Ready to close up shop? Before hanging up your hat, you’ll need to properly wind up the business with tasks like holding a vote, filing final tax returns, and closing accounts.
Businesses close for many reasons. You might've had a drop in sales due to an economic downturn or decided to take a job at a large corporation for financial security. No doubt you've put your blood, sweat, and tears into running your business, and it can be hard to invest more of your limited time and money into closing it down.
But it's important to follow the appropriate procedure to formally shut down your limited liability company (LLC)—also known as "dissolving and winding up" the business. By dissolving your LLC, you'll no longer be liable for:
- paying annual fees
- filing annual reports, or
- paying business taxes.
If you don't dissolve your LLC, you could be looking at thousands of dollars in accumulated fees and penalties after a few years. Additionally, officially dissolving your business also puts creditors on notice that your business can no longer incur business debts.
Table of Contents
- Types of LLCs to Dissolve
- How to Dissolve an LLC
- Consulting a Small Business Lawyer
- FAQ: Dissolving an LLC
Types of LLCs to Dissolve
There are two main types of LLCs: single-member and multi-member.
Single-Member LLCs
In a single-member LLC, the company has only one owner (or member). Single-member LLCs are usually formed by sole proprietors who want to take advantage of the limited liability an LLC offers. A single person can file articles of organization with their state to become an LLC and list themselves as the sole member. (For more information, see our article on the differences between sole proprietorships and LLCs.)
Multi-Member LLCs
In a multi-member LLC, the company has more than one owner. A multi-member LLC doesn't have a limit on the number of owners. They're usually formed by a group of two or more people who want to form a formal business. Multi-member LLCs are an alternative to partnerships and corporations.
How to Dissolve an LLC
You've decided to close your business, but you need to take care of several important steps to limit your liability for lawsuits and government fees.
You'll need to dissolve your entity with the secretary of state (SOS) or the corporations division in your state by filing a form or two. In addition to filing the dissolution paperwork with the state, you must complete other practical steps to wind up your business. These steps include notifying your creditors, selling off inventory and equipment, and settling your debts.
If you fail to properly wind up your company, you and the other LLC owners might be personally liable for the debts of the business. For more information, review our checklist for closing your business.
Generally, you can follow the steps below to dissolve your LLC. But every state can differ in its requirements. For state-specific rules, check out our guide to dissolving an LLC in your state.
1. Vote to Dissolve the LLC
The first step to dissolving your company is for your members to officially agree to close the business. Check your company's organizational documents—its articles of organization and operating agreement—for the dissolution protocol. In some cases, one of those two documents will contain a section with rules for dissolution, including the procedure for voting to dissolve the business.
Dissolution Rules in Your LLC Operating Agreement
If you've addressed your LLC's dissolution in your operating agreement, you probably listed triggering events that can dissolve your LLC, such as the death or retirement of a member or a bankruptcy filing.
Additionally, agreements will often include a specific voting requirement to dissolve the LLC, including rules for:
- how the vote will happen (like whether the vote needs to be by an in-person or virtual meeting or through written consent)
- when the meeting will take place, and
- when and how the members will be notified of the vote (for example, the members might need to be notified in writing 30 days before the meeting takes place).
If your organizational documents are silent on when dissolution is triggered, your state's LLC laws will provide rules in their place.
State-Specific Rules for Voting to Dissolve Your LLC
Often, states allow LLCs to dissolve by a vote of the members. But states differ on what kind of vote is needed to approve the dissolution. Some states, like North Carolina, don't specify that a vote of the LLC members can dissolve the company. So you should include a provision in your operating agreement that allows for a vote to dissolve. The following states can be dissolved through these common voting methods.
Consent, vote, or agreement by all members. Colorado, Illinois, Nevada, New Jersey, Ohio, and Wyoming allow LLCs to be dissolved with unanimous member approval. Virginia specifies that you need unanimous written consent to dissolve your LLC. In Michigan, a unanimous vote by members entitled to vote is required.
Majority vote by members. Tennessee is less strict and requires a vote by only a majority of the LLC members to dissolve the company.
Majority in interest vote. Connecticut requires a majority-in-interest vote to dissolve. A majority in interest doesn't mean a majority of the members; it means a majority of the interest in an LLC. For example, suppose there are three members in an LLC. Member A owns a 60% interest in the LLC, and Members B and C own the remaining 40%. Even if Members B and C vote against the dissolution, a single vote by Member A can dissolve the LLC under Connecticut law because Member A owns more than a 50% interest in the LLC.
