What Does Dissolution Mean & How Do I Dissolve My Business?

You might choose to dissolve your business for any number of reasons. Perhaps you have a new business idea and want to make a fresh start with a completely new company. Maybe your business just didn’t work out as you had planned and you want to reduce the burden and overhead of filing paperwork every year. Your business might have just run its course, and it’s time to say goodbye.

Whatever your reason is, it’s important to understand what dissolution is, how to dissolve a corporation, LLC or partnership and the steps you need to take.

What Does Dissolving a Business Mean?

Dissolving your business means removing its status as an independent business entity. While an LLC, corporation or other business entity exists, you must file certain paperwork, pay certain taxes and complete other periodic management tasks.

Once you dissolve your business, you can finalize these areas and reduce your administrative overhead. Typically, dissolving your business will mean:

  • You no longer have to pay state fees.
  • You don’t have to pay minimum taxes.
  • You don’t have to file an annual report.

Dissolving a business means that you cannot continue to run that business as a separate entity — it ceases to exist. If you want to continue running a business, you will need to start a new company.

You should seriously consider if you want to dissolve your business, as once the dissolution has gone through, it is typically irreversible.

What Steps Should I Follow to Dissolve a Business?

There are several steps you need to take if you want to dissolve your LLC or corporation.

Tell Customers and Creditors You Are Going Out of Business

You should inform the people that buy from your business, and the people you owe money to, that you are going to cease trading. Give them your closing date, and let your creditors know when to expect their invoices or other debts to be paid.

In many states, notifying creditors that you are dissolving your business will tell them you’re not able to take on any more business debt and could protect you from lawsuits.

Pay Off Debts to Your Creditors

You have a requirement to pay invoices or other money that you have borrowed. You should settle outstanding debts with your creditors, including setting up payment plans where needed. Typically, you will only dissolve your business once these debts have been paid.

Vote to Dissolve Your Business

Your operating agreement (LLC) or corporate bylaws (corporation) should have guidelines on a formal vote to close your business. Ensure that all stakeholders are represented and take a vote. You should formally record the decision to dissolve the business.

Complete and File the Necessary Forms

You’ll need to get the relevant business dissolution forms from your secretary of state’s corporation division website. These forms may variously be known as:

  • Certificate of Dissolution
  • Certificate of Cancellation
  • Articles of Dissolution

It’s important that you choose the right one for your business entity —  LLC, corporation or partnership. You will need to complete the form with the required information. Send the form to the relevant authority, along with your contact details.

Inform the IRS of Your Dissolution

You should also notify the IRS that you are dissolving your business.

  • Corporations should complete and file Form 966.
  • LLCs should check the final return box on Form 1065.

You will also need to file final employment taxes with the IRS.

Cancel Foreign Qualifications

If you operate across more than one state, perhaps by having employees or a nexus in another state, you will need to make notifications there as well.

Go to the secretary of state’s corporation division website of every state where you have a foreign qualification so you can access, complete and file the necessary forms.

Get Tax Clearance from Your State

Some states ask you to get a tax clearance prior to dissolving your business. This typically means you have settled the business tax affairs and any outstanding taxes and have no tax liability.

Dissolving a Business Can Be Complex

Closing a business isn’t a simple task, and there are certain to be other things you need to do in addition to the steps we’ve listed above. At Incfile, we can help you with all the paperwork.

We have a specialized business dissolution service that will guide you through the process of gathering information and filling in the necessary forms. Let us help you dissolve your business today.

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Paul Maplesden

Paul is a freelance writer, small business owner, and British expat exploring the U.S. When he’s not politely apologizing, he enjoys hats, hockey, Earl Grey Tea, mountains, and dogs.
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