How to dissolve an LLC in 8 steps

Should you need to shutter your business, dissolving your LLC is a major part of closing down your operations. Going through the proper dissolution steps can protect you from potential liabilities. In this guide, we walk you through how to dissolve your LLC, common reasons to dissolve, state-specific requirements for doing so, types of LLC dissolutions and key terms you should know. 

How to dissolve your LLC in 8 steps 

Dissolution of your LLC is done at the state level by first voting to dissolve your LLC, filing final tax returns and paying all payroll and other taxes owed. Then, once you’ve filed your articles of dissolution with the secretary of state and it gets approved, you’ve technically completed the process. However, to eliminate future liabilities, there are several other steps to terminate your LLC, including canceling your employee identification number, notifying creditors, distributing assets properly and keeping proper records for an appropriate amount of time.

Here are the steps to dissolve your LLC:

1. Vote to dissolve your LLC

If you’re going by way of voluntary dissolution, all members of your LLC have to vote to dissolve the company. They need to either cast a vote or abide by the events or circumstances that trigger a dissolution (i.e., specific protocols for the death of a key member). This is detailed in your LLC operating agreement or articles or organization. If it is not, your LLC must default to state laws regarding dissolution procedures. 

2. File your final tax return 

In some states, you need to file your tax returns and pay outstanding taxes (if any) before you can file the paperwork to dissolve your company. You need to file local, state and federal tax returns. Indicate somewhere on your returns that this will be your business’s last and final tax return. There is a “Final Tax Return” check-off box on federal tax forms. 

For an LLC, you must also file Schedule C (Form 1040 or Form 1040-SR), Profit or Loss From Business with your normal yearly tax return for the final year of your business’s operation. If you’re closing your business and selling your business property, you’ll also need to file Form 4797, Sale of Business Property. Further, if you have net earnings of $400 or more, you must file Schedule SE (Form 1040), Self-Employment Tax. 

In most states, after filing your return, you’ll receive a verification of good standing from your state tax agency stating your tax debts have been paid. If your state doesn’t require a verification letter, you still need to file taxes before you can move forward with closing your business.

3. File final payroll tax returns 

If you have employees, you must also pay final employment taxes. Otherwise, you’ll be personally liable for any outstanding payroll taxes, and the IRS can go after anyone who signs your payroll. It is recommended you do this after you pay employees’ final wages and any other compensation you owe them. 

To pay and finalize your unemployment taxes, Form 941, Employer’s Quarterly Federal Tax Form or Form 944, Employer’s Annual Federal Tax Return should be filed for the quarter or calendar year (respectively) in which your final wage payments were made. Each form contains a box you can check to denote your LLC has closed and to record the date your last wages were paid. If you filed Form 944, also attach a statement including the name and address of where payroll records will be kept. 

Finally, send a Form W-2, Wage and Tax Statement to your employees by the due date of your final Form 941 or 944 and Form W-3 to the Social Security Administration. 

4. File a certificate of dissolution

Also known as the articles of dissolution, certificate of dissolution or certificate of cancellation, this is a document in which you formally request the state dissolve your business.

The following information is requested on these forms:

• Information and pertinent details about you and your company members, such as your name and phone number and the entity’s name, entity number and address.
• How your LLC was dissolved (by a vote, for example).
• If any assets have been distributed. 
• If any liabilities (i.e., small business loans, business lines of credit or SBA loans) have been paid back.
• If all final tax returns and forms have been filed and taxes paid. 
• The signature of a controlling member of the LLC.

A form to request LLC dissolution can be found on the Secretary of State website for the state in which your company operates. Many states charge a filing fee, while some states don’t charge a fee. For instance, if you’re filing articles of dissolution in California, there’s no fee. However, Iowa’s LLC dissolution filing costs $5, and New York’s costs $60.

Please note: After you file for dissolution, the next stage is what’s known as “winding up affairs.” At this point, a business can usually only stay operating to wind up its affairs in order to fully close the company. State laws dictate what duties can be performed following filing for a certificate of dissolution. For example, some require all debts to be paid prior to dissolution (see step 5), while other states allow debts to be paid after dissolution. 

5. Pay off any outstanding debt

Depending on the state in which you dissolve your LLC, you might need to officially notify creditors before you can file your articles of dissolution. This might include:

• Lenders. 
• Service providers. 
• Insurance companies. 
• Suppliers.
• Vendors.

