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Dissolving a Business: The Right Way to Do It


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Dissolving a business can be challenging, but sometimes, it’s necessary. Whether your business has achieved its goals and you’re ready to move on or facing financial difficulties that make continuing operations impossible, it’s essential to handle the dissolution process correctly. This guide will walk you through the steps of dissolving a business, ensuring you do it correctly, especially when involving a third party.

Understanding Business Dissolution

Business dissolution is the formal closure of a business entity. It involves ending all business operations, settling debts, and distributing any remaining assets to the owners. The process can vary depending on your business typesuch as a corporation, limited liability company (LLC), or partnership—and the state in which your business is registered.

Reasons for Dissolving a Business

There are several reasons why a business might need to dissolve, including:

  • Financial Difficulties: Inability to pay debts or generate enough revenue.
  • Owner’s Decision: Personal reasons, retirement, or a desire to pursue other opportunities.
  • Business Goals Achieved: The business has served its purpose and is no longer needed.
  • Disputes Among Owners: Irreconcilable differences that prevent effective management.
  • Legal or Compliance Issues: Failure to comply with laws and regulations.


Steps to Dissolve a Business

  • Get Approval from Stakeholders 

For corporations and LLCs, the first step in dissolving a business is getting approval from the owners or shareholders. This typically involves:

    • Board Resolution: The board of directors must pass a resolution to dissolve the business.
    • Shareholder Vote: Shareholders must vote to approve the dissolution. The requirements for approval, such as the percentage of votes needed, are usually outlined in the company’s bylaws or operating agreements.
  • File Articles of Dissolution 

Once you have the necessary approvals, you must file the Articles of Dissolution with the state where your business is registered. This document notifies the state that your business is closing. The process and forms required can vary by state, so check with your state’s business filing office.

  • Notify Creditors and Settle Debts

You must inform all creditors that your business is dissolving and settle any outstanding debts. This involves:

    • Notifying Creditors: Send written notice to all known creditors about the dissolution.
    • Paying Debts: Pay off all outstanding debts and liabilities. If your business doesn’t have enough assets to cover its obligations, you may need to negotiate payment plans or settlements with creditors.
  • Cancel Licenses, Permits, and Registrations

Cancel all business licenses, permits, and registrations associated with your business. This includes:

    • Local Business Licenses: Cancel any local business licenses or permits.
    • State Licenses: Cancel state-specific licenses or registrations.
    • Federal Registrations: Notify the IRS and cancel your Employer Identification Number (EIN).
  • File Final Tax Returns

You must file your business’s final federal, state, and local tax returns. This includes:

    • Federal Tax Returns: File your final income tax return and indicate that it’s the final return for the business.
    • State Tax Returns: File final state tax returns and pay any outstanding taxes.
    • Employment Taxes: If you have employees, file final employment tax returns and make final payroll tax deposits.
  • Distribute Remaining Assets

After paying all debts and taxes, distribute any remaining assets to the business owners. The distribution process depends on the type of business entity:

    • Corporations: Distribute assets to shareholders based on their ownership percentage.
    • LLCs: Distribute assets to members according to the operating agreement.
    • Partnerships: Distribute assets to partners according to the partnership agreement.
  • Maintain Records

Keep detailed records of the dissolution process, including all filings, notices, and transactions. These records can be important for future legal or financial issues.


Involving a Third Party: LegalZoom

In some cases, involving a third party like LegalZoom can simplify the dissolution process. Third parties can provide expert guidance and handle many administrative tasks, ensuring the process is completed correctly and efficiently.

Benefits of Using LegalZoom

  • Expertise: LegalZoom professionals specialize in business dissolution and have the knowledge and experience to navigate the process smoothly.
  • Time-Saving: LegalZoom can handle the paperwork and communications, saving you time and effort.
  • Reduced Stress: Having LegalZoom manage the dissolution can reduce stress and meet all legal requirements.

Choosing LegalZoom

When choosing LegalZoom to help with business dissolution, consider the following factors:

  • Reputation: LegalZoom is a reputable firm with positive reviews and testimonials.
  • Experience: LegalZoom has extensive experience in dissolving businesses similar to yours.
  • Services Offered: LegalZoom offers comprehensive services, including filing documents, notifying creditors, and handling tax matters.
  • Cost: LegalZoom provides reasonable rates for its services, offering cost-effective solutions.

Working with LegalZoom

Once you’ve chosen LegalZoom, work closely with them to ensure a smooth dissolution process. Provide them with all necessary information and documents, and stay in regular communication to address any issues that arise.


Special Considerations

Dissolving Corporations

The dissolution process can be more complex for corporations due to the involvement of shareholders and the board of directors. Key steps include:

  • Board Resolution and Shareholder Vote: Getting approval from the board and shareholders is essential.
  • Notifying Shareholders: Provide written notice to all shareholders about the dissolution and the process for distributing assets.
  • Final Meetings: Hold final meetings to approve the distribution of assets and any other necessary actions.

Dissolving an LLC

For LLCs, the process can vary depending on the state and the terms of the operating agreement. Key steps include:

  • Operating Agreement: Follow the procedures outlined in the operating agreement for dissolving the LLC.
  • Member Approval: Get approval from the members of the LLC to dissolve the business.
  • Distribution of Assets: Distribute assets according to the operating agreement or state law.

Dissolving a Partnership

For partnerships, the dissolution process typically involves the following steps:

  • Partnership Agreement: Follow the terms of the partnership agreement for dissolution.
  • Partner Approval: Get approval from all partners to dissolve the business.
  • Winding Up: Complete any remaining business operations, settle debts, and distribute assets to partners.



Dissolving a business is a complex process that requires careful planning and attention to detail. By following the steps outlined in this guide and considering the benefits of involving a third party, you can ensure that your business dissolution is handled correctly and efficiently. Remember to keep detailed records of the entire process, and don’t hesitate to seek professional help if needed. Doing it the right way will help you avoid legal and financial issues in the future and allow you to move on to your next venture with confidence.

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