How to Dissolve an LLC | Avoid Fines by Ending Your Business the Right Way

If you have made the decision to dissolve your LLC, there are several steps that must be taken to do the job properly. Closing a limited liability company (LLC) is not particularly complicated, but there are a number of formalities to address and documents you must file with the appropriate state agency to legally dissolve an LLC.

This will typically take place several months after filing a notice with any creditors on your books that you intend to wind down your LLC, subsequently settling any debts with creditors that are still outstanding.

Officially dissolving an LLC means filing a certificate of dissolution (aka Articles of Dissolution) with the Secretary of State, which is as easy as completing and submitting a couple of forms. Upon the dissolution of an LLC, its members and managers are no longer liable for business tax payments, annual fees, or filing annual reports. On the other hand, if you are about to set up a business, yiu would want the best LLC formation service out there.

However, if you fail to file the appropriate paperwork and do not formally dissolve the LLC, you will remain liable for all such payments and additional accumulated penalties. If in doubt, seeking legal advice from your attorney and another law firm could save you time, effort, and the prospect of future fines.

man and a woman

Filing Formal Notice to Creditors

To dissolve a business is to provide formal notice to creditors that you are no longer in a position to take on further debts. This means that once your business has been dissolved, it cannot be sued by customers or creditors as it technically no longer exists. The dissolution of an LLC does not relieve you of any existing debts or financial burdens, though can prevent you from facing further problems.

Nevertheless, if you fail to appropriately notify your customers and creditors that you are dissolving an LLC of your business, some states will allow them to continue filing lawsuits against your business for an additional period of time. For example, here’s how to dissolve an LLC in Alabama.

It is therefore essential to understand your legal obligations and entitlements in the state in which you are closing your business and filing dissolution of the LLC. Check the specific rules of the state in question with the relevant authorities and ensure you have all the information you need, before beginning the process of closing your company.

Step 1: Vote to Dissolve the LLC

In order to officially get the process of dissolving an LLC underway, you must first provide all members of the LLC with the opportunity to vote on LLC dissolution. This vote to dissolve must play out in accordance with the procedures formalized in your LLC’s organizational documents – articles of incorporation, articles of organization, or LLC operating agreement.

If there is no specific mention of the dissolution procedure or how members should cast their vote, the standard business statutes of your state apply. When the meeting is called and members are asked to vote, everything that takes place should be recorded in the minutes of the meeting for future reference.

putting a vote in the box

Where members vote to close the business entity in a majority, the dissolution process can go ahead.

Step 2: File Articles of Dissolution to the Secretary of State

The next step is to consult the corporation division website of the Secretary of State website for the state in which you intend to close an LLC. This is where you’ll find digital copies of the dissolution forms needed to take the subsequent steps, which may be referred to as a certificate of dissolution, certificate of cancellation, or article of dissolution.

In most instances, very little information and subsequent supporting paperwork are required. In fact, you may only need to provide information about yourself (or whoever includes their signature on the documents) and basic company information.  There are some states that ask for information related to repayment of debts and liabilities, but this is not the case with most.

signing the papers

You will not need to pay fees in most states for submitting the form online, though some states impose small processing fees. It may be necessary to pay fees if you take the forms to be submitted in person at your state’s local office, though again this varies from one jurisdiction to the next.

Before submitting your form, carefully check all key information like the name of your business, a return address, your name, your telephone number, and the date. A cover letter can also be included if necessary when mailing forms to the state.

When sending any important documents in the mail, use certified mail to reduce the risk of anything going missing in transit. You will receive a tracking number and can keep a close eye on its movement along the way.

After the form has been received and processed by the state, you will receive a certificate of dissolution or something similar to officially confirm the termination of your partnership or corporation. This should be kept safe and retained indefinitely for your records.

If you have any questions or concerns regarding the paperwork or submission of documents, check with the appropriate state agency website for further advice.

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Out of State Registrations or Qualifications

In the event that your LLC was registered in a different state, you will need to follow the legal guidelines issued by the respective state department to wind down and end your business. State-specific rules also apply if your company was registered to do business out of state.

In which case, you will need to officially declare your withdrawal from business activities in that state, which means completing and submitting the right documents.

Depending on the state in which your LLC was doing business, the document you will need to submit could be referred to as an application of withdrawal, certificate of termination of existence, termination of registration, or certificate of surrender of right to transact business.

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If you do not take the proper steps needed to notify the appropriate state departments of your withdrawal, you will continue to be liable for a variety of state-specific expenses and business taxation indefinitely. You could also face heavy combined penalties, even if your business completely halts all activities within the state.

Tax Clearance

Obtaining clearance of tax is necessary for some states before it is possible to officially end an LLC. Where necessary, this means obtaining tax clearance, consent to dissolution, or verification of good standing from the tax agency of the state in question.

In essence, this means that the dissolution process cannot go ahead if your final tax return has not been filed and you still have outstanding taxes.  Only when final tax returns have been sent and all contribution liabilities have been met will these states provide tax clearance, enabling business owners to close their LLCs.

A request for clearance can be submitted online or by post if preferred. If your corporation has no outstanding tax liabilities and you are up to date with all your final taxes, you will be provided with a certificate of confirmation from the contribution department.

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Winding Up a Business

Along with satisfying the requirements of the IRS and submitting the paperwork to close your business entity, practical steps must also be taken related to ‘winding down the company.

According to the LLC Act of California, the most important winding up tasks are as follows:
  • Collecting and dividing the LLC’s remaining assets
  • Disposing of and conveyancing the LLC’s property
  • Prosecuting and defending actions by or against the LLC in order to collect and discharge obligations

For the most part, winding down means properly notifying the creditor of the end of your business, selling remaining equipment and inventory, liquidating assets, and reaching agreements with creditors on final debts and subsequent repayments.

If these formal steps are not taken properly, the owners of the LLC may inherit legal liability for the LLC’s debts.

You may need to take on the support of qualified legal counsel if you have any questions or concerns regarding your post-dissolution liabilities.

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