Whatever your reason for ending your business, it’s not as easy as gathering your stuff, locking the door, and walking out. There are certain steps you have to follow to protect yourself and other members from any financial obligations or legal culpabilities in the future. Learning how to close an LLC is vital because if you keep your LLC open, it keeps open the opportunity for problems from scams filing tax returns on it to other member adding liability to it. So it’s wise to finalize and close to prevent any future issues.
The good news is that it’s just a matter of filling out a bunch of forms (and maybe paying debts). Just remember to keep detailed records of all the paperwork. Financial experts recommend you save them for up to seven years after dissolving your business, just to be on the safe side.
Now, it’s time to start the step-by-step process of how to close an LLC.
Generally, a majority or a two-thirds vote is often enough to end the business. Yet, this varies from state to state or based on your governing documents (i.e. operating agreement, bylaws, partnership agreement, etc), so get to know your state’s regulations first.
Obviously, you don’t need a vote if you’re the only member. However, you’ll still need to comply with the termination steps required by your state. Once you’ve met the decision-making requirement, on to the formal steps to close/dissolve your LLC.
Closing LLC Video
Step 1: File the Final Tax Returns
Once you’ve voted to dissolve your LLC, the first thing you have to do is file the final tax return with the IRS. It’s recommended you do this within 30 days of the dissolution date.
Depending on your state, the business can be taxed under various classifications. So, familiarize yourself with what fees and forms are required by your state to avoid leaving any loose ends. You may also need to settle up with your state tax department. Some states require tax clearance letter before you are allowed to dissovle the LLC.
Step 2: Settle All Debts
Most states require you to notify creditors before dissolving your LLC. These include lenders, suppliers, service providers, and insurance carriers.
You’ll have to settle all debts with your creditors before distributing company assets. Otherwise, any unpaid creditor could sue you to recover their assets.
Step 3: Divide Assets
Like customer information, patents, brand presence, copyrights, and more, assets can be tangible or intangible. Unless you’re the only member of the LLC, all assets are divided depending on each member’s capital account,
Step 4: Cancel Business Licenses and Permits
First, file a form for abandonment. Then, notify tax agencies to cancel your employer identification number.
Next, make a list of all the permits or licenses that the LLC used and start canceling them one by one. Some may have been set up with a deposit. So, make sure you get that back when you cancel.
Finally, close all business bank accounts and cancel any business credit cards. Make sure you pay off any taxes, fees, and penalties first. You won’t be able to dissolve your LLC until you do.
Step 5: File the Dissolution Paperwork
LLCs start when you file an Articles of Incorporation. So, it makes sense that to end it, you have to file another ‘Articles’ called the ‘Articles of Dissolution,’ in the same state as the Incorporation. Failing to do this could make you still liable for unnecessary recurring taxes or fees.
Before filing the paperwork, it has to be signed by the company’s Registered Agent. Then, a few days later, you’ll receive a Certificate of Dissolution formalizing the close of your LLC.
Dissolving a business is never easy. Yet, our guide on how to close an LLC will make the process less of a hassle.
Whenever it’s time to start your next LLC, use Drafted Legal’s Operating Agreement and LLC filing service to make your life easy!