Once you decide to go out of business, you may not be so enthusiastic about taking the time to wrap things up properly. But filing paperwork with the state and notifying creditors are important steps that will help limit your potential liability and allow you to move forward with the next phase of your career.
Why Should You Dissolve an LLC?
When the LLC was formed documents were filed with the state, the Internal Revenue Service, and possibly local taxing or licensing authorities. These documents let the authorities know the LLC was open for business. Until they are told otherwise, they will assume the business is active.
It also gives creditors notice that the LLC can no longer take on debts. Going through a formal dissolution process means you’ll be much less likely to be surprised with a lawsuit for an unpaid debt or a fee or fine from a government agency in the future.
Voting to Close an LLC
The members of an LLC must vote to dissolve the company. If your LLC operating agreement has a procedure for voting on dissolution, you should follow it. If it does not, you should follow the procedure for LLC dissolution described in your state’s LLC statutes.
Once you’ve taken a vote, memorialize it in a resolution as a written record of the decision. Keep the resolution with your LLC’s official records.
Notifying Creditors of Your LLC Dissolution
Your state’s LLC statutes will specify the deadline for submitting claims in your state, but it is generally between 90 and 180 days from the date of the notice. Your notice should also say that any claims received after the deadline will be barred.
In some states, you are required to notify creditors before filing dissolution papers. Even if it is not required, it is a good business practice.
Notifying creditors helps you take care of your LLC’s remaining financial obligations before dissolution and limits the possibility of late fees or litigation over unpaid obligations.
Notifying Taxing and Licensing Authorities
You should also contact state and local taxing authorities and determine whether your LLC owes any taxes.
Finally, you should contact any agencies from which you received licenses to cancel those licenses and take care of any outstanding fees.
Filing Dissolution Papers
These papers are filed with the same state agency that handed your original LLC formation—usually the secretary of state. Forms, filing procedures and fees vary from state to state.
In some states, you must obtain a certification from the state taxing agency confirming that the LLC is current in all its state taxes, and you must file this with your dissolution papers.
If you registered your LLC to do business in other states, you must file documents with those states to withdraw or cancel your right to do business in those states. If you neglect to do this, you could remain liable for annual reports, fees and minimum taxes, even if you haven’t done any business.
You will also be responsible for filing the LLC’s final income tax return and, if applicable, final employment tax returns. The Internal Revenue Service has a checklist of tax-related actions you typically need to take when closing a business.
Closing an LLC is always a difficult decision. If your LLC goes out of business, it’s important not to just shut the business down. Dissolving an LLC helps you minimize future fees, obligations and litigation.