Closing your Illinois limited liability company (LLC) will involve a variety of tasks. Among the most important are what is known as dissolving and winding up the business.
Dissolving Your LLC
Your LLC is registered with the State of Illinois. Officially ending its existence as a state-registered business entity, and putting it beyond the reach of creditors and other claimants, begins with a formal process called dissolution. While an LLC may be involuntarily dissolved through a court decree, or for administrative reasons such as failing to file annual reports or pay fees, this article covers voluntary dissolution by the LLC members.
In order to voluntarily dissolve your LLC, look to your operating agreement. It should contain a section with rules for how to dissolve the company. Typically the rules will require a vote of the LLC members on a resolution to dissolve, and more specifically a requirement that some percentage of members vote in favor of the resolution. Make sure you follow any specific procedural requirements that may be part of the dissolution rules, such as setting a specific time to meet and vote and giving advance notice to all members regarding the meeting.
Unlike most other states, Illinois’s LLC Act does not explicitly allow for an alternative method to voluntarily dissolve an LLC independent of provisions in your operating agreement. Therefore, if your operating agreement does not provide for dissolution, you should seek the assistance of a local business attorney.
Following dissolution, your LLC continues to exist only for the purpose of taking care of certain final matters that, collectively, are known as winding up the company. You may find it useful to designate one or more LLC members or managers to handle the winding up.
Under Illinois’s LLC Act, key winding up tasks include:
- preserving the LLC’s business or property as a going concern for a reasonable time
- prosecuting and defending lawsuits and other proceedings
- settling disputes by mediation or arbitration
- settling and closing the LLC’s business
- disposing of and transferring the LLC’s property
- discharging the LLC’s liabilities; and
- distributing to the members any remaining LLC assets.
When it comes to the last two listed items, discharging liabilities and making distributions to members, you are required to make payments in a particular order. First, you must pay creditors, including LLC members who are creditors. Note that it is particularly important that you pay all outstanding taxes. Then each member is entitled to (a) a return of all contributions which have not previously been returned, and (b) a distribution of any remainder in equal shares.
Articles of Dissolution
After dissolving and winding up your LLC—including paying or making adequate provision to pay all LLC debts, liabilities, and obligations—you must files articles of dissolution with the Secretary of State (“SOS”). The articles will contain basic information about your dissolved LLC, including:
- the LLC’s name
- a statement that all LLC debts, obligations, and liabilities have been paid and discharged or that adequate provision has been made for that purpose
- a statement that all remaining LLC property and assets have been distributed among the LLC’s members in accordance with their respective rights and interests; and
- a statement that there are no suits pending against the LLC in any court or that adequate provision has been made for the satisfaction of any judgment, order, or decree that may be entered against it in any pending suit.
You must submit two duplicate copies of the articles of dissolution. The filing fee for the articles is $100. Your filing usually will be processed in a week to 10 days. Expedited processing is available for an additional fee by in-person request in Chicago or Springfield. An articles of dissolution form is available for download from the SOS website.
Be aware that your business name will become available for use by others after dissolution.
Illinois does not require that you obtain tax clearance before dissolving your LLC.
For federal tax purposes, check the “final return” box on your IRS Form 1065 (if your LLC is classified as a partnership for tax purposes) or IRS Form 1120 (if your LLC is classified as a corporation for tax purposes).
Is your LLC registered or qualified to do business in other states? If so, you must file separate forms to terminate your right to conduct business in those states. Depending on the states involved, the form might be called a termination of registration, certificate of termination of existence, application of withdrawal, or certificate of surrender of right to transact business. Failure to file the additional termination forms means you’ll continue to be liable for annual report fees and minimum business taxes.
You can find additional information, such as forms, mailing addresses, and filing fees, on the SOS website.
For information on dissolving and winding up LLCs formed in other states, check Nolo’s 50-state series on dissolving LLCs.
Final Advice: Dissolving and winding up your LLC is only one piece of the process of closing your business. For further, general guidance on many of the other steps involved, check Nolo’s 20-point checklist for closing a business and the Nolo article on what you need to know about closing a business.