How to Dissolve an LLC

Step 1: Get Member Approval to Dissolve

Start with your operating agreement. Most operating agreements spell out the vote needed to dissolve, such as a majority or unanimous vote of the members, and many states' default LLC statutes supply a similar rule if your agreement is silent. Document the vote in writing and keep it with your company records, since your state's dissolution filing may ask whether the dissolution was properly authorized.

Step 2: Wind Up the LLC's Business

Winding up means finishing the LLC's affairs before it stops existing. In practice, that includes:

• Notifying known creditors and giving them a chance to submit claims.
• Paying outstanding debts and obligations to the extent the LLC's assets allow.
• Collecting any money owed to the LLC.
• Distributing remaining assets to members according to the operating agreement.
• Canceling leases, licenses, permits and contracts the LLC no longer needs.

Some states let you file your dissolution paperwork before winding up is complete, treating it as the start of the process, while others expect winding up to be finished first. Check your state's specific dissolution or termination form for which order it follows.

Step 3: Handle Your Final Federal Tax Obligations

The IRS outlines several closing steps for a business, regardless of entity type, per the IRS's closing-a-business guidance:

• File a final tax return marked as final. A partnership files Form 1065 with the "final return" box checked and issues a final Schedule K-1 to each member. A single-member LLC taxed as a sole proprietorship reports its last year of activity on Schedule C with the owner's Form 1040.
• File Form 966 if your LLC is taxed as a corporation and the members or shareholders adopt a formal resolution or plan to dissolve; the IRS requires this form within 30 days of adopting that resolution.
• File final employment tax returns if you have employees, including a final Form 941 or Form 944 marking the appropriate final-return box, and a final Form 940 for federal unemployment tax.
• Issue final W-2s to employees and file Form 1099-NEC for any contractors you paid $600 or more during the year, transmitting copies with Form 1096.
• Pay any outstanding taxes. The IRS states plainly that it cannot close your business account until you have filed all necessary returns and paid all taxes owed.

Step 4: File Your Dissolution Document With the State

Every state has its own form for ending an LLC's existence, called Articles of Dissolution, a Certificate of Termination, a Statement of Dissolution, or similar, depending on the state. Examples include California's Certificate of Dissolution and Certificate of Cancellation (or a Short Form Cancellation for an LLC dissolving within 12 months of formation), Texas's Certificate of Termination (Form 651), and Delaware's Certificate of Cancellation, according to each state's filing office.

What Dissolution Costs

The state filing fee for this document ranges from $0 in states such as California, Georgia and Washington to $220 in Delaware and the District of Columbia, per each state's fee schedule. Delaware's $220 fee is charged in addition to any annual franchise taxes still owed, which the state requires you to pay before it will process the cancellation.

Step 5: Cancel Your EIN With the IRS

An EIN is permanently assigned to your business and is never reused, but you can close the IRS business account associated with it. Send a letter to the IRS, including your complete legal business name, the EIN, the business address, and the reason you're closing the account, to: Internal Revenue Service, Cincinnati, OH 45999. Do this only after your final returns are filed and any taxes owed are paid.

Step 6: Withdraw From Any Other States

If your LLC registered as a foreign LLC in other states, dissolving in your home state doesn't automatically end your registration elsewhere. File a withdrawal or cancellation of foreign registration in each additional state to stop owing that state's annual report fees and franchise taxes.

Step 7: Keep Your Records

The IRS recommends keeping employment tax records for at least four years after the tax becomes due or is paid, whichever is later, and keeping records related to property until the period of limitations expires for the year you dispose of the property.

Some States Require Tax Clearance Before They'll Process Dissolution

A few states won't accept your dissolution paperwork until their tax agency confirms you don't owe money. Texas requires a Certificate of Account Status from the Comptroller's office before the Secretary of State will terminate an entity, and Tennessee requires tax clearance from the Department of Revenue before it will process a termination, cancellation or withdrawal, according to each state's own guidance. Check your state's requirements before you file, since a dissolution submitted without the required clearance can be rejected.

Administrative Dissolution Is Not the Same as Closing Properly

If your LLC stops filing annual reports or paying franchise taxes, a state will eventually dissolve it administratively rather than you dissolving it voluntarily. That doesn't wind down your federal tax obligations, cancel your EIN account, or necessarily stop state fees and penalties from accruing in every state. Filing the voluntary dissolution paperwork and following the federal closing steps is the more reliable way to limit your ongoing exposure.

Members Can Remain Liable If Winding Up Is Skipped

Distributing assets to members before paying known creditors, or ignoring the winding-up step entirely, can expose members to claims from creditors who were owed money at the time of dissolution. This is one of the more consequential steps to get right, and it's worth having a business attorney review your plan if the LLC has outstanding debts or disputes.

This Is Not Legal or Tax Advice

Dissolution involves state law questions, like how your specific operating agreement allocates remaining assets, and federal tax questions, like how to report a final-year loss or a distribution of appreciated property. Talk to a business attorney about the winding-up and liability questions, and a tax professional about the final returns and any tax consequences of distributing the LLC's remaining assets.