How to Dissolve an LLC

Once you decide to go out of business, you may not be so enthusiastic about taking the time to wrap things up properly. But filing paperwork with the state and notifying creditors are important steps that will help limit your potential liability and allow you to move forward with the next phase of your career. 

What does it mean to dissolve an LLC?

Dissolving an LLC ends the business entity’s legal status with the state. This often occurs when the business owner decides they no longer want to continue operations and wish to end their entrepreneurial journey. It’s a difficult call to make, but it doesn’t necessarily mean that the business has failed. Dissolving a business is a natural part of a business entity’s lifecycle. 

Many small business owners opt for a dissolution of their LLC when:

• Their business was always intended to be temporary.
• Their business has met its financial goals or purpose.
• They are struggling financially and can’t find external funding. 
• They are retiring and have no successor. 
• They have an argument with members, and dissolving the business is the only viable solution. 

It’s important to properly dissolve your LLC because until the authorities are told otherwise, they will assume the business is active. As long as the LLC is active, the owner is required to file annual reports, pay annual fees, and pay minimum taxes. Formally dissolving an LLC puts an end to these requirements.

It also gives creditors notice that the LLC can no longer take on debt. Going through a formal dissolution process means you'll be much less likely to be surprised with a lawsuit for an unpaid debt or a fee or fine from a government agency in the future.

How to dissolve an LLC: A comprehensive overview 

When you started your business, you were probably excited about the new venture and made sure you did everything right—from making the decision to start a limited liability company to filing formation documents with the state. Similarly, dissolving an LLC entails a process. 

Step 1: Decide to close your business

Dissolving an LLC starts with making the decision to close. If you are a single-member LLC, this decision is entirely yours. However, if you have multiple members, then all members must vote to dissolve the business entity. The voting process should be conducted as per the LLC’s operating agreement. In lieu of an LLC operating agreement, the voting process should follow the formation state’s LLC laws. 

Step 2: Notify creditors and settle debts

Once you’ve made the decision to close your LLC, you need to notify your creditors that you are going out of business. In the notice, tell them how to submit claims and the deadline for doing so.

Your state’s LLC statutes will specify the deadline for submitting claims in your state, but it is generally between 90 and 180 days from the date of the notice. Your notice should also say that any claims received after the deadline will be barred.

Many states require you to notify creditors before filing dissolution papers. Even if it is not required, it is a good business practice. Notifying creditors helps you take care of your LLC’s remaining financial obligations before dissolution and limits the possibility of late fees or litigation over unpaid obligations.

Step 3: File final tax returns and get tax clearance

You should contact federal, state, and local tax authorities to determine whether your LLC owes any taxes and how to file final returns. If your LLC owes taxes, pay them so you can receive a “consent to dissolution” or tax clearance certificate from the necessary authorities, such as the state tax department. In some states, clearances from the state tax department have to be submitted alongside your dissolution papers. 

In your final tax returns, indicate that this is your LLC’s last return. This notation will help you avoid tax liabilities that could persist even after your business has ceased operations.

And in case your LLC has employees, don’t forget your payroll tax obligations. If you skip this step, the IRS can seek restitution from you personally. 

Step 4: Notify licensing authorities

Next, you should contact any federal, state, or local agencies from which you received licenses to cancel those licenses and take care of any outstanding fees. Professional, trade, or general business licenses fall into this category. 

For example, if your LLC holds a liquor license, you must inform the state department of your dissolution. Similarly, if you have a professional license (such as an architect or engineer) from a state-based board, you need to ensure that the dissolution doesn’t impact your professional license. 

If your LLC has a DBA, cancel that too. Check with your state or a business dissolution service to understand the process and fees. 

Step 5: File dissolution papers

Just as you filed paperwork with the state to form your LLC, you must file articles of dissolution or a similar document to dissolve the LLC. This document is part of public records and informs the state of your intent to close. 

These papers are filed with the same state agency that handled your original LLC formation—usually the Secretary of State. Forms, filing procedures, and fees vary from state to state.

In some states, you must obtain a certification from the state taxing agency confirming that the LLC is current in all its state taxes, and you must file this with your dissolution papers.

Step 6: Close business bank account 

Next comes settling and closing all business-related bank accounts. Before you can formally close the business bank account, ensure that all of the LLC's debts and outstanding checks have been cleared. Then you’ll need to gather any required documentation needed by your bank to close the account. This could include dissolution papers, a formal letter requesting account closure, and confirmation of the person authorized to close the account. 

