Articles of Dissolution for LLC: What Actually Happens When You Close a Company

Articles of Dissolution (sometimes called a Certificate of Cancellation or Termination) is the document you file with a state’s Secretary of State to end an LLC legally. Filing fees run from $0 to $220 depending on the state, and the real bottleneck usually isn’t the form itself; it’s tax clearance and the IRS final return that have to happen around it.

To put an LLC to rest in the eyes of the law, one must file what is generically known as Articles of Dissolution with a state’s Secretary of State. Some states prefer to call it a Certificate of Cancellation or Termination, but the purpose remains the same: it is the document that informs the state that your entity has ceased to exist.

We see founders come to us every month for this very reason. Many are non-residents who set up an LLC to secure a US bank account or for a client contract that has since run its course. They want a clean exit rather than have the state administratively dissolve them and pile on the penalties. The form itself is seldom the issue; it is more a matter of sequencing and dealing with tax clearance and the IRS final return.

What Are Articles of Dissolution for an LLC

It is a simple one- or two-page filing, typically bearing the signature of a member or manager, to confirm that the LLC has wound down and can be removed from the active list. In Delaware, you will find a Certificate of Cancellation, while Texas uses a Certificate of Termination. Wyoming, Florida, and most others stick with the term “Articles of Dissolution” right on the form.

But do not mistake filing for an informal close of business. Should you simply stop operating and never file, the state will continue to levy franchise taxes and annual report fees until they come in and administratively dissolves you. By that point, the penalties will have far outstripped the $40 or $60 fee you were looking to save.

Filing Fees and Processing Times by State

Most founders are unprepared for how much costs and timelines can differ from one jurisdiction to the next. Our experience in the states we work in most is as follows:

Wyoming tends to catch people off guard. You can form a Wyoming LLC online in a day, yet the state does not permit online dissolution. The Articles must be hand-delivered or mailed to the Secretary of State in Cheyenne with an ink signature. If you are mailing from outside the country, factor in two or three weeks for the post.

Do You Need Tax Clearance Before You Can Dissolve

The answer is state-dependent, and this is where delays occur. Take Texas, for instance. The Secretary of State won’t touch your Certificate of Termination without a Certificate of Account Status from the Comptroller (separately requested on Form 05-359). That certificate can take four to six weeks to arrive, and it is a separate matter from the $40 fee. We have had clients under the impression that the $40 was the end of it, only to discover weeks later that the Comptroller has yet to confirm their franchise tax status.

In Delaware, there is no separate tax clearance certificate, but they will not process the cancellation until all franchise tax is settled through the date of cancellation. The Franchise Tax Section makes that determination as part of the filing, so it pays to time it right. Get your papers in on or before December 31, and you are clear of another year of the $300 minimum. Then there are states like Wyoming with no income tax to worry about, so they skip the step altogether.

The Federal Side

Once you have filed at the state level, the job is only half done. A change in the state record does not notify the IRS. You are still required to file a final federal return for the year of dissolution. For a multi-member LLC or one with corporate taxation, that means a final Form 1065 or 1120/1120-S with the appropriate box checked. For a single-member LLC treated as a disregarded entity, your last Schedule C is your tax return.

There is an obligation to file a final Form 5472 for the short year if your LLC has an EIN and has in the past filed Form 5472 with a pro forma 1120, as is customary for foreign-owned single-member LLCs. This holds true even where the company was in operation for only a matter of months. Do not overlook this; the cost of doing so is high. The IRS has been quite consistent in levying the $25,000 minimum penalty for a late or unfiled form on dissolved foreign-owned entities that mistakenly believed dissolution ended the reporting requirement.

Once you have filed your final returns, you must send a letter to the IRS (not a form) to cancel the EIN. You will also need to close out any state tax, sales tax, or payroll accounts associated with the LLC. None of it is automatic.

Common Mistakes We See

• Filing for dissolution before you have wound up the business. In some states, the sequencing is technically invalid, leaving you in a legal gray area. Your Articles of Dissolution ought to show that the LLC has already made its distributions, notified creditors, and paid off debts.
• Thinking filing in one state is enough. Should the LLC be foreign qualified elsewhere, you must make a separate withdrawal of that registration, or you will find the state billing you for annual reports on an entity that is no longer in existence at home.
• Poor timing on the registered agent. Cancel the service too soon, and you may miss a late tax bill or the state’s notice of confirmation before the dissolution is entered into the books.
• Forgetting the current year’s franchise tax or annual report. Most states do not prorate. A March renewal fee is still due in full even if you dissolve in April.
• Letting the state administratively dissolve the LLC over non-payment in lieu of filing yourself. Some founders figure it saves the fee, but it doesn’t. You are left with penalties and back taxes on record, and if you ever want to reinstate the name, it will cost you more than the original filing.

Step by Step: Filing Articles of Dissolution for LLC

1. Get approval from the members or the manager in accordance with the operating agreement.
2. Wind up the affairs of the business: distribute assets and see to any outstanding debts.
3. Put in a request for tax clearance where applicable (Texas is one such state).
4. Submit the Articles of Dissolution or equivalent to the Secretary of State with the fee.
5. Mark and file your last federal and state tax returns.
6. Write to the IRS to have the EIN canceled.
7. Withdraw any foreign qualifications.
8. After the state has processed the dissolution, you can cancel the registered agent.

EasyFiling compliance team can handle state and IRS requirements in one go, rather than having to piece them together from various websites. Give us a call if you are looking to dissolve your LLC.

FAQs for Articles of Dissolution