Regardless of the specific rule, the vote to dissolve the LLC should be recorded in a resolution in the minutes of a meeting or with a written consent form. You should keep the resolution in your LLC records book.
2. File Final Tax Returns and Obtain Tax Clearance
Some states require that you receive tax clearance from your state's taxing authority (usually the department of revenue or other similar agency) before you can officially dissolve your LLC. Tax clearance simply means that the state confirms that you've:
- paid all outstanding business taxes, and
- filed all tax returns.
While some states require you to receive a letter or certificate of tax clearance, many states don't. For example, the following states don't require you to receive tax clearance from your state taxing authority before you can dissolve your LLC:
- Colorado
- Connecticut
- Illinois
- Nevada
- New Jersey (doesn't require tax clearance but does require your business to be in good standing with the state)
- North Carolina
- Ohio
- Virginia, and
- Wyoming.
You should be aware of a few exceptions. Specifically, Michigan and Tennessee do require you to obtain tax clearance before your LLC can dissolve. In these states, the SOS or corporations division will not allow your LLC to dissolve if you haven't filed your last tax return (by checking the "final tax return" box and writing FINAL at the top of your return) and paid all business taxes owed.
Michigan: In Michigan, you're required to submit a tax clearance request to the Michigan Department of Treasury. You must submit the request within 60 days of filing your certificate of dissolution.
Tennessee: You're required to submit a tax clearance for termination or withdrawal with your articles of termination. You'll submit a notice of dissolution first after your LLC members dissolve the LLC. Once you've finished the winding-up process, including paying your taxes and filing your returns, you can submit the tax clearance certificate issued by the Department of Revenue along with your articles of termination. The Tennessee Department of Revenue also requires that you pay some taxes and file final returns—such as for business taxes and sales and use tax—within 15 days of the business closing. (Tenn. Code § 48-245-503 (2023).)
Regardless of whether you're required to receive tax clearance, you should inform state and local taxing departments or agencies of your company's dissolution. You might also need to close out a state business tax account. You should check your state tax agency's website for details.
File final federal tax returnsWhen you resolve your state taxes, you should also file your final federal tax return with the IRS. For both your federal and state filings, you should indicate that it's your business's final return.
If you have a long list of assets and liabilities to report or you don't have much experience doing your business's taxes, consider talking to an accountant or other tax professional. They can file your taxes for you to make sure your final returns are submitted properly and you're taking advantage of all business deductions.
3. File Articles or Certificate of Dissolution
Next, visit your state's SOS or corporations division website to find the appropriate dissolution form to file. This form might be called the:
- "articles of dissolution"
- "certificate of dissolution"
- "statement of dissolution"
- "notice of dissolution," or
- "certificate of cancellation."
You might also need to file more than one form. Check your state's laws for specific requirements.
When to File Your Dissolution Paperwork
In some states, you need to file the dissolution paperwork before you begin winding things up. Other states require that you file the dissolution form only after you've finished winding up your business—that is, after you've paid your debts, distributed your assets, and closed any business accounts, registrations, licenses, and permits.
States where you file dissolution paperwork before winding up the business: Colorado, Connecticut, Michigan, Nevada, North Carolina, Ohio, and Tennessee.
States where you file dissolution paperwork after winding up the business: Illinois and Virginia.
Other states have more unusual requirements.
New Jersey: Under New Jersey law, you're required to submit a certificate of dissolution and statement of termination during the winding-up process to dissolve your LLC. The New Jersey Division of Revenue and Enterprise Services provides a single document called a "Certificate of Dissolution and Termination" that you can use to meet the filing requirement. (Nev. Rev. Stat. § 42:2C-49 (2023).)
Tennessee: Under Tennessee law, dissolving your LLC is a two-step process. Once an event triggers the LLC to dissolve (by vote or otherwise), you'll need to submit a notice of dissolution to the Tennessee SOS. Once you've finished winding up your business, then you'll submit articles of termination to finalize your business's closing and dissolution. (Tenn. Code §§ 48-245-101 and following (2023).)
Wyoming: Unusually, there's no requirement to submit any articles to dissolve your LLC in Wyoming. State law simply says that you "may" submit them as part of your winding up activities. While not required, you should still submit these articles of dissolution. Not filing your articles can leave you open to liabilities and affect your ability to do business in the future. (If you have specific questions about whether to file, you should contact a local attorney.)
Information to Include in Your Articles of Dissolution
Typically, the dissolution form merely asks for information that identifies you and your company, but some states also ask whether the owners have paid all debts and liabilities and whether the remaining assets, if any, were distributed. Most states charge a small fee for filing the form—check the form instructions for the amount.