Step 7: Distribute remaining assets

After you have paid all of your LLC’s outstanding financial obligations, you can distribute any remaining assets to the LLC’s members. The LLC's assets are to be distributed to the members as per the operating agreement. For instance, the operating agreement may mandate that assets get distributed to the LLC members as per the percentage of their ownership in the LLC. Maintain accurate documentation of the asset distribution process, including the specific amount given to each member. 

Your state’s laws may have additional statutes governing an LLC's dissolution and asset distribution process. An accountant or tax adviser can guide you through those. 

Step 8: Cancel contracts and inform customers and employees

The final step involves canceling contracts, leases, and other agreements your LLC entered. If you have employees, you will need to inform them about their last day of employment and provide severance (if applicable).

Also, don’t forget to inform your customers about your dissolution. It’s not a legal mandate, but it’s nice to keep them informed. This also gives you a way to get back in touch, just in case you wish to reopen your business down the road. 

How to dissolve LLC in California

Dissolving an LLC in California follows pretty much the standard steps listed above. However, depending on your decision to cancel the LLC, different forms are required. 

• If all members voted to dissolve the LLC, you just need to submit a certificate of cancellation. 
• If there was a majority vote or an event outlined in the operating agreement that triggered the dissolution, then you must first file the certificate of dissolution. 
• If your LLC was formed less than 12 months ago, you can submit Form LLC-4/8—a short-form cancellation certificate. 

California charges no fee for the dissolution or cancellation of an LLC if the filing is done online. However, if you submit a paper form, the Golden State levies a $15 handling fee. Certified copies of dissolution documents cost an additional $5. 

All forms must be submitted within 12 months of your LLC’s last tax return. In your final taxes to the state, you must select the “Final Return” box. 

Dissolving an LLC in Texas: Key requirements

Before you can dissolve or terminate your Texas LLC, you need to obtain a certificate of account status for dissolution/termination issued by the Texas comptroller. This document shows that your Texas LLC has paid all taxes under Title 2 of the Tax Code.

To request a certificate of account status, use form Form 05-359. You can mail the form to: Comptroller of Public Accounts, P.O. Box 149348, Austin, TX 78714-9348.

You will have to file this certificate—and not a printout of your LLC’s tax account status—alongside your completed certificate of termination with the Secretary of State to legally end the LLC’s existence. The filing fee for dissolving an LLC is $40, and you have the option to file online via the state’s online system, SOSDirect. 

How to dissolve LLC in Florida: A simple guide

To officially dissolve your Florida limited liability company, complete the articles of dissolution online with Florida’s Division of Corporations. There is a $25 filing fee. The articles of dissolution include a cover letter that includes the name of the LLC, mailing address, and the name and telephone of the person authorized to dissolve the company. 

The articles of dissolution require you to list the reason for dissolution. This must be in line with the Florida Limited Liability Company Act. The dissolution packet also includes  a notice of limited liability company dissolution. While this form is optional, it’s helpful in informing creditors of the dissolution and gives them a deadline to submit claims. 

You can request a certified copy of your articles of dissolution for $30 and a certificate of status that shows your LLC is no longer active for another $5. 

Don’t forget to complete other measures like paying final federal and state taxes, canceling licenses and contracts, and distributing any remaining assets as per the LLC’s operating agreement. 

State-specific LLC dissolution processes

While most states follow the seven-step dissolution framework, there can be a few variations. 

Arizona

Arizona state law mandates that an LLC undergo a formal vote to start the dissolution process. If yours is a single-member LLC, the decision is yours. Next, you must notify creditors of your intent to dissolve and give them a time frame to bring up claims. Your LLC’s books must be settled—meaning all debts and taxes owed must be paid, and all remaining assets must be distributed—before you can file the articles of termination. 

If you have an Arizona Transaction Privilege Tax (TPT) license, you will need to cancel that as well. Mailing a final transaction privilege tax return with the Arizona Department of Revenue will cancel this tax license. You can also cancel the license online through AZTaxes.gov. Log in to your business account page, go to the Account Update option, and select “close account.” 

Delaware

In Delaware, LLCs are “canceled” through a certificate of cancellation. Before filing your certificate with the state, settle unpaid debts and payments, cancel the necessary contracts, inform employees, resolve any pending legal issues, and pay the state franchise tax.

For an LLC in Delaware, the state franchise tax is $300 and is due before June 1 of each year. Failure to file your final franchise tax can result in a $200 fine plus a 1.5% monthly interest penalty. 

The completed certificate of cancellation can be filed online through the state’s business filing portal. There’s a $220 cancellation fee. If you choose to mail your certificate of cancellation, you will need to include a cover letter and a check for $520 ($220 cancellation fee + $300 franchise tax). 

