Knowing how to dissolve an LLC may be just as important as knowing how to set up an LLC. You should dissolve an LLC if you are not using it. There are a number of issues to consider when you’re thinking of closing an LLC.
For example, you need to file your tax return every year; whether or not you owe any taxes or have done any business with your LLC. If you don’t file, the IRS has a little surprise. They charge you a $250 penalty for each member of the LLC who should have gotten a K1. So, dissolution LLC becomes a matter of economics.
Steps to Dissolving an LLC
There aren’t a lot of “How to Close an LLC” or “Dissolution LLC” websites, because nobody makes any money at the dissolution of LLC business. The steps for dissolving an LLC are pretty easy.
- You need to file a final tax return for your LLC. You don’t have to wait until the end of the year. You can file for a “short” year. Simply file the standard LLC income tax forms and check the box on the form telling the IRS that this is the final return. The actual forms you will use depend upon how the LLC is being taxed. When the form is filed with the final return box checked, you are dissolving LLC tax liabilities in the future.
- File a state form that closes your LLC on the state records. Each state has the “dissolve LLC form” on their state website. Simply get the form off the website, fill it out and send it in.
The state is most interested in knowing that you aren’t dissolving an LLC with a bunch of creditors out there waiting to get paid. A dissolution of LLC activities could damage creditors, and the state has an interest in making sure creditors are paid any time you dissolve an LLC.
Notification of LLC Dissolution
You should notify your creditors that you’re going to dissolve LLC lines of credit. This will protect them and you, because people can’t charge on your accounts any more. You have usually signed personally on the accounts, so you want to make sure nobody slips in and charges anything on your dissolving LLC accounts before they are actually closed.
Obviously, you’ll have to stop doing business in the name of your dissolving LLC. If you know you are not doing business in the name of your LLC, then you’re ok and notifying people you have done business with is not as big of a deal. But if you have “partners,” you should notify all of the companies you have done business with. Technically, you’ll be a partnership after the LLC dissolution. The other “partners” could get you in trouble
If you’re dissolving an LLC, your business probably didn’t work or it just never really started. Hopefully, the LLC protected your personal assets from the business failure. Set up another LLC when you want to start another business. Start out fresh rather than trying to “reuse” the old LLC you have. Just dissolve the old LLC and start over.
Use my course, the LLC Wizard, to do your LLCs, and you can form as many as you want. Yes, the LLC is a neat tool for asset protection and tax advantages. Use LLCs when you can, but don’t be afraid to dissolve an LLC when the time is right.