Closing an LLC with one owner is mostly a matter of paperwork. Closing an LLC with several members adds one more task: the members have to agree, and the money and assets that are left have to be shared out correctly. The tax side is also different, because a multi-member LLC usually files its own partnership return. This guide walks through the steps for an LLC with two or more members, in order.
Step 1: Agree to dissolve, as the operating agreement requires
Start with your operating agreement. Most operating agreements say how the members decide to dissolve the LLC. Some require all members to agree. Others allow a majority, or a majority by ownership share. Some name events that dissolve the LLC automatically, such as a fixed end date.
Follow what your agreement says, and put the decision in writing. A short written consent, signed by the members, is usually enough. It should say that the members approve the dissolution, the date, and who is authorized to sign the state filing and other closing documents for the LLC.
If you have no written operating agreement, the state's LLC law sets the rules. In that case, the safest course is to have every member sign the consent. If members disagree about closing, talk to a lawyer before you file anything.
Step 2: Decide who signs
The state's dissolution document is usually signed by one authorized person, not by every member. That can be a member, a manager in a manager-managed LLC, or another person the members authorize. The written consent from Step 1 is the right place to name that person.
The same applies to the IRS letter that closes the EIN account. It must be signed by an owner or another authorized person. One signature is enough when that person has authority to act for the LLC.
Step 3: Check standing and file with the state
Most states want the LLC in good standing before they accept a dissolution: annual reports filed, and fees and franchise taxes paid. Then the LLC files the state's dissolution document with the Secretary of State. The name differs by state: for example a "Certificate of Cancellation" in Delaware, "Articles of Termination" in Arizona and Montana, a "Statement of Dissolution" in Colorado, and "Articles of Dissolution" in many other states, such as North Carolina. A few states have a later termination step. See dissolution, cancellation and termination for what each term means.
Step 4: Wind up and distribute assets
After the decision to dissolve, the LLC winds up its business:
- It finishes or ends open contracts.
- It collects what customers and others still owe it.
- It pays its debts, including taxes and any amounts owed to the state.
- It distributes what is left to the members.
Pay creditors before members. How the remaining money and property are split among the members is usually set by the operating agreement. Often it follows each member's capital account or ownership share, but agreements differ. Write down each distribution: the date, the member, and the amount or the item. Your accountant needs this for the final return and each member's K-1.
Step 5: The final Form 1065 and K-1s
An LLC with several members is taxed as a partnership by default. For the final year, it files a final Form 1065 with the "final return" box checked, and a Schedule K-1 for each member. Each member then reports their share on their own tax return.
For a calendar year, Form 1065 is due on the 15th day of the 3rd month after the tax year ends, which is March 15. When an LLC closes during the year, its final tax year may end early, so the due date can come sooner. Confirm the exact date with the accountant who files the return.
If your LLC chose to be taxed as an S corporation, the final return is Form 1120-S with K-1s instead. If it chose C corporation treatment, it is Form 1120, and corporations generally also file Form 966 after deciding to dissolve. See which final tax return your LLC files for a full table.
Foreign partners: extra forms can apply
If one or more members live outside the US, the LLC still usually files Form 1065. In addition, the withholding forms 8804, 8805 and 8813 can apply if foreign partners had income effectively connected with a US trade or business. Whether they apply depends on what the LLC did and where. Each foreign member may also need their own US return, such as Form 1040-NR, depending on their US income.
These rules are detailed and depend on the facts. Ask an accountant who works with foreign partners to check them before the final year is filed. For other points that matter to owners abroad, see dissolving a US LLC when you live outside the US.
Step 6: Close the EIN account
Dissolving with the state does not close the LLC's account with the IRS. The IRS never cancels an EIN, but it closes the business account when asked. The LLC sends a letter with its complete legal name, the EIN, the business address and the reason for closing, signed by an owner or authorized person, ideally with a copy of the CP 575 notice. The IRS will not close the account until all required returns are filed, including the final Form 1065, and taxes are paid. Confirmation comes by mail and can take several weeks. More in how to close your EIN business account.
Step 7: The rest of the checklist
- Close state tax accounts, such as sales tax permits and state payroll accounts.
- Cancel business licenses where relevant.
- Close the bank account after the last payments and distributions.
- Close Stripe, PayPal and marketplace accounts.
- Agree which member keeps the LLC's records. Many advisors suggest keeping them for at least several years.
- Cancel the registered agent only after the state confirms the dissolution.
The full list is in the checklist for closing an LLC.
What we do for a multi-member LLC
With the dissolution package ($349 plus state fee), we check the LLC's standing with the state, file the state's dissolution document and send the state's confirmation. With the dissolution and EIN closure package ($449 plus state fee), we also prepare the IRS letter that closes the EIN account for one signature, and send it. We work with a network of independent, licensed CPAs and tax advisors.
We do not prepare Form 1065, K-1s or any other tax return, and we do not draft operating agreements or member consents. We are not a law firm or a CPA firm. Your accountant files the final return.