How to Dissolve an LLC: The Steps, the Filings, and What Must Be Settled First

An LLC is dissolved under the law of the state where it was formed. The usual order runs like this: get the member approval your operating agreement and state statute require, wind up the business by handling its assets, debts, creditors, claims and distributions, file the state's dissolution, cancellation or termination document, complete the final state and federal tax filings, close the tax accounts and the IRS business account tied to your EIN (opens in a new tab), and cancel licenses, permits, assumed names and business accounts. The form name, fee, tax clearance step and approval rule differ by state. Texas, for example, uses a Certificate of Termination (opens in a new tab) and requires a Comptroller Certificate of Account Status.

What dissolving an LLC actually involves

People use "dissolve," "terminate," "cancel" and "close" as if they meant the same thing, and in everyday talk they do. On paper, though, ending an LLC has four separate layers. There is the legal decision to end the company, the winding up of its business, the state filing that ends its existence, and the tax closure at both the state and federal level. Stopping operations is only the practical part. A company that simply goes quiet can keep owing reports and taxes, which is why each layer gets its own step.

The steps look similar whether you are closing an active business, separating from co-owners, or shutting down an LLC that never really started. An unused LLC still has a formation record with the state, and in some states it keeps owing an annual tax until the paperwork is filed.

What to check before the members vote

Start with the formation state. That is the state whose law governs the dissolution, even if the LLC also did business elsewhere. If the company registered as a foreign LLC in other states, each of those registrations needs its own withdrawal or cancellation with that state's filing office.

Next, read the operating agreement and the certificate or articles of formation. Many agreements set the vote needed to dissolve, name events that trigger dissolution, or add steps beyond what the statute requires. Texas law uses the term "company agreement," and our guide to the Texas LLC operating agreement explains what it covers and what the statute fills in when it is silent.

Texas gives a useful example of how the statute and the agreement work together. Business Organizations Code Section 11.051 (opens in a new tab) lists events that require winding up, including an event stated in the governing documents, a voluntary decision to wind up, and a court order. Section 11.054 (opens in a new tab) allows a court to order winding up of a domestic LLC in specified circumstances, which matters when members cannot agree. Under Section 101.552(a) (opens in a new tab), a voluntary winding up needs a majority vote of all members, or of all managers if the company has no members, and the operating agreement may add further requirements.

New York's Articles of Dissolution form (opens in a new tab) lists member approval, an event named in the operating agreement, and judicial dissolution as ways a domestic LLC can dissolve. Other states use their own lists, so the formation state's statute is the one to read.

What happens during winding up

Winding up is the stretch between the decision to dissolve and the final filing. In Texas, Section 11.052 (opens in a new tab) requires the LLC to stop its ordinary business except as needed to wind up, send written notice of the winding up to each known claimant unless an exception applies, collect and sell its property unless that property will be distributed as is, and take the other steps needed to finish. The LLC may also bring or defend civil, criminal or administrative actions during this period.

Section 11.053 (opens in a new tab) sets the order of the money. The company's property goes first to paying its liabilities and obligations, or to making adequate provision for them. Only what remains is distributed to the owners.

In practical terms, winding up usually means collecting receivables, selling or transferring equipment and inventory, paying final wages and vendors, resolving or preserving pending lawsuits, and ending contracts under their own terms. The California Franchise Tax Board (opens in a new tab) lists notifying creditors, vendors, suppliers, clients and employees, closing business accounts, and cancelling licenses and permits among the closure steps for a California LLC.

What must be filed with the state

Each state names its document differently, and the filing office, fee and tax step differ too. These three examples show the range; they do not set the rule for any other state.

For California, the short-form fee comes from the Secretary of State's LLC-4/8 certificate (opens in a new tab); confirm the right form and current fee with the California Secretary of State before filing.

A Texas worked example

Here is the sequence for a domestic Texas LLC as the Texas agencies describe it. The members approve winding up under Section 101.552 and their company agreement. The LLC finishes winding up. It then turns to the Texas Comptroller (opens in a new tab): it files any outstanding franchise tax reports and the required signed information reports, files a final franchise tax report for the year of termination, and pays any tax, penalties and interest due. Next, it requests a Certificate of Account Status through Webfile or Form 05-359. The Comptroller says that certificate is valid through December 31 of the year it is issued. Finally, the LLC files Form 651 with the Secretary of State, attaches the certificate, and pays the $40 fee.

What tax filings must be completed

State and federal tax closure are separate tracks, and finishing one does not finish the other.

On the state side, Texas requires the franchise tax steps above before termination. In California, the FTB (opens in a new tab) says an LLC generally files a timely final Form 568, pays the $800 annual tax for the taxable year of the final return, and files the Secretary of State cancellation paperwork, generally within 12 months of that final return. In New York, the Department of State filing carries a $60 fee, and written consent from the Tax Department is not required for LLCs.

On the federal side, the IRS (opens in a new tab) requires a final income tax return and related forms. Which return depends on how the LLC is classified for federal tax purposes:

• A single-member LLC treated as a disregarded entity generally reports its business activity on the owner's return.
• An LLC taxed as a partnership generally files a final Form 1065 and final Schedule K-1 forms.
• An LLC taxed as a corporation or an S corporation files the applicable final corporate or S-corporation return.

