Dissolving or cancelling (the terminology varies by state) your LLC is a necessary process when you’re ready to close your business officially and avoid future legal and tax obligations. Whether your LLC is no longer active, or you’re transitioning to a new business structure, it’s crucial to follow the proper steps to stay compliant with your state laws. In this guide, we’ll walk you through how to dissolve or cancel your LLC smoothly and correctly.
Why Dissolving Your LLC Matters
If you stop operating your LLC without formally dissolving it, your business may still be subject to ongoing state fees, annual reports, and possible penalties. Dissolving your LLC ensures that your business is officially closed and protects you from unnecessary liabilities.
Step 1: Review Your LLC Operating Agreement
Start by checking your LLC’s operating agreement. Many LLCs include dissolution procedures in their internal documents. These often detail:
- Member voting requirements for dissolution
- Responsibilities for winding down
- Asset distribution plans
If your operating agreement doesn’t mention dissolution, follow your state’s default procedures. These can typically be found on the Secretary of State’s website.
Step 2: Vote to Dissolve the LLC
Hold a formal vote with all LLC members to approve the dissolution. Record the vote in your meeting minutes or a written consent form. This documented decision is often required for filing dissolution paperwork.
If you are a single-member LLC, the decision to close is yours.
Step 3: File Articles of Dissolution With the State
You’ll need to submit dissolution paperwork (often called Articles of Dissolution or Certificate of Cancellation) to the state agency where your LLC was formed. This filing:
- Formally notifies the state that your LLC is closing
- Ends your LLC’s good standing status
- May require a filing fee
LLCs are typically required to be in good standing at the time of dissolution or cancellation. This means that most states will not process Articles of Dissolution or Cancellation if the LLC:
- Has unpaid annual fees or franchise taxes
- Has missing or late annual reports
If your LLC is not in good standing, the state may reject the dissolution filing and require the LLC to resolve the delinquencies first.
Tip: Requirements and forms vary by state. Check with your Secretary of State’s office or website for state specific documentation.
Step 4: Resolve Outstanding Business Obligations
Before you can legally close your business, make sure to:
- Pay all remaining debts and taxes
- Close your business bank accounts
- Cancel business licenses and permits
- Notify vendors, employees, and customers
Resolving these obligations prevents future issues and helps finalize your business closure.
Step 5: File Final Federal and State Tax Returns
The IRS requires a final tax return for any closing business. Be sure to:
- File your final federal income tax return
- Indicate that it is your final return
- Pay all outstanding taxes
State tax agencies may also require a final return. Some states won’t approve your dissolution without proof that taxes have been paid.
Step 6: Distribute Remaining Assets
After settling debts, remaining business assets can be distributed to LLC members based on the ownership percentages outlined in your operating agreement.
Keep detailed records of all distributions for tax and legal purposes.
Step 7: Maintain Records After Dissolution
Keep copies of all dissolution documents, final tax filings, and asset distribution records for at least 3–7 years in case of future audits or legal questions.
Frequently Asked Questions About Dissolving an LLC
Q: How much does it cost to dissolve an LLC?
A: The cost varies by state but typically ranges from $0 to $300.
Q: Can I dissolve my LLC online?
A: Yes, many states allow you to file Articles of Dissolution online through their Secretary of State portal.
Q: Do I need to notify the IRS when I dissolve my LLC?
A: Yes, filing a final tax return and checking the “final return” box notifies the IRS.
Q: What happens if I don’t dissolve my LLC?
A: Your LLC may continue to accrue taxes, annual report fees, and penalties even if you’ve stopped operating. In some states your LLC may eventually be automatically admininistratively dissolved.
Dissolve Your LLC the Right Way With URA
Dissolving an LLC can be complex, especially if you operate in multiple states. URA makes it simple. We handle the paperwork, ensure state compliance, and help you avoid penalties.
Contact us today to get started with your LLC dissolution.
