Starting a limited liability company (LLC) is no simple endeavor, but permanently shutting down an LLC can be even more difficult.
For one thing, it’s not an enjoyable process by any means ― you’ve poured time, money, and energy into your business, and shutting it down can be hard in several different ways.
To top it off, there are extensive requirements for appropriately dissolving the LLC, and you’ll need to complete the process correctly to avoid legal trouble. With this guide, we’ll cover how dissolving an LLC works. That way, you’ll be prepared if and when you decide to dissolve your business.
Guru Tip: Most online LLC services (which are best known for offering services to create an LLC) can also dissolve an LLC on your behalf for a small fee.
Select a state below to officially dissolve your LLC. We'll outline the important details and how to take care of the paperwork.
When Do You Know It’s Time to Dissolve an LLC?
There are quite a few different reasons why entrepreneurs choose to dissolve their LLCs. While we can’t possibly dig into the details of all of them, we can certainly give you an overview of the most common reasons behind LLC dissolutions.
- The LLC Completes Its Planned Life Cycle: Not all LLCs are built to last forever. In fact, some of them have predetermined expiration dates, after which the LLC will no longer exist. Some other LLCs have certain events that will trigger dissolution, such as a bankruptcy filing or a specified member’s death.
- The LLC Achieves Its Goal: Similarly, some LLCs are only formed with one specific goal in mind. Once that goal is achieved, the LLC no longer has a purpose and is dissolved. For instance, let’s say you work in real estate and formed an LLC with your business partners to oversee the planning and construction of a new housing development. Once the development is completed, there is no longer a need for the LLC to exist, so the owners choose to dissolve it.
- The Company Goes Out of Business: This is the most frustrating and disappointing option. Sometimes, our business ventures don’t go as planned or hoped. If you’re not generating as much income or connecting with as many customers as you need to in order to keep the business afloat, the time may come when dissolving your LLC is the right call. It’s not an easy decision to make, but sometimes it needs to be done.
- Membership Conflicts: There are several different ways LLCs can resolve ownership disputes. One owner could leave the business, the two disagreeing owners could reach a compromise, they could reach out to a third-party arbiter, etc. If none of these options work, it might be best to simply dissolve the LLC if the owners cannot resolve their conflict in any other way.
- Administrative Dissolution: Thus far, we’ve discussed voluntary dissolutions, in which the LLC’s owners decide that it’s time to close its doors. However, the other type of dissolution is of the administrative variety, which means that the state has decided to shut down your LLC due to violations of state law. This could mean that you fail to file your annual reports, or pay your franchise taxes, or operate without compliant licensing.
Can I Simply Stop Operating My LLC Instead of Dissolving It?
While it might seem that you could save yourself a considerable amount of time and hassle by simply ceasing to operate your business rather than going through the LLC dissolution process, this option could actually end up creating a vast array of headaches.
If you go this route, the state will never know that your LLC is no longer conducting business. That means they’ll expect you to continue filing your annual reports, paying your franchise taxes, renewing your licenses, and any other maintenance tasks your LLC requires. If you don’t do these things, you will pile up late fees in a big hurry.
Another issue is that no one you do business with will know you’re done operating either. Therefore, customers, partners, vendors, and other potential creditors will continue expecting you to operate in the same way you always have. If you suddenly cease your operations without properly dissolving your LLC, all of these parties could generate legitimate claims against your business.
Even though the LLC dissolution process can be a hassle, and there are some expenses along the way as well, it is still never advisable to sidestep this process.
Steps to Dissolve an LLC
Pass a Resolution to Dissolve
The first step to dissolve an LLC is handled by your members; together, you will vote to dissolve the business. Your operating agreement should tell you how many members need to vote for the resolution to pass.
Once you’ve made this vote, you should document the decision by writing a formal resolution. This resolution should include a description of your voting process, the signatures of your members, and the date you intend to officially dissolve.
File the Articles of Dissolution
Once your LLC’s members have decided to dissolve, it’s time to let others know. There are several different parties you’ll need to inform, but the first step is to notify the state(s) where your business is officially registered.
To notify the state and officially dissolve your business, you need to file the Articles of Dissolution (or the equivalent document in your state). As part of this filing, the state will request the effective date for your dissolution. Please note that you cannot conduct any business outside of winding up after that date. So, if you intend to conduct regular business for a few more weeks, you should set a different effective date than the date of filing.
Some states require you to file a statement of intent to dissolve before filing these articles, however. You should contact your Secretary of State for more information about these whether these documents are required in your state.
If you fail to file the Articles of Dissolution and simply stop operating, the state will treat you as an active business. That means that you’d be expected to continue filing annual reports and paying the associated fees, filing income tax reports, and more. As a result, you could unintentionally rack up a lot of fees and expenses without realizing it.