When you file your dissolution paperwork with the state, add a cover letter with your business's information including:
- the LLC's name
- the LLC's number (assigned when you filed your articles of organization)
- your name
- a return address, and
- a telephone number or email address.
If there's a fee, be sure to include it. If you're mailing in the form (instead of submitting it electronically), send the form by certified mail, with return receipt requested. The state should send you back a certificate of dissolution or similar document, which you should file in your LLC records book. If you have questions about the paperwork, most states provide very clear rules for dissolution on their websites.
4. Notify Creditors About Your LLC's Dissolution
After filing your dissolution documents, you should notify your creditors that you're closing your business. In most states, giving notice is optional. However, giving notice will help limit your liability. And if no creditors come forward with claims, you and the other LLC members can feel more confident taking any remaining assets for yourself.
Usually, providing proper notice can allow an LLC to dispose of (dismiss) any claims a creditor might have against them. For example, if you give a creditor notice of your dissolution and provide them with a deadline to submit a claim and they don't, then they no longer have a valid claim against you. We'll discuss some of the deadlines for creditor claims below.
Giving Notice to Known Creditors of Your LLC's Dissolution
Laws vary slightly among states, but in most cases, one way to give notice is by sending a letter directly to known creditors (those you're aware of) after dissolving your LLC. Generally, the written notice should:
- describe the information that must be included in a claim (such as the amount owed and the reason for the debt)
- provide a mailing address where a claim can be sent
- give a deadline for bringing the claim (generally, there's a minimum length of time for this deadline, as discussed below), and
- declare that the claim will be barred (or isn't valid) if it's not received by the deadline.
The following states require a minimum amount of time that you must give known creditors to submit their claims after you send notice of your LLC's dissolution:
- 90 days: Ohio
- 120 days: Connecticut, Illinois, New Jersey, North Carolina, Virginia, and Wyoming
- four months: Tennessee
- six months: Michigan; and
- two years: Colorado.
Other states have different deadlines. You should look at your state's LLC laws to determine your state's rules for notifying known creditors.
Giving Notice to Unknown Creditors of Your LLC's Dissolution
In some states, you're required to give notice to unknown creditors (those you're not aware that you owe money to), usually by publishing a notice of your LLC's dissolution in a local newspaper. As with sending direct notice to known creditors, states can have specific rules for giving notice through publication. For instance, a state might specify what information you should include in the notice or when and where you should publish the notice.
The following states require a minimum amount of time that you give unknown creditors to submit their claims after you send notice of your LLC's dissolution:
- one year: Michigan
- two years: Ohio and Tennessee
- three years: Connecticut, Virginia, and Wyoming; and
- five years: Colorado, Illinois, New Jersey, and North Carolina.
Some states, like Nevada, don't give specific directions on when and how to notify creditors. In such cases, you should still notify creditors and give them a reasonable time to submit their claims.
Statute of limitations. Generally, if a claim is barred earlier than the above deadlines by a statute of limitations, then creditors will only have as long as the relevant statute of limitations allows. For example, suppose a creditor has a claim for rent that your LLC owes. The statute of limitations laws in your state says that a creditor has two years to submit a claim for unpaid rent. But the notice you provide that creditor gives them three years. Even though your notice gives them extra time, they're claim for unpaid rent will be barred after two years.
Providing notice before filing for dissolution. It's important to check your state's laws for notice at the start of the dissolution process. Some states require you to notify your creditors before you file for dissolution. For example, in Maryland, you have to mail a written notice to your creditors at least 19 days before you file your articles of cancellation. (Md. Code Corps. & Ass'ns § 4A-910 (2023).)
5. Settle Debts and Distribute Remaining Assets
Once you've filed your dissolution paperwork and notified creditors, you should start settling debts and distributing any remaining assets. Take an account of your company's assets. Sell any real and personal property belonging to the business, including:
- buildings
- land
- vehicles
- equipment, and
- inventory.
Once you've sold (or "liquidated") the company assets, you can have a good idea of what money you have available to pay your debts. If you're able to satisfy all of your debts and there's money left over, you can take what's left and divide that amount among the LLC's members.
Prioritize and Settle Your Business Debts
Almost all states require that you first pay creditors before you distribute your assets to anyone else. If you have more debts than assets, you'll need to prioritize your business debts and try to negotiate settlements with your creditors. Pay any debts that you might be personally liable for first. A benefit of forming an LLC is that you have limited personal liability for business debts and obligations. But there are some business debts that you might be personally liable for.
