How To Close An LLC? A Free Step-By-Step Guide 2023
If you’ve ever started an LLC, you know what it’s like to hustle as a small business owner. Starting a new business can be an incredibly taxing process (no pun intended). Maybe you’ve tried your hand at several different side hustles and burned the midnight oil trying to get them off the ground.
Sometimes there comes a point where you have to focus your efforts on one business entity and forgo the rest. This can be a hard, but necessary decision. Let’s dive into the process of dissolving a business and when it might be necessary.
How To Close An LLC In 4 Steps 2023?
- Follow the LLC operating agreement
- File final tax return with state & Internal Revenue Service
- File an article of dissolution
- Other wind-up affairs
How To Close An LLC In 4 Steps 2023
Depending on the size and complexity of your LLC, LLC members might have to undergo a more complicated process to dissolve an LLC. We’ve outlined below several steps that are generally required for the dissolving of an LLC. Make sure to read through each step to see if it might be required for your LLC.
Follow the LLC Operating Agreement
When you first file articles for your new LLC, you’ll have to include all operating procedures in your operating agreement, including a procedure in the case that your business must properly dissolve.
Vote To Dissolve The LLC
Typically, to dissolve your limited liability company, you must vote with the LLC’s members‘ agreement to complete the LLC dissolution. Many business owners form an LLC with multiple members, and the majority of these members must agree before filing articles of dissolution.
Distribution Of LLC Assets
If there are any remaining assets from doing business, these must be distributed between those who have a stake in the business. Depending on the details in your operating agreement, distributing these remaining assets will need to be done in a certain amount of time and in a specific way. These assets might even include intellectual property such as patents and copyrights.
As you decide to dissolve your business, it’s time to notify creditors of the impending end of your business. They will need to agree upon a payback plan that works for both parties. Notifying creditors is a key aspect of legally dissolving your business in the right way. A company’s creditors can certainly sue for debts unpaid if they are not notified promptly.
Settling Business Debt
If you have any outstanding debts or outstanding payments due to your creditors, you’ll need to settle outstanding debts as you dissolve the company. The creditors might agree to a payback plan, or they might even reduce the debts in an attempt to settle them quickly before your company closes its doors for good.
The good news is, with limited liability companies, the ongoing contingent liabilities won’t turn into your liability. The creditor can seize business assets in an attempt to settle debts, but you won’t be held personally liable or face personal liability for these business debts. Settling these debts is known as tax clearance.
File Final Tax Return With State & Internal Revenue Service
You’ll also have to file final employment tax returns with the IRS and whatever state you conduct business in before your company can be completely dissolved. This will be the last of your taxes owed for doing business in your state, and you shouldn’t have any other tax obligations for your LLC in the future.
With an LLC, you’ll use local tax forms for your state taxes and your federal tax return to file your personal and business revenue together.
Or, if you have a partnership LLC, you’ll use a partnership IRS tax filing form.
Since there won’t be any future revenue, you can close your LLC’s tax accounts, any business checking account, or bank accounts you had for solely business uses.
File An Articles Of Dissolution
Your last step to dissolving your LLC is filing articles of dissolution. This dissolution paperwork will be filed with the state to close your LLC properly. These articles of dissolution are provided and filed by the state you originally registered your LLC.
To keep your business organized, make sure the filing procedures are completed correctly and fill out the articles with accuracy. This last piece of the puzzle will ensure that you don’t have to file annual reports to stay compliant anymore.
Other Wind-up Affairs
To completely dissolve your LLC, you’ll need to tie up another loose end. Paying claims due to your insurance carriers and resolving claims that came up while you were doing business will be crucial to closing your business correctly. Rejected claims and accepted claims will need to be perused to see which insurance claims are still outstanding and need to be paid or filed.
Why Should You Dissolve An LLC?
As we just mentioned, it’s important to understand when your small business is more work than it’s worth. If you’ve already started an LLC within your state (or several states), and you no longer receive profit from your LLC, it might be time to dissolve it.
