by Mike Vestil 

How To Dissolve An LLC

While understanding how to start an LLC is essential to running a business, being aware of the possibility that things might not work out (and what’s involved in that case) is just as important.

Dissolving an LLC is a process business owners must go through when deciding to end their company. The dissolution of an LLC requires specific steps to be taken for the business to be legally closed.

In this article, I'll walk you through the steps involved in dissolving your LLC, so you can ensure you comply with all state and federal laws and that your business is officially closed.

Doing this correctly ensures your assets' safety and your business's orderly closure.

Let's get right into it.

What Does LLC Dissolution Mean?

Part of knowing what is an LLC dissolution is defining the term correctly. Where most business owners get it wrong is believing that LLC dissolution is the same as business liquidation. An LLC dissolution implies the business has officially closed and is no longer operating. An LLC dissolution does not mean the company has been liquidated and its assets have been sold off; it simply means that the company no longer exists.

To dissolve an LLC is about closing down a business that is no longer needed or desired by its owners or closing down a company that has become too costly or difficult to maintain. In most cases, LLC dissolution is the best option for businesses that are no longer profitable or active.

Why Would You Want To Dissolve An LLC?

Sometimes, a business may have fulfilled its purpose and is no longer needed. Other times, the business owners may be changing locations, making it necessary to dissolve the existing LLC to create a new one in another state or country.

If business owners are moving on from their LLC, they may dissolve it to stop any further obligations between them. This is especially true if the business owners have a disagreement that could lead to legal action against one or both.

For whatever reason, dissolving an LLC can be a simple process with the proper guidance and preparation. The most important thing for those looking to dissolve their LLC is understanding what is involved in the process and how best to do it. 

Doing this will ensure that all necessary steps are taken and that no liabilities are left behind once dissolution is complete.

How To Close An LLC

Let's now explore how to get rid of an LLC.

Notify Members Of The LLC That You Are Dissolving It

The first step in dissolving an LLC is to inform all LLC members that you intend to close it down. Depending upon how your LLC was structured, this could mean notifying a partner or multiple partners. This process can usually be done via email or snail mail and should include information about when and why the company is being dissolved.

File Articles Of Dissolution With The Secretary Of State

Once the members have been notified, you must file Articles of Dissolution with your state's Secretary of State office. These articles will provide official notice that the company is no longer operating and formally begin the dissolution process. 

Depending on your state, you may need to include other documents or forms along with your Articles of Dissolution; consult with your state's Secretary of State office for more information.

Send Public Notice

The next step is to send a public notice that the LLC is being dissolved. This public notification is an official announcement of the company's closure and will protect you from any later claims against the business. This can be done in several ways, including through newspaper ads and direct mailings sent out to customers, vendors, and other people involved in the business.

Depending on your state, you may need to include additional information, such as a summary of the company's financial statements or a list of creditors with outstanding debts. Make sure that you follow all applicable laws when sending out public notices.

Close Any Bank Accounts & Cancel All Licenses And Permits

Once the Articles of Dissolution have been filed and public notice has been sent out, it is time to close down any existing bank accounts associated with the LLC and cancel any business LLC license or permits issued for its operation. If any outstanding debts or bills are related to the LLC, these should be resolved before closing these accounts.

Here, you should consult with an accountant or lawyer if needed.

Notify Creditors And Claimants

Before dissolving your LLC, you should also notify any creditors or claimants who may have a claim against the business. This includes anyone who is owed money or has goods or services that must be repaid. You must notify them of the company's dissolution and inform them of their right to claim unpaid funds.

Resolve Any Outstanding Debts Or Legal Issues

Once all creditors and claimants have been notified, resolving any outstanding debts or legal issues is essential before dissolving your LLC. Working with a lawyer can help you ensure that all necessary steps are taken and that no liabilities are left behind once dissolution is complete.

File Final Tax Returns

Before dissolving an LLC, it is essential to file final tax returns. This includes income taxes and any state, local, or other LLC taxes that may be due. Make sure to fill out all forms completely and accurately, and keep copies of the final tax documents for your records.

Finalize All Remaining Paperwork And Transactions

Finally, you must complete any remaining paperwork or transactions required to dissolve the LLC. This could include filing final payroll records with your state's Department of Labor or transferring ownership of any property associated with the business. 

Once all steps have been completed, your LLC will officially be dissolved, and you can begin winding down the business.

Potential Problems With An Incorrectly Dissolved Business

While the above steps might sound complicated, the alternative is far worse. If you don't follow the proper procedures for dissolving your LLC, it can lead to severe legal and financial consequences.

Here are some of the potential consequences of not dissolving an LLC correctly:

  • You could be held liable for any future debts or legal issues the business incurs: If someone sues the former LLC, they could make you liable even though you're no longer involved in the company.
  • It may become harder to open a new LLC using your desired name: If you officially fail to dissolve your LLC with the Secretary of State, that business entity will remain on file as active. That could prevent you from re-opening a new LLC using the same name in the future.
  • The state or federal government can take possession of the company's assets if you fail to dissolve it properly: Depending on where your business is registered, failing to properly dissolve an LLC can lead to the state or federal government taking possession of any assets associated with the company. This could include money, property, and other valuables that should already be distributed among owners or creditors.
  • You may still have to pay specific fees to the Secretary of State or other government body: You may also have to pay future fees to dissolve an LLC officially. Failing to do so will result in additional fines and penalties.
  • Your credit rating could be affected if you don’t pay off any remaining debts: If you fail to correctly resolve all outstanding debts before dissolving your LLC, it could seriously affect your credit rating. This means any future business ventures you try to launch could be hindered by your bad credit score.