You might be personally liable for debts if:
- you personally guaranteed or co-signed on a loan
- you pledged your personal property as collateral for a business loan, or
- the corporate veil is pierced—usually when you've done some wrongdoing (like committed fraud) or the line between you and your LLC's existence is blurred (such as by comingling funds).
If you have any secured debt, you can either return the secured property or sell it and pay off the remaining balance on your business loan. If your secured property is worth more than the money you owe on the property's loan, you should sell it.
State Laws on Distributing Your LLC's Assets
Perhaps where state LLC dissolution laws differ the most is in how assets are distributed. Almost all states require a specific order for how assets are distributed. However, Colorado doesn't specify any order. And some states allow terms in your operating agreement to alter the order set out in state law—to a certain extent. You should review your state's LLC laws or talk to an attorney about whether you should follow your operating agreement or state law.
All of the states discussed here require that you first pay creditors, including any LLC members who are creditors. It's particularly important that you pay all taxes owed. Owing taxes can prevent you from dissolving your LLC. After paying creditors, your distribution order will depend on your state.
Illinois, New Jersey, and Wyoming: In these states, after paying creditors, you'll first pay back members for any contributions they've made to the LLC, such as money paid to file forms or purchase equipment. Second, you'll distribute any money left over to members in equal shares. Wyoming also has an unusual provision that allows for the possibility that distributions to members might be handled differently based on an authorized LLC representative's representations to the IRS. (805 Ill. Comp. Stat. § 180/35-10 (2023); Nev. Rev. Stat. § 42:2C-56 (2023); Wyo. Stat. § 17-29-708 (2023).)
Tennessee and Virginia: Once creditors are paid, you'll distribute the remaining assets in three parts. First, you'll pay out any distributions owed to members (including interim distributions). Second, you'll pay back members for any contributions they've made to the LLC. Third, you'll pay any remaining funds to the members proportional to their membership shares. (Tenn. Code § 48-245-501 (2023); Va. Code § 13.1-1049 (2023).)
Connecticut: After paying creditors, you'll distribute the remaining assets to two groups. First, you'll pay back members who have made contributions to the LLC that haven't already been paid back. Second, you'll distribute any money that's left to the members and disassociated members in proportion to their membership shares. So, if one member has a 25% membership share, then they should receive 25% of what's left over after creditors have been paid and contributions have been returned. (Conn. Gen. Stat. § 34-267f (2023).)
Ohio: After paying creditors, you'll first pay back members who've made contributions to the LLC that haven't been paid back yet. Second, you'll distribute the leftover money to members in proportion to their share in distributions. Their share in distributions likely equals their membership share. (Ohio Rev. Code § 1706.475 (2023).)
Michigan: After paying creditors, you'll first pay out any distributions owed to current and former members, such as distributions based on a previous agreement or vote. Second, you'll pay what's remaining to the members based on their share in the company. However, your operating agreement might provide a different distribution scheme. If your agreement does provide an alternate scheme, you should follow that order instead. Regardless of what your operating agreement says, Michigan law requires you to file your tax returns and pay your tax obligations before you distribute your LLC's assets. (Mich. Comp. Laws § 450.4808 (2023).)
North Carolina: In North Carolina, you'll have a simpler distribution order. After paying creditors, you'll pay the balance to members as distributions. Members will be entitled to a distribution in proportion to their total contribution amounts as compared to other members. So, if one member contributed more than another, then that member should be entitled to a greater distribution amount. (N.C. Gen. Stat. § 57D-6-08 (2023).)
Nevada: The language in Nevada's laws is a bit more complex. After paying creditors, you'll pay LLC members in two parts. First, you'll pay members in respect of their share of the profits and other compensation by way of income on their contributions. Second, you'll pay members in respect of their contributions to capital. The distinction between these two payouts is complicated. If you're dissolving a Nevada LLC, you should speak with a local business lawyer. (Nev. Rev. Stat. § 86.621 (2023).)
6. Close All Accounts and Cancel Licenses and Permits
Once you've paid your debts and distributed any money that's left over, your business bank accounts should have a balance of zero. Now's the time to close your bank accounts.
If you have any business licenses or permits, you should cancel them as well. For example, if your state requires a general business license, you should cancel it.
7. Cancel Registrations in Other States
Finally, if your LLC has qualified (registered) to do business in other states, you'll also need to file a form to withdraw your right to transact business in that state. This form might be called an "application of withdrawal," "certificate of termination of existence," "termination of registration," or "certificate of surrender of right to transact business."
If you don't file these additional termination forms, you'll continue to be liable for paying annual report fees and minimum business taxes to those states, even if you cease all operations.
