Dissolving a business

Dissolving a business (LLC or corporation) is a multi-step legal process involving member/shareholder consent, state filings, tax obligations, creditor notifications, and winding down operations. Skipping steps can result in continued tax obligations, personal liability, and ongoing state fees even after you stop operating.

48 steps across 9 sections

1. 1. Vote to Dissolve / Obtain Consent

  • Review your operating agreement for dissolution provisions (required vote threshold, notice requirements)
  • If no operating agreement, follow state default rules (most states require majority or unanimous member consent)
  • Document the vote in formal meeting minutes or a written consent resolution
  • Board of directors must adopt a resolution recommending dissolution
  • Shareholders must then approve the resolution (typically majority vote; check bylaws and state law)
  • File the resolution in corporate records

2. 2. Notify Creditors

  • Send written notice to all known creditors informing them of the dissolution
  • Include instructions for submitting claims and a deadline (typically 90-180 days, varies by state)
  • Some states also require publication of the dissolution notice in a local newspaper
  • Pay all valid creditor claims before distributing remaining assets to owners
  • Disputed claims should be addressed per state statutes (some states allow you to reject claims with a process for creditors to sue)

3. 3. File Final Tax Returns

  • File the final income tax return for the entity (Form 1065 for partnerships/multi-member LLCs, Form 1120/1120-S for corporations)
  • Check the "final return" box on the form
  • File final employment tax returns (Form 941 or 944) if you had employees
  • File Form 966 (Corporate Dissolution or Liquidation) for corporations within 30 days of adopting the plan of dissolution
  • Issue final W-2s to employees and 1099s to contractors
  • Pay any outstanding payroll taxes, including trust fund taxes
  • File final state income/franchise tax returns
  • Obtain a tax clearance certificate (required by many states before they will accept articles of dissolution)
  • Pay any outstanding state taxes, penalties, or fees

4. 4. Cancel Business Licenses and Permits

  • Cancel all city, county, and state business licenses
  • Cancel professional/occupational licenses
  • Cancel sales tax permits (file final sales tax return)
  • Cancel any industry-specific permits (health department, liquor, etc.)
  • Notify the state's Department of Revenue / Tax Authority

5. 5. File Articles of Dissolution

  • File Articles of Dissolution (or Certificate of Dissolution / Certificate of Cancellation for LLCs) with the Secretary of State
  • Filing fees vary by state (typically $0-$100+)
  • Some states require tax clearance before accepting the filing
  • If registered in other states (foreign qualification), file withdrawal in each state

6. 6. Settle Remaining Financial Obligations

  • Pay all outstanding debts, loans, and liabilities
  • Collect accounts receivable
  • Liquidate inventory and business assets
  • Terminate contracts, leases, and vendor agreements (review early termination clauses)
  • Cancel ongoing subscriptions and services

7. 7. Close Business Accounts

  • Close business bank accounts and credit lines
  • Close merchant processing accounts
  • Cancel business credit cards
  • Cancel the business EIN with the IRS (send a letter to the IRS; the EIN itself is never reused but the account can be closed)

8. 8. Distribute Remaining Assets

  • After all debts are paid and claims resolved, distribute remaining assets to members/shareholders
  • Follow the operating agreement or bylaws for distribution order
  • For corporations: liquidating distributions may trigger capital gains taxes for shareholders
  • For LLCs: distributions reduce members' basis; excess over basis is taxable gain

9. 9. Final Administrative Steps

  • Cancel business insurance policies
  • Notify customers, suppliers, and partners
  • Retain business records for the legally required period (generally 3-7 years depending on document type; IRS recommends keeping tax records at least 3 years, some states require longer)
  • Cancel any registered agent services
  • Cancel your DBA (fictitious business name) if applicable
  • Remove or redirect the business website and social media

Sources

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