While there's a lot of information out there about how to set up a business, there may also come a time in your career when it's equally important to understand how to dissolve an LLC. Just as getting your business up and running requires following a specific set of procedures, making sure everything is legally wrapped up is an important part of protecting yourself and your business partners.
What We'll Cover
- What happens when you dissolve an LLC?
- What is the difference between dissolving and terminating an LLC?
- How do I dissolve an LLC in the US?
- Step 1: Take a Vote
- Step Two: Clear Things With the IRS and State Tax Board
- Step Three: File Articles of Dissolution
- Can you dissolve an LLC online?
- Should I dissolve an LLC that was never used?
- Can a dissolved LLC be reinstated?
- How much does it cost to dissolve an LLC?
- How long does it take to dissolve an LLC?
- Can one member/partner dissolve an LLC?
- Can you dissolve an LLC during a lawsuit?
- Can you dissolve an LLC with debt?
- Can you dissolve an LLC before filing taxes?
- Is it mandatory to cancel EIN?
- What happens to your EIN when you dissolve LLC?
- What happens if I don't close my EIN?
- What happens to the assets when an LLC is dissolved?
But how to dissolve an LLC is often the first of many questions that come up throughout the process. Is dissolving a company the same as closing?
From what to do with assets when closing a business to who to inform that your LLC is closing shop, we'll walk you through what you need to know step by step. We'll also answer common questions about how to handle taxes, debt, and other considerations.
What happens when you dissolve an LLC?
It's important to understand exactly what terms like dissolution mean and how they fit into the overall process of ending a business. Does dissolution mean the ending or termination of an organization?
While dissolution is an important first step, it's only one part of the overall process you'll need to go through to ensure that your LLC is terminated entirely. Dissolution formally begins a sort of "wrap-up" period during which you and your partners get everything in order after you cease officially doing business.
What is the difference between dissolving and terminating an LLC?
Termination will occur when you've completed all the necessary steps in the dissolution process and no longer exist as an operating business in the eyes of the Secretary of State. Throughout the dissolution process, you'll handle things like liquidating assets, completing your taxes, and paying any outstanding debts.
How do I dissolve an LLC in the US?
The dissolution process involves several steps and it's important to cover your bases during each. Let's break down how to go about it the right way.
Step 1: Take a Vote
Before you move forward with dissolution, it's essential to make sure all your business partners are on the same page. You'll want to consult your original LLC operating agreement, which most likely outlines the dissolution terms and processes you all agreed on when opening your business.
If these terms weren't included in your original contract, then your state LLC laws should provide a thorough overview of necessary procedures. You may have agreed that certain events, such as the death of a partner, would trigger an automatic dissolution, or you may need to take a vote as part of a voluntary dissolution.
If you are dissolving voluntarily, then conduct a formal meeting with all of your partners in order to hold a vote to dissolve. If the majority agrees, then you'll want to keep an official record of the vote when moving forward.
Step Two: Clear Things With the IRS and State Tax Board
Some states require you to receive a "consent to dissolution" at both the state and federal levels before officially filing your dissolution paperwork with the Secretary of State. At this stage, you'll want to file your LLC's final tax returns and pay any taxes that your business may owe.
Make sure you indicate that this tax return will be your last and file any final employment tax returns at this time. Once things are settled, you'll receive a letter or certificate that proves you are no longer subject to tax liability.
Step Three: File Articles of Dissolution
Last but not least, your LLC's registered agent will want to formally file Articles of Dissolution. Once these are filed, you'll receive a Certificate of Dissolution, which means that you'll no longer be able to actively do business.
As long as you file your Articles of Dissolution in the state where you incorporated your business, any branches in other states will be dissolved also. This is the point where you'll be free to start wrapping up your business affairs.
Can you dissolve an LLC online?
You sure can - in fact, filing online through companies like IncFile is often the easiest way to go. IncFile will guide you through the entire process and get your dissolution articles filed in your state.
It's also possible to obtain the necessary articles of dissolution in-person by contacting the necessary departments in your state. While this can vary on a state-to-state basis, the office of the Secretary of State is usually a good place to start.
Should I dissolve an LLC that was never used?
As long as your business remains open, it's considered active and may be liable for taxes, dues, or other government fees. Even if you never actually used the LLC, it's best to formally dissolve it in order to protect yourself from unfortunate surprises.
Can a dissolved LLC be reinstated?
It is indeed possible to reinstate an LLC, even if you were forced to dissolve due to non-compliance. If you decide to reopen your LLC, just be aware that you'll pick up where you left off, so it's important to resolve any issues to ensure that you're in good standing.
