Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.

When a business is no longer, it’s not as simple as just walking away from it. Ending business operations is stressful in and of itself, but leaving loose ends that may come back to haunt you is even worse.

To properly bid adieu to your LLC, an official dissolution process is important to work through to avoid future liability and complications.

If you’re ready to move on to your next business endeavor, make sure you’ve finished everything with your old LLC. If you’re unsure what that process looks like, follow the steps and instructions below for a seamless transition.

When to Dissolve an LLC

There are several situations you may find yourself in that warrant dissolution of your business. As long as you can get all the members of the LLC in agreement to end the business, the reason you decide to dissolve the LLC isn’t relevant to the steps you’ll need to take to end it officially.

However, it can be helpful to understand when it would make the most sense to dissolve an LLC.

Business Purpose Complete or Moot

A business may exist to serve a specific purpose. Once that purpose has been completed, or if it becomes moot and no longer relevant, it may be time to dissolve the LLC officially. It’s okay to have a limited-purpose LLC, and once the goal has been reached, it would make the most sense for the members of the LLC to choose to dissolve it. A good example is something like a real estate venture.

Planned Business Expiration

Another situation where it might make sense to dissolve an LLC is if you planned from the beginning to expire the business after a certain point. Some states have specific paperwork that the LLC founders can complete that includes an expiration date for the LLC. 

You could make this expiration date general and relative, such as after a member dies or if the business files for bankruptcy. You could also detail a particular day, like June 25th, 2021.

However, this needs to be noted from the beginning. Otherwise, the LLC will exist perpetually until manually dissolved.

Disagreement Among Members

You may find yourself in an unfortunate scenario if you and your LLC members get into a disagreement. Even with the best intentions, disagreement and conflict happen. If you can’t resolve it, a dissolution may be your best bet. 

The key is to get all members of the LLC to agree to the dissolution at least. Otherwise, the other alternative is a lawsuit that will ultimately force the dissolution anyway.

No More LLC Members

If members leave the LLC, or, for example, the sole owner passes away, there may be no members left. If no successor or heir is interested in taking over the business, it might make the most sense to dissolve the LLC. 

However, you may need to look closer into your state’s laws to learn how to dissolve an LLC in the situation that there are no members left.

Why You May Want to Dissolve an LLC

You may run into other issues that could lead you to decide to dissolve the LLC. While this is a personal decision, one or more of these factors may outweigh the benefits of keeping the business open, leading you to decide to dissolve it once and for all.

Some reasons you may want to dissolve your LLC include:

  • Mismanagement of the company due to one or more parties
  • Low cash flow (not making enough in revenue to keep the business profitable)
  • Bankruptcy filing
  • Poor accounting practices that put the company in a hard spot
  • Defective products or a failed service idea
  • Serious disagreements between partners
  • Failure to successfully put a plan in place for succession

One alternate reason to dissolve an LLC that hasn’t been mentioned here yet is that a different type of entity would better suit the business. For example, if it’s a single-member LLC run more like a sole proprietorship, switching to this business type may make more sense.

A good reason to dissolve an LLC is to avoid the requirements to file annual reports, pay taxes, and pay annual fees. It also gives notice to creditors that your company can no longer take on debts, keeping you free from the responsibility of any lawsuit or unpaid debts.

How to Properly Dissolve an LLC

There are four key steps to work through if you want to properly dissolve your LLC once and for all. It starts by holding a vote to either dissolve it or maintain it, and it ends with submitting the final dissolution papers.

These are the steps to walk through:

Step 1: Voting to Dissolve the LLC

First, you must gather all of the members of the LLC and hold a vote. This is the only way an LLC can be dissolved voluntarily. A business’ operating agreement will often detail a specific procedure to hold this vote. If not, your state will have LLC statutes that can guide you.

However you do it, hold the vote and memorialize it by writing down the decision and having all members sign it. Then, add this written resolution to your records for the business.

Step 2: Notifying Creditors of the Dissolution

Next, let any creditors know that you are no longer in business, and give them a deadline to submit any claims that may be left untended.

Here, you’ll need to do some research into your state’s LLC statutes to learn about the deadline to submit claims. It’s usually somewhere between 90-180 days from the date of this official notice.

Most of the time, you’ll send this notification before you file your official dissolution papers, but the order of these steps can vary from state to state.

If there are any outstanding debts, you should try to settle them before moving on in this process to keep everything organized and ensure you can use money from the business to pay them. This is necessary to make sure you aren’t faced with paying them later from your personal funds after distributing whatever assets are left, or someone suing your dissolved LLC.

Step 3: Notifying Licensing and Tax Authorities

Next, let both your local and state taxing authorities know that you’ll be dissolving the business, and they’ll inform you of any taxes or fees you may still owe.

Then, reach out to any licensing authorities to let them know of your dissolution. There may be outstanding fees owed there you’ll want to pay before filing your papers. 

Once all fees and debts have been paid, you can distribute any assets that remain to the members of the LLC. If you’re the only one, it can all go to you.

Step 4: Filing Official Dissolution Papers

The fourth and final step is to fill out your state’s official dissolution papers. You’ll be able to find these on the same state website that you used to establish your LLC and file your articles of organization.

Note that these steps may be slightly out of order depending on what state your business is filed in. Some states require these documents to be filled out before you notify creditors, while others are the other way around. Some also require tax clearance before you can file the papers, so the order is determined by your state’s website. 

This final form may also be called the certificate of cancellation or certificate of dissolution. On it, there’s usually an opportunity for you to share details about the company, members, and reasons for dissolving. 

There’s usually a fee for filing this paperwork, so be sure you include the proper amount if you mail it in. Other states may allow you to electronically file your paperwork and submit payment via card online.

(Optional) Step 5: Tying Up Loose Ends

Once all of the paperwork is done, there still may be a few things left for you to do before you say goodbye to your business once and for all. This includes letting employees go, giving out severance packages, canceling vendor contracts and leases, notifying customers, and paying any final payroll taxes.

Finish it off by closing your business bank account as well as your FEIN and your state tax ID if given one.

How Much Does It Cost to Dissolve an LLC?

It usually doesn’t cost much to file your articles or certificate of dissolution. In Florida, for example, the fee is $25 to file the paperwork and an additional $30 to receive an official copy of the dissolution.

There may be additional costs that come from unpaid taxes or fees and costs such as severance, closing contracts, and paying out final employees. 

However, the cost of failing to dissolve an LLC properly can come with much higher costs. If left unpaid, these fees and taxes can follow you and may accumulate more serious penalties or fines.

The Last Word

If the time to close your LLC has come, do it right. While it can be tempting to simply walk away from the business, following the four (or five) above steps can save you from fees and penalties in the long run and ensure you’ve tied up all of your loose ends so you can move into your next business endeavor whenever you’re ready.


Filed under: Advice Columns

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