How to Close an LLC: Everything You Need to Know

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By Ewen Finser

Last Updated on December 5, 2023 by Ewen Finser

Limited Liability Companies are very popular owing to flexibility and benefits of running a business under this structure.

They offer the best of a Sole Proprietorship and Corporation and do not require a lot to set up one. Some states like Massachusetts can get your LLC approved within one day.

However, the impressive features of an LLC are just the stepping stone to what is a challenging journey to set up and succeed in business. Most businesses do not take off, and there is nothing wrong with that.

If this happens to your venture, always follow the correct processes when closing shop. It is normal to be disappointed with how things did not turn out as expected and walk away from a business, but this can have some consequences down the road.

In this piece, we will expose the closing an LLC and highlight any critical information you should know when doing so.

Read on;

Overview of an LLC

How to Close an LLC

A Limited Liability Company is a legal business structure that limits the personal liabilities of the members from the company’s debts. It offers flexibility when it comes to ownership, taxation, and profit-sharing.

Features of an LLC

  • Applications for the formation of an LLC are filed with the Secretary of State
  • It can be member or manager-managed
  • All the members have limited liability
  • Profits and losses flow through to the members according to the operating agreement

Benefits of an LLC

Ability to Choose your Tax Status

An LLC gives you a few options to choose how you would want the IRS to tax you. For example, you can decide to pay taxes as a regular corporation or have to prepare K-1 statements for each member and have them pay taxes through their personal income tax filings.

This gives you the flexibility to adapt the most suitable tax structure you want, depending on the prevailing situation and any other preference.

Management Options

An LLC can either be run by a manager or a member. For a member-managed LLC, the owners directly dictate the business’ day-to-day operation.

In the manager-run LLC, the owners hire experts to run the company and take a backseat only to oversee things and give guidance when needed.

Limited Liability

This is perhaps the most significant advantage of an LLC that sets it apart from sole proprietorships. An LLC is an independent legal entity that can get into contracts, get debt, and file a lawsuit, among others.

Thus, the owners’ personal liabilities are separated from that of the LLC, which absolves them of any debt unless they agree to it in a contract, such as that provided by a bank when obtaining a commercial loan.

Easy to Form and Run

Compared to a corporation, forming an LLC is very easy. The process has been automated in many states, and you can get an application approved within a few days.

Corporations are required to file regular paperwork with the State and publish annual reports while holding a frequent board of directors’ meetings, things which are not needed with an LLC.

Here, as long as everything is documented, meetings do not have to be formal, and you can run the business as you wish, provided you stay on the right side of the law.

Reasons for Closing an LLC

Closing an LLC

The members of an LLC can voluntarily dissolve the business at any point. However, it is prudent to understand some of the circumstances that can drive you to close shop.

Business owners should always embrace the micro and macro realities and swiftly close and move on if the environment does not bode well.


When applying to form an LLC, your State requires you to state an expiration date or condition if applicable. Some LLCs are created to conduct business for a set timeframe, while others are designed to close if a particular condition is met, say, a member dies.

When the existence of an LLC is not tied to a specific time or condition, then its existence is considered perpetual. However, expiration is one of the most common causes of closing an LLC.

Completed Business Purpose

Some LLCs are formed for a set business purpose, which may not be specifically time locked. For insta?nce, you can start one to develop a housing project.

However, once this is done and all the homes are sold, this would signify completion of the business purpose, pushing the owners to dissolve the LLC voluntarily.

Conflict Among Members

Closing an LLC

Disagreements are always bound to arise between the members of an LLC with time. Unfortunately, some of them can get nasty to the point that they stop the business’s operations, with no clear way forward.

Common issues that members disagree on include the dedication of each member to the company, how profits and losses are distributed, or any new business opportunities the LLC should pursue.

In such instances, the reasonable way out if members cannot resolve the issue is to dissolve the LLC. The alternative is a member forcing dissolution through a lawsuit, which is not ideal.

No More Members

In some cases, an LLC may be left with no members, forcing it to be closed. The operating agreement comes in handy to specify how the shares are distributed to the heir, but it will be closed if this clause is not indicated.

Assuming an LLC has two members, and they both pass on with no clear indication on who should run it, the State will move to close it.

Involuntary Dissolution

This can be unplanned or planned, depending on the scenario. Automatic dissolution can be applied by a clause or by the law, something called administrative closure .

LLCs have to abide by specific state laws and pay taxes, file annual reports, and hold the correct licenses needed to operate.