You'll want to check in with the Secretary of State or Tax Department in your state to make sure you understand the requirements for reopening your company. You'll then need to file formal reinstatement papers to officially reopen your business.
How much does it cost to dissolve an LLC?
How much it costs to file articles of dissolution will largely vary depending on your state, as well as any state filing fees your state requires. Here are a few examples of IncFile's prices for filing in various states to give you a better idea.
|State||Price + State Fees|
|New York||$149 + $85 State Fee|
|Florida||$149 + $25 State Fee|
|Texas||$249 + $91 State Fee|
|California||$149 + $5 State Fee|
|North Carolina||$149 + $33 State Fee|
|Alabama||$149 + $184 State Fee|
|Nevada||$149 + $100 State Fee|
How long does it take to dissolve an LLC?
The unfortunate truth is that it depends on several factors. The first is how long it takes to process your dissolution application, which can vary from state to state.
But it will also come down to how prepared your business is to go through the dissolution process. If you are currently involved in a lawsuit, have outstanding debts, or still owe taxes, then the process may take a bit longer.
Next, we'll get into some common questions about LLC dissolution. This should give you a better idea of what you can and can't do when dissolving an LLC.
Can one member/partner dissolve an LLC?
This depends on how many members there are in total. For example, if there are only two, each with a 50% stake in the LLC, then one partner might be able to force a dissolution with the help of the courts.
Additionally, a single member may be able to obtain an involuntary dissolution in court under certain circumstances. If the member can prove misconduct among other members or that there's simply too much argument for the business to run properly, there's a chance a judge might impose an involuntary dissolution order.
Otherwise, a majority vote would be needed to dissolve the LLC unless your articles of organization say otherwise. In this situation, it's usually easiest for a single unsatisfied partner to withdraw from the company, in which case their share in the company would be divided among the remaining members.
Can you dissolve an LLC during a lawsuit?
It highly depends on the situation. In some cases, the Secretary of State could dissolve your LLC involuntarily due to failure to maintain state requirements.
In others, a judge may prohibit you from dissolving if your company is involved in active ligation, your creditors can provide evidence that the dissolution may be a ploy to dodge your outstanding debts, or if you've failed to pay any taxes you still owe.
In still other circumstances, you may be able to dissolve during a lawsuit - though it may not be the best idea as some states will still allow third parties to legally pursue members for damages or liabilities. As this situation can vary widely based on everything from state law to circumstances, it's always best to consult a lawyer.
Can you dissolve an LLC with debt?
Whether or not you can dissolve your LLC while actively in debt will likely come down to the laws in your state. Some states require you to reach out to creditors before dissolving, while others may require your business to use its liquidated assets to pay creditors before distributing any remaining assets to members.
Additionally, dissolution may not always be the best way to go if you still owe a great deal of money. If you have personally guaranteed any loans, your creditors can still sue you for unpaid debts even after you dissolve your LLC.
Filing for bankruptcy for your LLC may be the best play here, especially if you find yourself genuinely unable to repay outstanding debts. Be sure to speak to a lawyer to best understand your options.
Can you dissolve an LLC before filing taxes?
Many states require you to get clearance from the appropriate state and federal tax agencies before filing for dissolution. While dissolution can free your company from the need to pay future taxes, you'll still be liable for unpaid back taxes.
Is it mandatory to cancel EIN?
If you plan to dissolve your EIN, you should definitely ask the IRS to close out your EIN account. This will help ensure that you are no longer liable for tax obligations.
What happens to your EIN when you dissolve LLC?
Even after your EIN is canceled, it will never be reassigned to another business. Should you decide to reinstate your LLC later, it's possible to reactivate your old EIN account.
What happens if I don't close my EIN?
It's best to close your EIN in order to avoid potential confusion with the IRS. By formally letting them know you're out of business, you won't be held liable for future taxes or fees as long as your EIN remains inactive.
What happens to the assets when an LLC is dissolved?
Once your business is dissolved, the assets will be distributed among members as long as your LLC is in good standing. If you still owe outstanding debts of any sort, you may be subject to legal action by creditors in some states.
That's why it's so important to make sure your affairs are in order before you move forward. If you have any questions, be sure to reach out to a qualified attorney.
We hope this has helped give you a better idea of what goes into dissolving an LLC. As you can see, terminating your business can be a relatively simple process as long as all your affairs are in order.
If not, then it's definitely worth speaking to an attorney in order to better understand your legal options. Best of luck in your future business ventures!
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