What Should You Consider Before Dissolving An LLC?

Sometimes, dissolving an LLC might not be the best option for your business. It is essential to consider all your options before making a final decision. Here are some factors you should consider before taking the plunge:

  • Is there any chance of reviving the LLC? If there is potential to restore the business, it might be wise to put dissolution on hold and try other options first.
  • Do you still owe any debts? If so, ensure all remaining debts are paid before dissolving the LLC.
  • Are there any tax implications? Make sure to consult with a professional accountant or tax advisor beforehand to ensure your dissolution won't have any unexpected tax consequences.
  • Have you made arrangements for all assets? Before dissolving an LLC, make sure you have proper accounts in place for any purchases associated with the business. This includes transferring property ownership, divvying the money among owners or creditors, and more.
  • Do you need to file a final tax return? Depending on where your LLC is registered, you may need to file a final tax return before officially dissolving it.

By considering all these factors beforehand, you can ensure that the dissolution process goes as smoothly as possible and that your LLC is dissolved correctly.

What Happens When You Dissolve An LLC? The Final Steps

Once dissolution is complete, you will need to take steps to wind down the business. This includes closing any contracts or agreements and notifying vendors and customers of the closure. You may also need to transfer ownership of any assets associated with the LLC and return any deposits or fees collected.

Finally, it is essential to securely dispose of any remaining documents or materials related to the business to protect confidential information.

How Do Customers Look At A Dissolved LLC?

For customers, the dissolution of an LLC can be seen as a sign of instability and lack of trust. As such, it may discourage them from doing business with you or any other company associated with that LLC in the future. 

It is important to remember that the dissolution process should always be handled professionally and appropriately communicated with existing and potential customers to maintain their trust. Additionally, if applicable, ensure that all customer payments are processed promptly so there won't be any service disruption.

How To Dissolve An LLC - FAQ

How Can You Cancel An LLC In California

To dissolve an LLC in California, the state requires the business entity to file a Statement of Information with the Secretary of State (SOS) within 12 months from the final filing of the tax return. 

There are also situations where the business needs to go through a revivor process to dissolve, surrender or cancel the LLC. Lastly, the business entity must stop doing any type of business in California after filing its final taxable year return.

In addition, the FTB (Franchise Tax Board) requires the business entity to file tax returns and pay tax balances. This also comes with any penalties, interests and fees that are still pending. 

The final year tax return has to be submitted to the FTB with the Final Return box checked on the first page of the return. Ensure that you have the word “final” written at the top of the first page. 

You can still be audited until the tax return’s statute of limitations expires.

All tax returns remain subject to audit until the statute of limitations expires and to ensure that all requirements are met when dissolving an LLC in California.

Once all requirements are met, it is possible to close an LLC in California. For guidance on how to dissolve, surrender or cancel an LLC in California, please contact a professional lawyer or accountant who specializes in business entities in California.

How Much Does It Cost To Dissolve An LLC?

The Articles Of Dissolution typically cost around $60.

However, these might vary by state.

How To Dissolve An LLC In California Online

The forms necessary to dissolve an LLC in California can be submitted online on the Secretary of State's website. Additionally, the Statement of Information can be found on the SOS website.

Does A Single Member LLC Report Taxes As A Sole Proprietorship?

A single member LLC is seen as a sole proprietorship when it comes to tax. This means that the business's income and losses are reported on the owner’s tax return, and the LLC itself is not subject to income tax. 

In addition, the owner of a single-member LLC is required to pay self-employment taxes on their earnings from the business.

How Do LLC Taxes Work?

LLC taxes work similarly to other business entities. LLC owners are taxed on the profits generated by their businesses and any personal investments made into the LLC. The LLC itself is not subject to income tax. However, owners are required to pay federal and state taxes on their earnings from the business.

What Is The Disregarded Entity LLC?

A disregarded entity LLC is an LLC with only one member, the company's sole owner. This entity is treated as a "disregarded" entity for tax purposes, meaning that all income and losses pass through to the owner's individual tax return instead of filing a separate business tax return.

How Do You Pay Yourself From An LLC?

Paying yourself from an LLC works by the owner transferring money from the business checking account to their account. The owner must pay themselves a reasonable salary for services provided to the company, which will be subject to payroll taxes.


Dissolving an LLC is a complex process and requires careful attention to detail to ensure that all paperwork is filled out correctly, taxes are paid, and any remaining debts or obligations are taken care of. Following the steps outlined above will help ensure the dissolution process goes as smoothly as possible and save you from potential legal issues.

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About the author 

Mike Vestil

Mike Vestil is the author of the Lazy Man's Guide To Living The Good Life. He also has a YouTube channel with over 700,000 subscribers where he talks about personal development and personal finance.

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