Notify Your Creditors
After you notify the state about your dissolution, you also need to notify your creditors. You should send them a written letter informing them that the LLC is no longer in existence.
If any creditors have a legitimate claim to a portion of your assets, this is the time for them to make that claim. The letter should let them know how long they have to make those claims ― if a creditor makes a claim after that specified period, you usually are not held liable for it.
This notification also lets your creditors know that, from this point on, the business no longer exists and cannot incur any more debt. That’s one reason failing to notify your creditors could make you vulnerable to litigation.
Liquidate Your Assets
A key part of the dissolution process is divvying up the LLC’s assets, such as finances, company cars, office equipment, and property. To do that fairly, you’ll need to liquidate these assets by selling them and splitting the funds. Granted, your operating agreement might say that certain assets go to a specific member; if so, those terms should be followed.
Please note that if you have any known creditors with legitimate claims, they must be paid before the money is split among the members. Once all creditors have been paid, the remaining money will go to the members as dictated by the operating agreement.
Get a Tax Clearance Certificate
All dissolving LLCs are required to settle their debts and financial obligations, which includes any outstanding taxes. In some states, you need to get a certificate of tax clearance, a document that certifies your business does not have any unpaid taxes. You can apply for this document with your state’s tax office.
If a state requires this certificate, then it will not accept your Articles of Dissolution until you have this document in hand. Obtaining the certificate itself can take some time, so you should time your application accordingly.
Even in states where tax clearances are not required, you should absolutely make sure that your business has fulfilled all of its tax obligations before you dissolve your LLC.
Cancel Business Licenses
Each business has a unique list of licenses and permits it obtained when it first began operating. When closing up shop, you will need to cancel your business permits and occupational licenses. You should consult with your licensing boards to learn about canceling these licenses.
If you don’t cancel a license, the state could still expect you to renew it annually. Late fees could pile up, and you’d be expected to pay them.
Withdraw Your Certificate of Authority in Other States
Some LLCs have a presence in multiple states. If you do, you don’t have to complete the entire dissolution process in each state ― you only need to file the Articles of Dissolution with the state where you first formed your business. After that, you’ll need to let the “foreign” states know that you’re ending your business.
To do so, you need to file a specific form for foreign LLCs, which is usually called an application for certificate of withdrawal, or some similar name. You should complete this step for each state where you operated your LLC.
The state in question will issue you a certificate of withdrawal, which means that the state has revoked your authority to conduct business in that state. If you overlook this step, you could remain on the hook for state fees, annual reports and taxes, and more.
After your dissolution is complete, you should keep the records from the process. This includes your dissolution paperwork, communications to and from your creditors, payment records, liquidation records, tax clearance certificate (if applicable), and more.
While most states only require that you hold onto these records for a certain period of time, we recommend hanging onto them indefinitely. You never know when or how they could come in handy, even if your business is past the point of being audited or sued.
A Note on Administrative Dissolutions
The majority of this article has addressed the process for voluntary dissolution, or in other words, one that you and your members choose to complete.
However, it is possible for an LLC to be administratively dissolved, or dissolved by the state by force. This can occur when a business falls out of compliance, usually for failing to file annual reports, neglecting fees or penalties, and/or refusing to honor debts.
Reinstating an LLC that has been administratively dissolved is possible, but the process can be a hassle, and it usually has some rather steep fees attached. Reinstatement varies from one state to another ― usually it involves correcting the problem that caused the dissolution, submitting an application for reinstatement, and paying some sort of penalty.
As a general rule, it’s far easier to stay up-to-date on your compliance requirements to avoid administrative dissolution than it is to reinstate a dissolved business.
How Does LLC Dissolution Work?
Completing the LLC dissolution process is not the end of the line for your business. You will need to first wait for your state to process your dissolution paperwork, which could take just a few days in some states and a matter of weeks in others.
Even after the state accepts and processes your dissolution documents, there is still another phase of this process remaining: you need to give your customers, partners, vendors, and other potential creditors a chance to settle any remaining contracts, debts, or lawsuits with your business.
The period can vary based on your state, industry, and personal preferences. However, three years is a common length of time for this part of the process. After this period, no one can ever sue your LLC again. It will be considered permanently canceled, and no lawsuits are permitted once those years are up.
Things to Consider Before Dissolving Your LLC
Are you sure you’re ready to dissolve your LLC?
Even if you’re 100% certain that you’ll never sell another product or service again, there are other aspects to consider. First off, are all of your co-owners in agreement that it’s time to dissolve the LLC? If not, are enough of them on board to fulfill the voting requirement as outlined in your LLC’s operating agreement?