Michigan 

In Michigan, all the LLC members have to agree to the dissolution. After this, the certificate of dissolution, with a $20 payment, can be filed with the Michigan Department of Licensing and Regulatory Affairs Corporations, Securities & Commercial Licensing Bureau Corporations Division. There’s an online filing option through the Corporations Online Filing System (COFS). 

Now, you must obtain a tax clearance certificate from the Michigan Department of Treasury. This step must be done within 60 days of submitting dissolution paperwork as it verifies that all state taxes have been paid. 

After receiving your tax clearance certificate, you need to complete the notice of change of discontinuance form. This can be done online, and there’s no filing fee.

New Jersey

The process to dissolve a NJ LLC involves the following steps:

• Ensure annual reports are current. If not, you can update the report and pay the fee through the online annual report portal.
• File certificate of cancellation online or via mail.
• Cancel tax and employer registrations with the Department of Treasury's Division of Revenue and Enterprise Services.

You also need to proactively cancel other licenses and permits. For instance, if your New Jersey LLC operates under a trade name or DBA, you may need to submit a Statement of Abandonment of Use to your local County Clerk. 

Common mistakes to avoid while dissolving an LLC 

Regardless of the state you are dissolving your business in, a few missteps to avoid are: 

• Failing to inform creditors
• Not paying final taxes, including payroll taxes (if applicable)
• Forgetting to file articles of dissolution with the state
• Not canceling permits and licenses
• Not distributing assets
• Failing to maintain proper records

A legal adviser or business service provider can support you through completing each step, ensuring you are well-set for the next step of your business journey. 

What happens after you dissolve an LLC? 

Dissolution ends your LLC's legal entity status with the state. You can't engage in any business transactions as an LLC from this point onwards. There also could be a few more loose ends that need winding up. 

If you registered your LLC to do business in other states, you must file documents with those states to withdraw or cancel your right to do business in those states. If you neglect to do this, you could remain liable for annual reports, fees, and minimum taxes, even if you haven’t done any business.

You will also be responsible for filing the LLC’s final income tax return and, if applicable, final employment tax returns. The Internal Revenue Service has a checklist of tax-related actions you typically need to take when closing a business. 

Remember to keep records of all dissolution paperwork, including your filed certificate of dissolution and tax returns. The IRS requires you to hold on to LLC records for anywhere between three to seven years post-dissolution. 

How LegalZoom can help with LLC dissolution

Dissolution is a critical step in your LLC’s journey, and filing the paperwork is just one step of the process. And we totally understand that closing your business can be emotional. LegalZoom can make the end more smoother and more complete. 

LegalZoom’s Dissolution Service will handle all the formalities with your specific state. You don’t have to worry about which form to fill out first or the processing fees—-we manage that all. With our Rush package, we ensure your paperwork is prioritized and get you the official paperwork from the state within two to three business days. 

FAQs

How much does it cost to dissolve an LLC?

The fees for dissolution vary by state, ranging from $0 to $200. California, Connecticut, Georgia, Maryland, and Utah are a few states that have no fees for dissolving an LLC. Alabama has a $100 fee for processing LLC dissolution. The state of Delaware has the highest fee of $200. 

What happens if I don’t dissolve my LLC properly?

Failure to formally dissolve your LLC can result in ongoing fees, debts, and accrued taxes. It can also leave you open to legal trouble like a customer suing the LLC and coming after your personal assets to cover damages. Also, unpaid LLC debts can tarnish your personal credit score. And loose ends in dissolution can prevent you from reinstating your business—which may be something you wish to do in the future. 

Can I dissolve my LLC online?

Yes, many states allow you to file the certificate of dissolution or termination online. Your state’s Secretary of State website or a business dissolution service, like LegalZoom, will have information about online filing options. 

What is the difference between voluntary and involuntary LLC dissolution?

A voluntary dissolution means that members, through a majority or unanimous vote, willingly decide to close the business. The reasons to dissolve could be that the LLC has met its goals, the LLC is merging with another company, or the members have decided to part ways. 

An involuntary or administrative dissolution is a legal process where a company is ordered dissolved, usually for failure to comply with state laws like filing an annual report or maintaining a registered agent. Another type of involuntary dissolution is a judicial dissolution, which is a court-ordered dissolution. Reasons for court-ordered dissolution could include failure to maintain compliance as per state laws, fraudulent activity like money laundering, unresolvable differences between members that can’t be resolved, or lawsuits that lead to insolvency.
 

Do I need to cancel my EIN after it's dissolved?

An EIN can't be canceled. However, you can deactivate your business account by sending a legal letter to the IRS. The letter should include your LLC's legal name, business address, and reason for closing the account. 

State-by-state LLC dissolution costs

Jane Haskins, Esq., contributed to this article.