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:
If you don't dissolve your LLC, you could be looking at thousands of dollars in accumulated fees and penalties after a few years.
Officially dissolving your business also puts creditors on notice that your business can no longer incur business debts. In fact, in some states, if you don't notify your creditors and customers by officially dissolving your business, they can sue you for a longer period of time.
There are two main types of LLCs: single-member and multi-member.
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.)
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 are 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.
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 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, liquidating the rest of your assets, and negotiating the settlement of 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.
The first step to dissolving your company is for your members to officially agree to close the business. You should look at your company's organizational documents—the articles of organization and operating agreement. 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.
If, however, these organizational documents are silent on the dissolution process, your state's business laws will provide rules for dissolution. Most states will allow you to approve dissolution by either:
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.
In some states, before you're allowed to formally dissolve your LLC, you must obtain from your state tax agency either a:
In these states, the secretary of state 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.
To get clearance or consent from the tax agency, you can submit a request electronically or by mail. If you've filed your final return and paid your taxes, you'll receive a letter or certificate declaring that you have no tax liability.
In other cases, clearance might not be necessary. In either case, 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.
When 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.
When to consult a tax professional: 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.
Next, visit your state's secretary of state or corporations division website to find the appropriate dissolution form. It'll be called a "certificate of dissolution," "certificate of cancellation," "articles of dissolution," or something similar. In some states, you need to file the dissolution paperwork before you begin winding things up; in others, the filing comes later.
Typically, the 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 send in your dissolution form to the state, include a cover letter with your business's information, including:
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.
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.
Laws vary by state, but in most cases, one way to give notice is by sending a letter directly to known creditors after dissolution. Generally, the written notice should:
In some states, you're required to give notice to unknown creditors, 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.
In many states, creditors have three years after the date of the newspaper publication to bring a claim; however, the length of time can vary between two years and five years depending on the state.
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 written notice to your creditors at least 19 days before you file your articles of cancellation. (Md. Code Corps. & Ass'ns § 4A-910 (2023).)
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:
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.
Your articles of organization or operating agreement might give you some instructions on how the assets should be divided. If not, you should follow state law. For example, your articles of organization might direct that the assets be divided equally among the members. Alternatively, your articles could direct that you divide the assets based on each member's initial financial contributions.
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:
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. The proceeds should give you enough money to pay off the secured debt and have money left over to use for other debts or to pay yourself and other LLC members. For example, suppose you owe $5,000 on a car loan but the car is worth $10,000. You're better off selling the car for $10,000. You can pay off the car loan and have $5,000 left over.
If your secured property is worth less than the money you owe on the property's loan, you should see if the creditor will clear your debt if you return the property. You should try to reach a deal with the secured creditor before you return the property.
If you don't have enough money to satisfy your LLC's debts and obligations and your creditors won't settle, you might need to consider filing for bankruptcy. Filing for bankruptcy can help you clear business debts. However, in some cases, the court could require you to use your personal funds to pay business debts. You should talk to an attorney with bankruptcy experience if you're considering filing.
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.
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.
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.
You can find answers to many frequently asked questions about dissolving 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:
"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.
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.
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.
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.
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).
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.
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:
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.
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.