What should you do if not enough owners vote to dissolve the LLC?
Unfortunately, you don’t have many options, and the options you do have aren’t great. If it’s a close vote, one option is to try and buy out an owner to tilt the scales. Another option is to seek a buyout yourself — if you can’t convince them to dissolve the LLC, perhaps the next-best choice is to simply depart from the company. Finally, you can always agree to work with your co-owners to improve the LLC’s business prospects, although this isn’t exactly easy or enjoyable when everyone knows you want out.
Should you change business structures rather than dissolve the LLC?
If you want to continue operating your business but don’t think the LLC is the right entity type for you, converting to a different entity might be a better plan. The easiest way to convert your LLC into a corporation is to perform a statutory conversion with the Secretary of State’s office. However, not all states offer statutory conversions. If yours doesn’t, you’ll need to use a statutory merger or nonstatutory conversion, both of which are considerably more complex. If you have questions about these options, contact your Secretary of State or a qualified business attorney.
LLC Dissolution Services
If the dissolution process sounds too stressful or difficult, there are other options. Namely, if you want to make sure your LLC is appropriately dissolved, you can hire a business services provider to handle the process for you. While this does cost some money, these companies can dissolve your LLC for much less money than a lawyer would charge you to do the same thing.
If you’re looking for a company to dissolve your LLC for you, we strongly recommend checking out the top LLC services, which can both form an LLC as well as dissolve it. That said, while there is definitely some overlap between the best LLC formation services and the top dissolution services, our preferred choices are different. Let’s quickly discuss our favorite companies for LLC dissolution services.
MyCompanyWorks ($99 + state fee): At the top of our list is MyCompanyWorks, with a highly reasonable price point that slides in under $100. This company receives spectacular customer feedback, with more than 3,700 highly positive reviews available online. They also have one of the most responsive customer support teams in the industry, as they return most calls and emails within 20 minutes during business hours. MyCompanyWorks is a well-rounded service provider with several advantages and no obvious disadvantages.
SunDoc Filings ($99 + state fee): SunDoc Filings also has an appealing $99 price point, and this company is another one that gets stellar reviews. We found more than 3,000 SunDoc Filings reviews across the web, and almost all of them are positive. Furthermore, this company offers a 100% satisfaction guarantee with every product and service it sells. As an added bonus, if your LLC is based in California, SunDoc Filings has the fastest turnaround times in the industry in this state due to its location in Sacramento.
LegalZoom ($129 + state fee): If you’re willing to spend a little bit more, you can get service from the most well-known company in the business services industry, LegalZoom. This company has significantly more experience than MyCompanyWorks and SunDoc Filings combined, so if that’s a priority for you, they’ll be a great fit. Their 4,000+ online reviews are mostly positive, they offer a money-back guarantee, and their extended customer experience hours can be a godsend for busy entrepreneurs.
Frequently Asked Questions
Do I need a tax clearance to dissolve my LLC?
In some states, yes. Depending on your state, you might need to obtain a tax clearance form from the state’s taxation agency. In others, you may need to have the state file a Consent of Dissolution form, while some require a verification from the tax board certifying that you have fulfilled all taxation obligations. To verify your exact requirements, contact your state’s taxation agency.
How long will it take the state to process my LLC’s dissolution paperwork?
This all depends on which state your LLC is based in. Some states can process dissolutions in a matter of days, while others can take several weeks. Similarly, some states offer expedited services, while others don’t. In addition, there are states that require tax clearances or other pre-dissolution documents, which can add to your total turnaround time.
What is the “winding down” process?
It’s quite common to see people discussing a process known as winding down in regards to LLC dissolutions. But what does this actually mean? Winding down refers to wrapping up a few practical odds and ends before dissolving the business. These steps include things like informing any potential creditors that you are shutting down your LLC, selling your remaining inventory and business equipment, liquidating the LLC’s assets, settling debts, and more. You must properly wind down your LLC before dissolving it.
If I dissolve my LLC in its home state, will it automatically be disqualified from other states?
This is a common misconception, and the true answer is no. If you have expanded your LLC into additional states through the foreign qualification process, you will need to withdraw the LLC from each of those states individually. If you don’t, you will face a similar series of potential fines and penalties as you would for failing to dissolve the LLC from its home state.
As you can see, dissolving an LLC can be a long and complicated process, and skipping even one of these steps could spell legal trouble for you and your fellow members. Fortunately, by completing the process carefully, you can close down your business without a hitch.
Closing up shop and shutting down your business is never a fun process, but we hope that this article helped you develop your understanding of how the dissolution process works for LLCs.