from the IRS. Settling with the IRS should ease the process by getting tax clearance from the state.
Notify customers, clients, and creditors that you are going out of business.
Close all financial accounts and credit lines associated with your LLC and advise creditors that the LLC has been dissolved; pay off all debts to creditors.
The legal portion of dissolving your LLC can look daunting, particularly if you are not familiar with the legal language involved. Fortunately, Incfile has you covered and can handle the paperwork for you. Once you’ve made the decision to dissolve your LLC, navigate to Incfile's LLC dissolution services and let us take it from there. You will still need to contact the IRS and your creditors, but Incfile offers this convenient service to save you the time and the hassle of completing the paperwork on your own.
State-Specific Regulations for the Dissolution of an LLC
Details and costs of dissolving an LLC might be slightly different from state to state, but overall, the steps required to dissolve your LLC remain the same. Keep in mind that the Articles of Dissolution are filed at the state level with the Secretary of State; this must be done regardless of which state you are in. Whether you're in California, Texas, Florida and Delaware, the process is similar, but with some variation.
For example, if you're dissolving an LLC in California, you must do so with both the Secretary of State and the Franchise Tax Board. If you are dissolving a Delaware LLC, you will file a Certificate of Cancelation with the Secretary of State. Check with your specific state for these variances.
One of the reasons that some people look at dissolving an LLC at the state level is due to wanting the LLC to be in a different state. There are a multitude of reasons for this, including state-specific tax benefits, moving the storefront or physical location of the business to a different state or the business owner moving to a new state. If moving your LLC from state to state, there is some debate between whether it is best to dissolve your old LLC and form a new LLC in the new state, or just keep the old LLC and move your LLC to a new state. Keeping an LLC in one state and registering it in the new one can result in annual fees or taxes from the original state, which can be cost prohibitive. Make sure you are researching the state-specific laws that may impact you if you are looking to make a change of this nature.
Frequently Asked Questions About Dissolving an LLC
How Easy Is It to Dissolve an LLC?
Dissolving an LLC is a fairly simple process on paper, assuming your business is not embroiled in a legal or financial situation with creditors, the IRS or others. Completing the necessary legal steps can be quick and easy, particularly if you utilize a service such as Incfile's LLC dissolution services. There will be additional things that need to be done in addition to legally dissolving your LLC that may not be required by the state.
When Should You Dissolve an LLC?
Choosing to dissolve an LLC is a personal decision made by the owners of the LLC. If you’re closing your business, it is likely the right time to dissolve the LLC as well. Not dissolving the LLC when the business closes could leave you open to legal and/or financial troubles in the future.
Can One Person Dissolve an LLC?
Whether or not one person can dissolve an LLC depends on how the business was set up initially. If your LLC is a sole proprietorship, you do not need to consult additional people prior to dissolving your LLC. If you are a partnership or other multi-member setup, one person on their own cannot dissolve the LLC without the support and agreement of the other owners. Signed, written documentation of the choice to dissolve the LLC should be completed by all owners of the LLC.
One important fact to remember when dissolving your LLC is that a failure to dissolve it could result in fees, debts and accrued taxes. It is possible you could be held personally liable for any unpaid business debts, which makes the dissolution of your LLC a critical step in closing your business. Keep in mind that you have support and resources to help you through the process. It can feel complicated, but once you complete the easy-to-follow steps above, dissolving your LLC can get done the right way, helping you move on to the next stage of your life.
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.