Dissolve a Corporation or LLC to End Your Liability

You've decided to wind down your business, but you need to take care of several important steps to limit your liability for lawsuits and government fees. Several months after you send notice to your creditors that you're going out of business, and after you've settled debts with all known creditors, it's time to officially end your corporation or limited liability company (LLC). You need to dissolve your entity with the secretary of state or the corporations division in your state by filing a form or two. By dissolving your entity, you ensure that you are no longer liable for paying annual fees, filing annual reports, and paying business taxes. If you don't dissolve your corporation or 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.

For the specific rules on dissolving an LLC in your state, see Dissolving an LLC.

Vote to Dissolve

The first step to dissolving your company is for your shareholders or members to officially agree to close the business. Vote to dissolve the business following the procedures set out in your organizational documents (articles of incorporation, articles of organization, corporate bylaws, or LLC operating agreement) or, if these documents are silent on the dissolution process, your state's business statutes. The vote to dissolve the entity should be recorded in a resolution in the minutes of a meeting or with a written consent form and put it in your corporate or LLC records book.

File the Proper Dissolution Forms

Next, visit your state's secretary of state or corporations division website to find the dissolution form. It will be called a certificate of dissolution, certificate of cancellation, articles of dissolution, or something similar. Typically, the form merely asks for information that identifies you and your corporation, but some states also ask whether all debts and liabilities have been paid (or assumed by another company or provided for in a bank or escrow account) 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 name and corporation or LLC number as well as your name, return address, and telephone number. If there is a fee, be sure to include it. To be safe, 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 corporate or LLC records book. If you have questions on the paperwork, most states provide very clear rules for dissolution on their websites.

Online state offices. To find a link to your secretary of state or corporations division website, go to www.statelocalgov.net.

Cancel Out of State Registrations or Qualifications

If your corporation or 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 may 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 neglect to file the appropriate form, you will continue to be liable for paying annual report fees as well as minimum taxes to those states, even if you cease all operations.

Corporations, don't forget to also file IRS Form 966, Corporate Dissolution or Liquidation. LLCs, because they don't have stock to liquidate, don't need to notify the IRS of their dissolution, except through checking the final return box on IRS Form 1065 (this form is for LLCs with multiple members).

Get a Tax Clearance If Necessary

In some states, before you are allowed to formally dissolve your corporation or LLC, you are required to obtain something called a tax clearance, consent to dissolution, or verification of good standing from your state tax agency. In these states, the secretary of state or corporations division will not allow your corporation or LLC to dissolve if you have not filed your last tax return (checking the "Final tax return" box and writing FINAL at the top) and paid all taxes owed.

To get the clearance or consent of the tax agency, you submit a request by phone or fax. If you are current on filing tax returns and paying state taxes, you will receive a letter or certificate declaring that you have no tax liability.

Hang on to the evidence. Keep all dissolution and winding-up paperwork for at least six or seven years.

These are only the first steps to closing your business. There are many other practical steps, and they can affect your personal liability if not done properly: notifying your creditors, selling off inventory and equipment, liquidating the rest of your assets, and negotiating the settlement of your debts. For more information, see our section on Going Out of Business.

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