How to Dissolve an LLC: A Step-by-Step Guide

What does it mean to dissolve an LLC?

Dissolving an LLC officially terminates your business entity's legal existence with the state. It's a natural part of a business' lifecycle and doesn't necessarily mean the company failed—many successful owners dissolve when they retire, meet their goals, or move on to new ventures.

Here are some common reasons to dissolve an LLC.

• Planned closure: The business was always intended to be temporary or has met its financial goals.
• Financial challenges: The business is struggling financially and can't find external funding.
• Retirement: The owner is retiring with no successor to take over operations.
• Member disputes: Unresolvable conflicts between members make dissolution the only viable solution.

Without formal dissolution, the state assumes your LLC is still active. This means you'll continue owing annual reports, fees, and minimum taxes indefinitely. Formally dissolving an LLC puts an end to these requirements, plus it gives creditors notice that the LLC can no longer take on debt.

In turn, you'll be much less likely to be surprised with a lawsuit for an unpaid debt or fine from a government agency in the future.

How to dissolve an LLC: A comprehensive overview 

Dissolving an LLC involves eight key steps: voting to close, notifying creditors, filing final taxes, canceling licenses, filing dissolution paperwork with the state, closing bank accounts, distributing remaining assets, and terminating contracts. Here's a breakdown of each step. 

Step 1: Decide to close your business

Dissolving an LLC starts with making the decision to close. If you're 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 decided to close, notify your creditors in writing. 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 not required, it's still a good business practice. Notifying creditors helps you settle 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 cancel all business licenses and pay outstanding fees. Here are some common business licenses that you may need to cancel.

• General business licenses: City, county, or state business operating permits.
• Industry-specific licenses: Liquor licenses, health permits, or contractor licenses.
• Professional licenses: Individual professional credentials (such as an architect or engineer) that may be separate from your LLC.

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, confirm that you've completed these steps.

• All debts are paid: Outstanding checks have cleared and bills are settled.
• Gather documents required by the bank: This could include dissolution papers, a formal letter requesting account closure, and confirmation of the person authorized to close the account.
• Final balance is distributed: Transfer remaining funds according to your operating agreement.

Step 7: Distribute remaining assets

After paying all outstanding obligations, you can distribute any remaining assets to the LLC's members according to your operating agreement. Typically, assets are distributed based on each member's ownership percentage, though your state may have additional requirements governing this process.

Then, document all distributions with detailed records showing the amount each member received. 

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.

File all forms within 12 months of your LLC's last tax return. On your final state tax return, mark the "Final Return" box to avoid future tax obligations.

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 from the state comptroller. This certificate proves your 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 the Division of Corporations for a $25 fee. Your filing must include a cover letter with your LLC's name, mailing address, and the authorized person's contact information.

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 where you're dissolving your business, try to avoid these missteps.

• Skipping creditor notification: This leaves you open to future lawsuits and liability claims.
• Ignoring final taxes: The IRS can pursue you personally for unpaid payroll or business taxes.
• Not filing dissolution paperwork: Your LLC remains active, requiring ongoing fees and annual reports.
• Leaving licenses active: Uncanceled permits can result in renewal fees and fines.
• Failing to distribute assets: This can lead to member disputes and potential litigation.
• Poor record keeping: Without proper documentation, you may face audits or legal challenges years later.

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? 

After dissolution, your LLC's legal status ends and you can no longer conduct business under that entity. You can't engage in any business transactions as an LLC from this point onwards.

If you registered to do business in other states, file withdrawal documents with each state. Neglecting this step leaves you liable for ongoing annual reports, fees, and taxes in those jurisdictions.

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, typically 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 at $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. Involuntary dissolution happens when the state administratively closes the LLC for non-compliance (like failing to file annual reports or maintain 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 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?

You can't cancel an EIN, but you can deactivate your business account by sending a 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

Alabama $100

Alaska $25

Arizona $35

Arkansas $50

California $0

Colorado $0* if mailed

Connecticut $0

Delaware $200

Florida $25

Georgia $0

Hawaii $25

Idaho $20

Illinois $5

Indiana $30

Iowa $5

Kansas $35

Kentucky $49

Louisiana $100

Maine $75

Maryland $0

Massachusetts $100

Michigan $10

Minnesota $35* if mailed

Mississippi $50

Missouri $25

Montana $0

Nebraska $30

Nevada $100

New Hampshire $35

New Jersey $100

New Mexico $25

New York $60

North Carolina $30

North Dakota $20

Ohio $50

Oklahoma $50

Oregon $100

Pennsylvania $70

Rhode Island $50

South Carolina $10

South Dakota $10

Tennessee $20

Texas $40

Utah $0

Vermont $20

Virginia $25

Washington $0* if mailed

West Virginia $25

Wisconsin $20

Wyoming $60

Jane Haskins, Esq., contributed to this article.