Since state law sometimes requires annual fees and annual reports, it’s best to dissolve your LLC so you won’t have to complete these tasks year to year for a business that’s no longer being run.
Maybe you’re thinking, “But what if I come back to my LLC and start it back up again later? Should I still dissolve it?” The question to pose to yourself here would be “Are the drawbacks worth the benefits?”
If you think you’ll never do business with your LLC again, it’s time to dissolve it so you don’t pay additional fees. If you might do business with your company again shortly, hang onto your LLC name so you don’t have to file with the state’s office for LLCs again.
Small Business Owners Should Close An LLC Correctly
To escape extra fees and penalties, conducting a proper business closing is essential for any business owner. If you don’t follow proper closing procedures, you might end up paying extra for a business you didn’t even know was still up and running.
When you start a limited liability company, you file it with the secretary of the state according to state law. You’ll have to pay a fee and complete an operating agreement as well as file articles of organization. When you complete a formal LLC dissolution, you’ll have to file dissolution papers correctly. This voluntary dissolution allows your LLC name to become available for use in the state again.
The Top 2 Limited Liability Company Services
|Northwest Registered Agent||Zenbusiness|
|Award||Best Overall||Best Pricing|
|Pricing||$0 + State Fees||$39 + State Fees|
|Detail||Read Review||Read Review|
Northwest Registered Agent
Northwest Registered Agent is a household name when it comes to LLC services and registered agent services. They have an awesome customer service team that can be essential when dissolving a company quickly and effectively.
One of our favorite features offered by Northwest is their professional team that gives expert legal and business advice to their customers. You can form your LLC with Northwest as well as dissolve it, and they help you every step of the way.
ZenBusiness is another great online LLC formation service we love. They offer so many services and price points for any budget. They’ll help you navigate the state taxing agency laws, avoid involuntary dissolution, and stay ahead of fees and reports. If you decide you want to dissolve your company, they have services that can help you correctly fill out all the paperwork you need.
There are tons of a la carte services offered by ZenBusiness, and their professional customer service team is super helpful along the way.
Running a business is hard work. If you’ve started a business that hasn’t had your attention in a while and isn’t making the profit you’d hoped, it might be time to consider dissolving your LLC.
While the dissolution process certainly does take some time, care, and effort, it can certainly be worth it in the end to forgo the fees and reports that might have been necessary if you kept your business going even when it wasn’t profitable.
You don’t need to hire a law firm or write corporate bylaws to make your business legitimately closed, but you can get the help of an online LLC service to assist you with the LLC dissolution process.
Frequently Asked Questions (FAQs)
If you have an employer identification number or an EIN, write to the IRS to close the account. The EIN will still belong to the business, so you can use it again later. You should also make sure that the business has met all its state and local responsibilities.
To cancel your local business licenses or tax registration, contact your city or county for the appropriate form.
Always keep receipts, bank statements, invoices, payroll records, and any other documentary evidence that supports an item of income, deduction, or credit shown on your tax return. Most supporting documents need to be kept for at least three years. Employment tax records must be kept for at least four years.
When you close or sell your business, you must file final report employment tax returns with the IRS. You also must file returns to report disposing of business property, to report the exchange of like-kind property, and/or to change the form of your business.
ABOUT THE AUTHOR
ABOUT THE REVIEWER
+ 2 sources
Bizreport Advisor adheres to strict editorial integrity standards avoids using tertiary references. We have strict sourcing guidelines and rely on peer-reviewed studies, academic research. To ensure the accuracy of articles in Bizreport, you can read more about the editorial process here.
- Irs.gov. (2017). Limited Liability Company (LLC) | Internal Revenue Service. [online] Available at: https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc.
- Irs.gov. (2016). Tax Forms and Publications | Internal Revenue Service. [online] Available at: https://www.irs.gov/individuals/tax-forms-and-publications.