Consulting a Small Business Lawyer
Many LLCs are small, and some owners find that they can dissolve their LLCs on their own. But if you have a larger LLC with employees or a range of assets and liabilities to liquidate and pay off, consider talking to an attorney with experience dissolving LLCs.
The procedure to dissolve an LLC is specific to your state and an experienced lawyer can help you navigate these requirements to help limit your liability. They can also file the appropriate dissolution paperwork, help you notify creditors, and negotiate debt settlements.
FAQ: Dissolving an LLC
You can find answers to many frequently asked questions about dissolving an LLC.
What is the difference between dissolving and winding up an LLC?
You "dissolve" your LLC by voting to end your company and filing the dissolution paperwork with your state. You "wind up" your LLC by wrapping up your company's business obligations and operations. The winding-up process includes:
- notifying creditors
- filing final tax returns
- selling assets
- paying off debts
- ending active business contracts
- closing bank accounts, and
- canceling licenses, permits, and registrations.
What is the difference between terminating and dissolving an LLC?
"Dissolving" an LLC refers to the process of voting to end your LLC and filing the dissolution paperwork with your state. "Terminating" an LLC can have different meanings.
Sometimes "terminating" an LLC is used interchangeably with "dissolving" an LLC and is meant to refer to the same process. In some states, you'll file articles of termination rather than articles of dissolution to legally end your business with the state. Other times, "terminated" refers to when an LLC is completely dissolved and winded up and the business has ended its operations.
How much does it cost to dissolve an LLC?
The filing fee varies by state. Usually, the fee ranges between $25 and $100. Some states, like California, have no filing fee. There might be other costs related to dissolving your LLC, such as the fee to obtain a tax clearance certificate, a publication fee, or attorneys' fees.
Can you dissolve an LLC online?
Most states allow you to file for dissolution online. You can check your secretary of state's website for more information on how to file your LLC dissolution.
How long does it take to dissolve an LLC?
The time it takes to dissolve an LLC depends on many factors. The dissolution process of voting to end the LLC and filing the paperwork can take as little as a day. The winding-up process usually takes longer, especially if you have to go through the process of selling off company assets or negotiating with creditors. The process could take weeks or months.
Do I need to dissolve my LLC? What happens if I don't file the dissolution documents?
Yes, you need to dissolve your LLC. Failing to dissolve your LLC can leave you open to liability. If your LLC still exists with the state, you'll be responsible for filing annual reports and taxes. Missing these filings can result in fines, and your LLC will be involuntarily dissolved (usually by a court).
Can one member dissolve an LLC?
An LLC is usually dissolved by a vote of a majority of the members. Your articles of organization or operating agreement might tell you how many members are required to vote in favor of dissolution. For instance, your LLC operating agreement might say that a majority vote by the members is required to dissolve the LLC. In that case, if you have three members, then two will need to vote to dissolve.
If your articles of organization and operating agreement don't specify any requirements or procedures, then you should follow your state's laws. Check your state's laws on LLCs to find out whether one member can dissolve an LLC.
What happens to my EIN when my LLC is dissolved?
Your EIN will remain active and assigned to your business. The IRS doesn't cancel or reassign EINs even if a company no longer has any use for its EIN. Instead, after dissolving your LLC, you should cancel your business account with the IRS by sending the IRS a letter with the following information:
- the legal name of your LLC
- your EIN
- your business address, and
- the reason you want to close your account.
Can someone sue my LLC after it's dissolved?
Yes, as long as their claim is still within the statute of limitations. The statute of limitations for a claim is the amount of time a person has to file their claim before their claim is no longer legally valid or enforceable. For example, your state law might say that a person has three years from the date that you dissolve your LLC to file a claim. If they file after three years, then their claim will be dismissed.
States have different statutes of limitations and laws for how long someone has to file a claim against your business, even after it's dissolved. You should check your state's laws for more information.
Can you reinstate a dissolved LLC?
The answer depends on your state's laws. Some states allow you to reinstate your LLC only if it was administratively or involuntarily dissolved. Your LLC is administratively or involuntarily dissolved (usually by a court) when you don't follow state requirements, such as filing annual reports or paying taxes.
Usually, you have to resolve whatever caused your involuntary dissolution before your LLC can be reinstated. For example, if your LLC was dissolved by a court because you didn't file an annual report for the last two years, you'll need to first file those reports and pay the filing fees before your LLC can be reinstated.
Some states allow you to reinstate your LLC if you voluntarily dissolved it. After a voluntary dissolution, you might want to reinstate your LLC rather than file for a new one if you want to take back your existing business name.
Legal Information & Products from Nolo