Notifications should be provided in writing. Different states have different criteria for what should be included in this notice. For example, Michigan state requires the following information to be included:

• The information creditors should include in a written claim of debts owed. 
• A mailing address where the claim should be sent. 
• A deadline for all claims. (Note that each state has a different minimum period of time it requires LLCs to give claimants. For example, in Michigan, claimants have a minimum of six months to submit a claim.) 
• A statement saying the claim will be “barred” or dismissed if submitted after the stated deadline. 
• A statement indicating that the notice “does not constitute a recognition that a person to whom the notice is directed has a valid claim against the limited liability company.” 
• Other conditions under which the claim may be deemed invalid (such as if a claimant does not begin claim enforcement after a stated period passes from the claim’s rejection).

You may also be required to publish a notice in a local paper in which you must list a deadline to submit any claims. The time frame for submitting claims depends on the state, but is usually anywhere from 90 to 180 days.

It’s important to have enough funds set aside or assets to liquidate to pay off your creditors, points out Myron Rabij, Esq., a partner in corporate law at the New York-based Davidoff Hutcher & Citron.

“Sometimes a business owner, in anticipation of closing the company, simply does not leave enough money in the company to settle its bills, debts and expenses, or fails to notify the creditors of the business,” says Rabij. “In such a case, creditors may make claims against the company — and potentially against a sole business owner, whether legally viable or not — and this drags the company and its owner into potential litigation.” 

6. Dole out assets to LLC members

After outstanding debts have been paid, the remaining assets can be distributed to the LLC’s members. Assets may include physical properties, intellectual property, profits and other financial investments.

Generally, assets are divided based on a member’s ownership percentage. So, if the LLC has four members, and the ownership percentage is a 25-30-20-25 split, the assets would be meted out based on the same breakdown. 

Your operating agreement should provide guidance on how to divide up assets among your members based on their ownership share. Your state laws will serve as default guidance if no such instruction exists. 

7. Cancel your business licenses and EIN

Close or cancel any business licenses or permits linked to your company. In addition, once you’ve filed all tax returns and paid taxes, close your employer identification number (EIN) and state identification tax number. This signals to the IRS that your business is closed and you won’t be filing any more tax returns. 

Various business licenses and permits are closed in various ways. State-specific requirements also exist for canceling your state identification tax number. Contact the entity that approved your license or permit to learn instructions on how to cancel them. 

In terms of canceling your EIN, draft a letter with the following information:

• Your LLC’s complete legal name. 
• Your EIN. 
• Your LLC’s address. 
• The reason you are closing your EIN account. 

Include a copy of your EIN assignment letter (if you kept one) and send the letter and EIN assignment letter to:

Internal Revenue Service

Cincinnati, OH 45999

8. Keep records 

You should keep a file of business records for at least four years after your business closes. Hold onto your property records until the period of limitations expires for the year you dispose of the property. Other records that should be kept include financial statements and copies of business licenses, registrations and permits.

Also, hold on to tax records until you exceed the period of limitations, usually between three and six years. Simply put, the period of limitations is the time frame in which you can make changes to your tax return to claim a credit or refund, or the IRS can assess additional tax. Keep records of all employment taxes you paid for at least four years.

Reasons to dissolve your LLC 

Some reasons why LLCs dissolve include:

• The LLC isn’t generating enough profit to be sustainable.
• The owner files for bankruptcy. 
• A key LLC member has been diagnosed with a serious illness or has passed away. 
• The owner is retiring and not interested in selling the business. 
• Poor management practices have left the business unsustainable.
• Internal disagreements among members cannot be resolved. 
• Too much competition renders the business impractical. 
• The LLCs are defective or no longer in demand. 
• The company is being sold or reorganized, and so LLC assets are being transferred from one company to another. 
• The business has completed all of its goals. 

Dissolving vs. terminating an LLC

While the terms “dissolving an LLC” and “terminating an LLC” might mistakenly be used interchangeably, they aren’t the same. While both address aspects of ending a business, dissolving an LLC refers to a step in the process of closing your business. Termination, on the other hand, means shutting down all business operations, paying off debt, disposing of your assets and handling other final obligations.

For example, let’s say that one member of the LLC wants to leave the company. In that case, the LLC will be dissolved, but the company will continue to operate until all necessary steps have been taken to officially shut down the business.

Depending on the state, you might need to file a separate form to dissolve an LLC, and another one to terminate an LLC. The form used to terminate an LLC is called articles of termination. It states that the debts and liabilities associated with the LLC have been paid and all assets distributed appropriately. 

What happens to your EIN after you dissolve your LLC?

Technically, the IRS cannot cancel your EIN. Once an EIN has been assigned to your business, it is forever yours. It will never be reused or reassigned to another business entity.

However, you can close your business account with the IRS after you dissolve your LLC.

To do so, send the IRS a letter that includes:

• The legal name of your business.
• Your business EIN. 
• Your business address. 
• The reason you are closing your account. 
• A copy of your EIN assignment letter (if you still have it).

