Shutting down a limited liability company takes more than just stopping work. If you don't close your LLC properly, you may find yourself liable for debts and fees long after you think you've walked away.
Make the Decision
If you're a sole-proprietor LLC, you can make the decision to shut down on your own. If your LLC has multiple owners, you and your partners must make the decision together. Follow whatever procedures for dissolving your company or taking major management decisions you wrote into your founding LLC agreement. Record the decision in your files.
Keep all forms and papers related to the dissolution for 6 to 7 years. The IRS is unlikely to look back any further unless it has reason to suspect that fraud has been committed.
File the Paperwork
Like so many business procedures, closing your company involves paperwork. The most important is your state's form for dissolving an LLC. You should be able to find and download it from your state's website. Fill it out and send it in, preferably via certified mail so you can be certain it arrives. The state will send you back a certificate of dissolution or similar document.
If you're registered to do business in other states, cancel those registrations as well. Also file to cancel any fictitious names your company has used.
Announce the Closing
Once you're certain you're going out of business, notify everyone you deal with that the LLC is closing:
- Tell utilities and other service providers, such as accountants or insurers, when to turn off service.
- Contact suppliers about ending shipments. If you plan to return any goods, tell the suppliers how and when to expect your final payment.
- Give your landlord the notification required in the lease.
- Tell your employees, and let them know what you expect from them until the last day of work.
- If you can't complete any projects for your customers before closing, let them know.
- Contact customers who owe you money and try to collect on those accounts receivable.
Settle Your Debts
One of the advantages of an LLC is that you're not personally liable for your business debts. Your creditors can only collect from LLC assets, not your own. However there are exceptions. For instance, if you personally guaranteed any of the company debts, creditors can sue you if the company closes with the debt unpaid.
LLCs don't usually pay income taxes — you report your share of business income on your own tax forms — but they do pay other types of tax. These debts need to be settled first. Most important is payroll taxes on any LLC employees. If you don't pay those, the IRS can pursue you for the money regardless of the LLC liability shield. You also should pay the state any sales tax you've collected.
The IRS has a list of downloadable tax forms for businesses closing available online.
Your employees are entitled to pay up to the last day they work. It's possible you may have to pay them for unused vacation time as well, depending on state law.
Your creditors should be paid out of your remaining assets. If the company's cash and sellable assets are worth less than your debts, some of your creditors may not have their obligations satisfied.
Dispose of Your Assets
If you have any cash or assets remaining after everyone gets paid off, the owners divide them according to their shares of the company. At this point, the company doesn't exist, either legally or physically.