If the LLC had employees, the IRS also expects final employment tax returns, such as Form 941 or Form 944, Form 940 for the final calendar year, and final W-2 and W-3 forms. Form 966 applies when a corporation adopts a resolution or plan to dissolve or liquidate, so it is not automatically required for every LLC; your LLC's tax classification decides. If you are unsure how your LLC is classified, our guide to S corp vs. LLC explains how the IRS election works.

To close the IRS business account associated with the EIN, the IRS asks for a letter with the company's legal name, EIN, address and reason for closing, plus a copy of the EIN assignment notice if you have it. According to the IRS page on closing an EIN account (opens in a new tab), the account cannot be closed until required returns are filed and taxes are paid. The IRS's Spanish-language closing page (opens in a new tab) gives at least four years as the period for keeping employment tax records.

What happens to debts, claims and lawsuits

Dissolution does not turn unpaid obligations into paid ones. In Texas, Section 11.351 (opens in a new tab) provides that a terminated filing entity remains liable for an existing claim, and Section 11.053 requires property to be applied to liabilities, or adequate provision made for them, before owners receive distributions. Distributions made before that point can create problems under the winding-up rules.

A pending lawsuit does not disappear either. Section 11.052 allows the LLC to prosecute or defend actions while it winds up. Personal guarantees, payroll tax responsibility, fraudulent transfers and fiduciary misconduct are separate questions that depend on the facts and the applicable law. An attorney can review how those apply to a particular company and its owners.

What accounts and registrations must be closed

Each loose end has its own office or counterparty, and each one is closed with them directly:

• Local business licenses and permits, with the city or county that issued them.
• State sales-tax permits and other state tax accounts, with the state tax agency.
• Assumed names, trade names or fictitious business names, with the office where they were filed.
• Foreign registrations in other states, with each state's filing office.
• The registered-agent arrangement, with the agent.
• Bank accounts and credit cards, with the bank or card issuer.
• Insurance policies, with the insurer.
• Leases, subscriptions and vendor or customer contracts, under each contract's terms.
• Websites and domains, with the registrar or host.
• Books, tax records and employment records, which you keep.

The order matters for some of these. A bank account may need to stay open until final payments clear, and records need to outlast the closure.

What happens if the LLC is simply abandoned

Stopping operations is not the same as dissolving. In Texas, the Comptroller expects continuing franchise tax compliance until termination. The Texas Secretary of State (opens in a new tab) explains that a tax-forfeited entity can generally reinstate by filing the required reports, paying taxes, penalties and interest, obtaining a Comptroller tax clearance letter, filing the reinstatement application and paying the fee. The Texas fee schedule (opens in a new tab) lists $75 for reinstatement and a request to set aside tax forfeiture, $15 for reinstatement after voluntary termination, and $75 after involuntary termination or revocation. Reinstating a terminated Texas LLC also needs a majority vote of all members, or all managers if there are no members, under Section 101.552(a)(3) (opens in a new tab).

In California, the FTB (opens in a new tab) says an LLC generally keeps owing the $800 annual tax and filing returns until the cancellation paperwork is filed. Failing to file Form 568 or pay what is due can lead to suspension of a domestic LLC or forfeiture of a foreign one, and contracts made during suspension or forfeiture may be voidable. The FTB offers a restoration process after the tax and filing requirements are met.

Who handles each part

The Secretary of State or Department of State handles the entity filings, terminations, withdrawals and reinstatements. The state tax agency handles final state returns, tax accounts and certificates of account status. The IRS handles final federal returns, employment taxes and the EIN business account. A tax professional can prepare classification-specific final returns and reconcile payroll taxes. An attorney can interpret an operating agreement, address member disputes or judicial dissolution, and deal with creditor claims, lawsuits, contracts and personal guarantees. Official starting points include the Texas Secretary of State (opens in a new tab), the Texas Comptroller (opens in a new tab), the IRS (opens in a new tab) and the U.S. Small Business Administration (opens in a new tab).

If you are closing one business to start another, our guides on how to start an LLC and how to start an LLC in Texas cover the formation side.

Frequently asked questions about dissolving an LLC

These short answers cover the questions that come up most often once the main steps are clear.

What is the first step in dissolving an LLC?

Read the operating agreement and the formation state's statute. Together they tell you what dissolution event, vote, consent or court process applies. In Texas, a voluntary winding up needs at least a majority vote of all members unless the agreement requires more.

Does a dissolved LLC still owe its debts?

Yes. In Texas, property must be applied to liabilities or adequate provision made for them, and a terminated filing entity remains liable for an existing claim. Owners receive distributions only after that.

Do I have to file Form 966 for my LLC?

Not automatically. Form 966 applies when a corporation adopts a resolution or plan to dissolve or liquidate. An LLC taxed as a corporation may need it; an LLC taxed as a disregarded entity or partnership files other final returns.

How long is a Texas Certificate of Account Status good for?

The Texas Comptroller says the certificate is valid through December 31 of the year it is issued. It is submitted with the Certificate of Termination to the Secretary of State.

Can a terminated Texas LLC come back?

In many cases, yes. The Texas fee schedule lists $15 to reinstate after a voluntary termination, and reinstatement needs a majority vote of all members, or all managers if there are no members.

Finding help with an LLC dissolution

When the closing involves a member dispute, an unpaid creditor, a pending lawsuit or a personal guarantee, a business attorney licensed in your formation state can review the operating agreement and the claims. You can compare firms that handle business matters in our law firm directory.