Making the decision to close a business can be stressful.
While your instinct might be that you just want to be done and walk away, you have to take several steps to officially close your limited liability company and end your LLC status.
Closing Correctly Is Important
Officially dissolving an LLC is important. If you don't, you can be held personally liable for the unpaid debts and taxes of the LLC.
A few additional fees you should look for;
- Many states also levy a fee against LLCs each year. If you don't properly dissolve a company, that fee will continue to be charged.
- Some states charge a fee if an open LLC does not file a tax return. If you don't close it down, you may be charged for that.
Ownershop of Property
Property owned in the name of your LLC is not transferred back to you until you officially do an LLC dissolution, so you want to be sure ownership is transferred.
Permits and Company Name
It's also important to close out all of your permits and give up the name to your company in a formal LLC dissolution so that no one else can step in and use them.
If you leave these active, but are not monitoring them, someone else could use them without your knowledge, placing you in legal jeopardy.
Steps to Closing Your LLC
Following the proper steps can help ensure you haven't missed anything important.
1. Agree to Dissolve
The first step to close an LLC is to make the formal decision to do so. Hold a meeting of the members of your LLC and vote to officially dissolve the LLC.
Each state has different requirements for the vote. You may need a majority, two-thirds, or a unanimous written agreement to dissolve an LLC, so check your state's rules. You also may have included closing procedures in your operating agreement, so check that as well.
2. Make It Official
Check your state Secretary of State's website for the form to file indicating that you are dissolving your LLC. Complete the form and follow the instructions for filing it with the state. This will formally close down the name of your LLC.
3. Give Notice
Once the decision is made to close down the company, you need to notify all your creditors that you are about to dissolve a business, so that if they plan to file any kind of lawsuit against the company, they know the time frame in which they can do so (often three to five years is allowed). Each state has its own requirements for the official notice, so be sure to check how much notice you need to give and whether it must be published in a newspaper.
4. Wrap up the Finances
Once you've decided that to dissolve LLC is the right strategy, you need to pay all outstanding bills that the LLC has, and you also need to plan ahead for obligations you don't know about or aren't currently aware of. There could be bills outstanding and you need to set aside funds to pay them in the coming months.
You must pay all of your debts before you can distribute company assets to the members when closing an LLC.
The members are personally liable to the creditors of the company, so you must be sure the creditors are paid before taking the remaining assets.
Be sure to close all utility accounts, cancel all accounts with vendors, and let customers know that you are closing (and collect outstanding payments due from them).
You also will want to notify any employees of your closing date. You will pay them until the last day they work and in some states you may have to pay for unused vacation time as well.
5. Complete Your Taxes
You must close the LLC's tax accounts with both the state and the IRS (this means paying anything you currently owe) and, in particular, you must ensure that all of your payroll withholding and sales taxes are current and funded correctly.
To close an LLC completely, you need to file a final tax return with the state and the IRS.
Make sure you check the box to show this is the final return for the LLC.
Fill out Schedule K-1 and give a copy to each member so that they know what to report on their own personal taxes in terms of losses and gains. The members of the LLC are personally liable for these taxes if they are not paid.
You also need to contact the IRS and close out your employer identification number (EIN).
6. Close Things Down
Once you've taken care of all financial distributions, you will want to close all bank accounts and cancel all insurance policies and licenses, permits, and registrations that the LLC holds.
Keep a copy of all the LLC's records in a safe place for seven years so that, if there is an audit, you will have proper documentation.
7. Divvy It Up
Once you pay all of your taxes and make sure all debts have been covered, the assets of the LLC are divided among the members. You may need to sell some assets, so be sure to do this before you divide things up. Your operating agreement may specify the percentage each member is to receive.
To finish closing an LLC, you will want to make sure you have completed each step, so that you and all the other members are fully protected. Ensuring the company is correctly closed will allow you to move on without worries.