Ending your business can be a pretty long and stressful process. There are several steps you need to take to properly close an LLC so that you can avoid trouble down the road. By ending your business correctly, you can prevent liabilities and penalties from growing. For whatever reason, you decided to end your LLC; continue to read if you want additional information on how to dissolve your business correctly.
What is Dissolving an LLC?
When you apply for an LLC in Illinois, your company is officially registered with the state. You will need to go through the dissolution process to end your company and stop Illinois from recognizing it as a separate entity. Dissolution generally occurs when the business purpose of the LLC is completed or ceases to be economically viable or profitable. The members may also agree to dissolve the LLC if they cannot agree on fundamental decisions concerning the LLC's business operations.
There are several critical steps to closing a business. Owners must take careful action to ensure proper compliance and protect themselves from future liabilities. Following the proper procedures can help you move forward quickly when ending your business. This will help guarantee that you are no longer responsible for paying annual fees, filing annual reports, and paying business taxes. The following describes how to dissolve an LLC business structure. Action to dissolution is state-specific, so look into your state's requirements. This article will cover the dissolution process for an LLC in Illinois.
Why would someone dissolve?
There are many reasons for dissolving an LLC. This can include that the company is going out of business, is not paying its taxes, or following state regulations. In some cases, LLCs are created to fulfill a purpose. Once the goals are completed, there may be no reason to continue the LLC. Members may also get into disagreements about the direction of the business, what subsequent actions to take, or how to disburse profits. The members may elect to dissolve in this circumstance. Another reason is if a single person formed the LLC, the individual's death or retirement might signal the organization's end. Finally, if there are decreasing demand or liability concerns for the products sold, you may elect to dissolve the business as running the company no longer becomes profitable.
How do I dissolve my LLC?
Perform a vote
The first step to closing your business is determining whether you want to. You will need to hold a member vote to perform a voluntary dissolution. All business members will cast a vote or follow the guidelines outlined in your operating agreement when dissolving your business. It is important to follow what is outlined in the operating agreement as it is a legally binding contract that requires you to do so. However, if the operating agreement doesn’t detail the steps needed to dissolve, you can follow the Illinois procedures we’ll outline in more detail below.
File your last tax return
In Illinois, you do not need to obtain a tax clearance before you dissolve your LLC. However, you should still file one to avoid tax penalties and when you submit your federal tax, make sure to select “final return” on IRS Form 1065 or 1120. Form 1120 is filed by LLCs that are classified as a corporation for tax purposes.
File the statement of termination
The statement of termination is the document you submit to the Office of the Secretary of State when you want to end your business. The form for Illinois may be found here. The filing fee is $5.
You will need to fill out this form with company and business member information.
Pay any outstanding debts
When you file the statement of termination, it’s a good idea to notify creditors. Once you pay all your obligations, you can sleep more easily that you won’t have to pay additional penalties and unexpected liabilities.
Once you’ve paid your creditors and taxes, the remaining business assets must be distributed among LLC members. The operating agreement you filed will often provide information on how to do so.
Perform other winding down processes
Depending on your business, there are other steps you may need to take. If you have employees, you will need to let them know, settle any severance payments, and finalize your payroll taxes. You may also need to negotiate any contract cancellations, including leases. If you request licenses and permits, you may need to cancel them. It may also be necessary to notify your customers of your last business date.
Once you finish this process, you will need to close all business accounts, your employer identification number, and your Illinois state tax identification number.
What if my LLC is registered with multiple states?
You will need to dissolve your LLC in the states where the company is registered. Not doing so can cause you to be liable for fees, taxes, and annual reports even though you haven’t continued your business activities.
Can the state dissolve my LLC involuntarily?
Yes, Illinois’s office of the secretary of state can dissolve your business without a business member vote. The two types of involuntary dissolution include an administrative or a judicial dissolution. The administrative dissolution is where the Secretary of State dissolves your company because your business failed to file their annual report or maintain the registered agent on file. A judicial dissolution on the other hand is where the court issues the order to dissolve. This can occur if the members are unable to agree on dissolution, disagreement amongst members, or member misconduct. You can petition the court directly for other reasons as well.
Do I need a lawyer when dissolving my LLC?
Illinois does not require you to have a lawyer when you choose to voluntarily dissolve your LLC. However, it may be strongly advisable regardless. Professional assistance can further ensure that you won’t be susceptible to unexpected fees with improper closure.
How long does it take to dissolve an LLC in Illinois?
Illinois reports a processing time of around one week to 10 days. Expedited processing is also available for an additional cost.