After forming an LLC in the United States, you will usually embark on a great business journey, whether selling goods or offering services, on your own or with a team.
However, due to external or internal factors, it may happen that your business didn't work out or that the relationship with your partners wasn't successful. In these cases, the best thing to do is dissolve the LLC and turn the page.
If this is your situation, below is a complete guide on how to dissolve a limited liability company in just nine steps. Let's get started!
1. Review your Operating Agreement
The first thing you need to do to dissolve an LLC is carefully review the organization's Operating Agreement , the document containing detailed information about the duties and responsibilities of the business and of each member.
Usually, this document explains how the dissolution process works, which normally starts with a vote of the members that must reach a majority decision.
In any case, in some states such as Florida, voluntary dissolution through the individual written consent of each member is accepted as an alternative to a vote.
2. Check the state regulations on closing the LLC
Next, you must check the state regulations on closing the LLC, since each state has its own conditions on how to dissolve a company and under what circumstances.
Although the procedure is usually fairly standard across the United States, there may be exceptions, so it never hurts to contact the relevant state office to ask all the pertinent questions.
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3. Sign a document among the members stating the decision to close the LLC
The third step to dissolve an LLC is to obtain a document signed by all members of the organization stating their agreement to the closure.
The letter must be properly notarized and must state from what point the limited liability company will be officially dissolved, to avoid potential legal problems.
4. Pay off all debts before making the LLC's final distribution of income
Once all the company's members agree to the dissolution, the next step is to pay off all of the LLC's outstanding debts before distributing the remaining income.
It's important to keep in mind that if one of the members made a loan to the LLC, it will have lower priority than banks, tax collection agencies or the employees themselves.
5. Pay any outstanding federal and state taxes
After paying off the debts, it is essential to pay any federal and state taxes the LLC owes before moving forward with the full dissolution.
At this point, although the ideal is to contact a licensed specialized accountant, the truth is that you need to check the online platforms of the IRS and of the relevant state agency and confirm the amount owed, if any.
6. Distribute the assets and income
The sixth step in the process of dissolving an LLC is to properly distribute the LLC's assets and income according to each member's ownership percentage.
For example, if there are two members and each owns 50% of the company, then the assets and income will be split in half. Each owner must receive their share of the business, not a dollar more, not a dollar less.
7. File the LLC dissolution
Next, you need to file the LLC dissolution, that is, complete a form that provides the following information:
- Company name.
- Date of dissolution.
- Act that led to the closure (vote or consent).
- Obligations, liabilities and debts.
- Statement of asset distribution.
- Document stating that there are no pending legal actions.
8. File the final tax return with the IRS
Another step to dissolve the LLC is to file a final tax return with the IRS, indicating that there will be no further returns in the future.
It is essential to make this clear, since that way the agency can close your LLC's record and will not be required to request returns from you in later years.
9. Keep records for four years
Once the LLC is dissolved, the members must keep all records related to the operations and the company for four years.
Although the IRS can conduct audits up to three years later, payroll reviews can take place more than four years after the closure.
How long does it take to dissolve an LLC?
Fully closing a limited liability company in the United States is a process that normally takes between two and fourteen business days. In some specific cases, the procedure can take longer.
How much does it cost to dissolve an LLC?
Dissolving an LLC usually costs between $400 and $1,000. The final amount varies depending on state fees and the number of forms needed to close the company for tax purposes.
What happens if I change my mind about dissolving an LLC?
If you change your mind about dissolving your LLC, you can revoke the closing process within a set period afterward, which depends on each state. Once that time has passed, you have to file a reinstatement application.
Written by
Ignacio Navarro
Ignacio Navarro is a Certified Public Accountant, founder of Start Companies and a specialist in U.S. companies for entrepreneurs, freelancers and digital businesses in Latin America. With training in international taxation and studies at UCEMA, he advises non-resident clients on forming and maintaining LLCs, opening bank accounts, invoicing, accounting and taxes. His experience combines tax strategy, compliance and practical vision for operating in the U.S. in a simple, organized and professional way.