In addition, it has other legal obligations as specified by the contracts it gets into with other parties and the kind of activities it engages in. If the LLC fails to adhere to any laws, the State can move to close it involuntarily.

A court-ordered dissolution is another variation of an involuntary dissolution that can be initiated if the LLC is declared bankrupt, is the subject of lawsuits from lenders, or there is a considerable dispute between the members.

Process of Closing an LLC

Closing an LLC

Here, we will assume that the decision to close the LLC is voluntary. The steps that ensue are;

Vote on the Decision

All the moves an LLC makes result from the members’ decisions, and closure is no different. Come to vote on the closure and have this on record. For single-member LLCs, your decision to close will suffice.

Mostly, the majority vote is enough to close, but these details are specified by the Secretary of State’s office in the specific state you live in.

You will find different variations on the votes needed to warrant closure and find out to avoid any hang-up with the steps that follow.

File the Closure Document

To officially close your LLC, you will need to notify the State of this decision through the necessary documentation.

Remember, when forming it, you had to file the articles of association, which serves as a formal notification of your intent to run the business under the said LLC.

Now, this is the inverse, and you will find the articles of dissolution or a similar form from your Secretary of State’s website. Add them are automated and made into a website so you can fill and submit.

This form notifies the entity, vendors, and any other that you are out of business and will not transact with them in the future. Some states will charge a small fee for this.

File Final Returns

You will have to clear with the IRS by filing the final returns. Note that the dissolution of an LLC can fall at any time of the year, and you do not have to wait for the end of the tax year. You can file a short-year return if you need to do it immediately.

This is done through the standard tax filing procedure for LLCs with the IRS. The only difference is that you have to tick the box indicating this is your final return. This will end any future LLC tax liabilities.

Notify All Stakeholders

Closing an LLC

You have to let everyone you dealt with the decision to close the LLC. This includes employees, customers, suppliers, and any other stakeholders.

For employees, inform them in advance and let them be prepared through a two weeks’ notice on the lower side.

Fulfill any commitment you had with stakeholders. Return any down payments and deposits for undelivered goods, let supplies know when to make their final deliveries, and pay them for this.

Contact your bank, lenders, and credit card companies and clear any balances you had with them. Cancel any credit cards and close the bank accounts associated with the LLC.

If you were conducting business in a rented space, inform the landlord you are closing shop. In a nutshell, clean up your slate before finally closing to reduce the chances of anyone coming up with a claim after you’ve closed the LLC.

Cancel Licenses

Ensure you cancel all the state, local, and federal licenses and permits you had taken to run business. Contact the agencies you had applied for the licenses from and get the proper cancellation procedures.

This step is vital since it prevents other people from using these documents illegally, holding you liable for taxes or sanctions to the business.

If the LLC conducted business under the DBA , file the necessary paperwork to abolish the name and, if possible, publish this in the local dailies.

Frequently Asked Questions

Question: Can you walk away from an LLC?

Answer: Members of an LLC cannot walk away from one. Depending on the LLC’s state and the operating agreement drafted when forming it, there are legal procedures to follow.

Some of the essential details that should be handled include how profits and losses will be distributed, assets, and the provisions for withdrawing membership. If you are the only member, you need to follow the LLC dissolution process and close it altogether.

Question: Can an LLC owner be sued personally?

Answer: It all depends on the offense and what capacity it was done under. For example, if an LLC member is engaged in malpractice holding the LLC’s name, the business will be sued.

In some circumstances, the owner and business can both be sued. However, the owner will be liable for their acts that lead to an injury.

Question: Can an LLC be sued after it is dissolved?

Answer: If the owners of an LLC dissolves it well, the chances of one suing it are very slim. However, members should pay extra attention to the requirements and engagement with stakeholders when closing to avoid any issues later.

If the claim is valid, say the business failed to honor an agreement, then the LLC can be sued, and the members will be held responsible.

Bottom Line

When a business goes south, be open-minded and close shop rather than waiting for too long and running into debt and other liabilities that will make it hard to close.

Closing an LLC is not the end of the world, as you can always learn from what went wrong and restart afresh. The procedures for closing an LLC have been mentioned above, but they vary from State to State.

This way, always check with the Secretary of the State you live in and see any specific steps you need to go through before closing shop. The procedures are meant to clear anything that ties you to another entity so that you close freely.

Ensure that you follow them for a smooth dissolution process. Failing to close an LLC can lead to years of accrued liabilities such as taxes that will affect you significantly.

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