How Do You Dissolve an LLC?

There are many situations where you need to dissolve your LLC. These can range from financial challenges, partnership disputes, or even a change in circumstance that affects the future of your business. But how do you dissolve your LLC correctly? After all, if you make a mistake, you could get yourself in trouble.

So what can you do to avoid this from happening? In this article, we’ll walk through all the steps that you need to take to properly wind up your LLC.

But before dissolving your business, there’s one important consideration that every LLC owner must take into account: the statute of limitations.

Statute of Limitations

The statute of limitations refers to the time that a person has to bring a claim against your business. Here’s an example of how this works. If you have a business, and one of your employees injures another person on the job, the statute of limitations gives that person a certain amount of time to bring a claim against your business.

And the statutes of limitation vary by state. For personal injury claims, the statute of limitations can be anywhere from two to six years. For breach of contract claims, the statute of limitations can vary from three to 10 years.

So what does this mean for LLC owners who want to dissolve their business but have a pending claim against it? If there’s a potential lawsuit on the horizon, it makes sense to keep the LLC open during the statute of limitations period. And if you dissolve the LLC before the lawsuit is filed, then you will be held personally liable for any damages arising from that suit. That’s a situation every business owner must avoid. But if there are no pending claims against your business, then it is acceptable for you to wind up your business affairs.

How To Dissolve An LLC

If there are no pending claims against your LLC, you must complete the following steps to properly dissolve your business:

1. Take a Vote

The first step is to hold a meeting where the members take a vote to dissolve the LLC. This is crucial, because you must show that you had the proper authority to dissolve the LLC. When doing so, you must follow the provisions in the operating agreement, and have meeting minutes reflecting your decision to end the business.

2. File the Articles of Dissolution

Second on the list is to file the articles of dissolution with the Secretary of State. This can be done by filling out a certificate of dissolution (or a similar form) on the Secretary of State’s website. Performing this step is key, because it puts the world on notice that your LLC has been properly dissolved.

3. File your Final Tax Return

Step number three is filing your final tax return. When your LLC does this, you can acquire a tax clearance certificate from the IRS. And this certificate shows that you both filed your federal and state tax returns, and paid all your taxes.

4. Cancel Contracts with Other Parties

Number four on the list is to cancel any contractual obligations that your business has with other parties. This puts the other parties on notice that you’re closing your LLC. This notice will also reduce the chance of those same parties suing your business for breach of contract.

5. Take Assets and Liabilities out of the LLC

The fifth item is to take assets and liabilities out of your LLC. If you owe any outstanding debt to creditors, those creditors are the first to be paid. After the creditors get their share, the remaining assets of the business are then taken out based on ownership percentages. When you receive assets from your LLC, you may also face a capital gain or capital loss on your tax returns.

6. Dissolve your LLC Bank Account

The sixth step is to dissolve your LLC bank account. Once all the assets and cash are out of the business, you can go ahead and close your LLC’s bank account.

7. File a BOI Report with FinCEN

Lastly, you must comply with the Corporate Transparency Act by filing a BOI report with FinCEN. If your entity is either active at any point after January 1, 2024, or completes its dissolution after January 1, 2024, you must still submit a BOI report. If you don’t, you can face steep penalties of $10,000 and/or two years in prison.

Conclusion

There are several steps that you need to take to properly dissolve your LLC. That is, if there are no pending claims against your business. And if you need help dissolving your LLC, we here at Corporate Direct would be happy to assist. You can schedule a free 15-minute consultation with one of our incorporating specialists by clicking the link here: https://corporatedirect.com/schedule/

In this series, Ted answers questions from our followers while educating them about corporate law, business formation, real estate, wealth building, and asset protection. Leave us a comment with your question and it could be featured in an upcoming video!