Before closing your account, you must file all final tax returns and pay owed taxes. 

Dissolving LLCs operating in multiple states

For LLCs that operate in multiple states, you need to file dissolution documents in those states. The process for dissolving an LLC is similar across states. Still, you should check with your state to ensure you follow state-specific dissolution laws, including whether you need to file articles of termination in addition to articles of dissolution.

Rabij explains, “If you do not file properly in these additional states, the LLC will continue to be liable for its annual tax filing and report.” 

Involuntary dissolution

Voluntary dissolution happens when an LLC’s members deliberately and intentionally decide to close the business. This is the most common form of dissolution. However, there are some instances in which an LLC dissolves involuntarily. This falls into two camps:

1. Judicial dissolution. As the name implies, this is issued by the court, and usually occurs if you:

• Don’t comply with state laws. 
• Don’t pay taxes. 
• Members of your LLC wish to part ways due to a dispute deadlock.
• Your LLC has committed fraud.
• Assets are being grossly mismanaged or wasted. 
• The LLC is unable to pay creditors after a claim has been submitted against it and deemed valid.

2. Administrative dissolution. This is imposed by the Secretary of State, and is usually due to you: 

• Not filing an annual report for 120 days after the filing deadline.
• Failing to abide by state business laws.
• Failing to maintain a registered agent for 30 days or more. 

This type of dissolution is easy for LLCs to perform; they must simply wait. However, it does not afford the same liability protections as a formal LLC dissolution, such as protection against the LLC’s creditors submitting claims after dissolution.

States with unique dissolution rules 

As mentioned, while the overall process to dissolve an LLC is standard across all states, the fees — if any — and dissolution laws vary among states. In addition, standard processing times for articles of dissolution vary. In Alaska, it can take anywhere from 10 to 15 days. In Florida, it can take 2 to 3 days.

If you have to dissolve your LLC in multiple states, look at each state’s Secretary of State website to learn detailed state-specific instructions. Or, reach out to your registered agent service provider for guidance. 

Here are some examples of slight state-specific differences in the LLC dissolution process:

• Georgia: You must pay off debt — or have an arrangement in place to do so — and distribute any assets to LLC members before filing your articles of dissolution. 
• Indiana: If someone other than a corporate officer is asking for dissolution clearance, you need a power of attorney. 
• Louisiana: The affidavit-to-dissolve form must be notarized. 
• Maryland: A notification of termination of LLC must be sent to creditors via certified mail before articles of cancellation can be submitted.
• Michigan: An LLC must receive tax clearance from the Michigan Department of Treasury within 60 days of filing articles of dissolution. 
• Nebraska: During the termination phase, your company’s sale-tax permit should be returned for cancellation.
• North Dakota: Debt must be repaid before filing articles of dissolution.
• South Carolina: All debt must be paid and assets distributed to shareholders before articles of dissolution can are filed. 
• Texas: You must have a certificate from the comptroller of public accounts stating that taxes have been paid before filing articles of dissolution.
• West Virginia: All debt must be paid before articles of dissolution are filed.
• Wisconsin: Articles of dissolution must be filed with the Department of Financial Institutions instead of the Wisconsin Secretary of State. 

Frequently asked questions (FAQs)

How long does it take to dissolve your LLC?

Note that the time it takes to dissolve your LLC depends on the state you’re filing and if you need to file in multiple states. Each state has a different time frame to process your articles of dissolution. For example, Alaska takes 10 to 15 days to process articles of dissolution, while Florida’s dissolution processing time is two to three days.

Do you need to dissolve your LLC?

Yes, you need to dissolve your LLC by filing articles of dissolution. Otherwise, you are still liable for yearly taxes and creditors can still file claims against you. Filing articles of dissolution is a major step in terminating your business. Still, there’s more to the process, including paying off the LLC’s debt, distributing assets among LLC members or shareholders, paying taxes and closing associated permits, registrations and licenses.

Does dissolving your LLC close your business?

Dissolving your LLC is a step in closing your business. After dissolution, steps should be taken to close the business. In some states, this may involve responding to and resolving creditor claims, notifying stakeholders of the business’s closing, distributing assets among LLC members and other tasks necessary to shutter the business. 

Depending on the type of dissolution, your business may be required to only perform activities necessary to liquidate assets and close a business after its dissolution, such as in the case of administrative dissolution. 

Does a dissolved LLC still need to file taxes?

If you are terminating a business, you need to file final taxes for the year you are dissolving your LLC. Depending on the state, this may come before or after you file articles of dissolution or articles of cancellation to legally dissolve your business.