How to dissolve an LLC or corporation

Dissolving a company is a state filing that ends its legal existence, but it comes at the end of a process: the owners approve it, the company winds up its affairs, files final taxes, and then files dissolution papers with the state where it was formed. The document name varies by state and entity type (articles of dissolution, certificate of dissolution, certificate of cancellation), but the sequence is similar everywhere. Skipping the filing is costly: the company keeps owing fees and taxes.

The steps

1. Approve the dissolution. For a corporation, usually a board resolution followed by a stockholder vote, as your bylaws and state law require. For an LLC, follow the operating agreement; often a vote of members.
2. File Form 966 with the IRS if a corporation adopts a resolution or plan to dissolve or liquidate.
3. Wind up. Finish or transfer contracts, collect receivables, sell assets, notify creditors and pay or settle debts. Many states offer a formal creditor-notice process that limits later claims; ask your lawyer.
4. File final tax returns. Federal and state income tax returns marked final, final payroll returns and W-2s, and sales tax returns.
5. File the dissolution document with the state of formation, and withdrawal documents in states where you registered as a foreign entity.
6. Distribute what is left to owners in the order your documents and state law set.
7. Keep the records. The SBA’s guide suggests three to seven years depending on the record.

Delaware: the most common case for startups

Most venture-backed startups are Delaware corporations. Two Delaware rules matter at the end:

• Taxes keep accruing on a corporation until a document such as a Certificate of Dissolution is filed with the state, and failing to formally close the entity leads to penalty and interest charges.
• Annual reports and franchise taxes are due March 1. A late filing carries a $200 penalty plus 1.5% interest per month.

Pay what is due and file the dissolution in the same tax year you stop operating, if you can.

LLC or corporation: what differs

	Corporation	LLC
Who approves	Board, then stockholders	Members, per the operating agreement
IRS notice	Form 966 when a plan to dissolve is adopted	Depends on how the LLC is taxed
Final return	Corporate return marked final	Partnership or corporate return marked final; single-member LLCs report on the owner’s return
State filing	Certificate or articles of dissolution	Certificate or articles of dissolution or cancellation

Do not dissolve before the assets are dealt with

Once the company is dissolved, selling what it owned gets harder. That includes software, domain names and business records. If the company holds years of email, chat, documents or CRM history, decide what happens to them during the wind-down, before the accounts are cancelled and before the filing.