Running a business comes with risks. There may come a time when you have to choose whether you should continue or let go and move on. A failed business can be discouraging. However, it does not define you as an entrepreneur. You can use it as an opportunity to start something else. Consider it as the beginning of another exciting journey.
Signs to Dissolve Your LLC
Admitting that it is time to throw in the towel can be hard. However, doing it can be a necessary move. Before that, you have to know how to identify the signs indicating you should dissolve your limited liability company (LLC).
- Your company does not make enough money to pay the bills. The profitability timeline will depend on the business itself. Your circumstances, industry, and models can affect it. However, there is no denying that the end goal is to make a profit. You can set a time frame of when you think your LLC should start earning profits. If you reach that point but have not even succeeded in breaking even, then it may be best to move on to something else.
Assess your cash flow over the past several months. Look for a pattern. Evaluate it and figure out how to address the problem. If you think you have already tried everything, but you have not seen positive results, it may be time to shut down your business.
- It has become a chore. Motivation plays a huge role in running a business. You have to be happy as an entrepreneur. Entrepreneurship is hard, but if it remains fun for you and you feel fulfilled, then you can overcome challenges. If you are no longer sure as to why you are continuing your journey as a business owner, then it may be a sign for you to dissolve your LLC.
- You are losing your customers. There are many reasons why a company’s customers choose to leave. It may be due to the prices of products or services. Sometimes, it is because the products are inferior. Another reason is opting for a competitor that offers something better than what you provide. Whatever the reason may be, you have to do your best to attract customers back. However, if the challenge is more than what you can handle, then it may be time to end your operations.
- You cannot keep up with the changes in the market. Change is constant. What was once a popular product could end up being obsolete all of a sudden. What a company can do is to keep up with trends and adapt to the shift. You should always assess market conditions. That way, you can find out if your business is still relevant to your target audience.
What to Do
Once you decide to dissolve your LLC, you have to make sure that you shut it down properly. Doing this will prevent you from facing legal issues and penalties.
Step 1: The company owners have to approve the business dissolution through a resolution. For LLCs, the members will hold a vote during a meeting. You should check your operating agreement or state laws regarding the required number of votes.
Step 2: File formal paperwork. Since you are registered with the state, you have to inform them about the closure of your business. You can do this by filing formal paperwork and paying the corresponding fees. In most cases, the document is called Articles of Dissolution. Depending on your state, there may be additional requirements. Check out our articles about the dissolution process per state.
Step 3: Submit the appropriate tax forms. The tax obligations of your LLC will not immediately end after you cease your operation. You have to formalize the closure with the Internal Revenue Service (IRS) and other state or local taxing agencies.
Step 4: Dealing with creditors and distributing assets. You have the obligation to inform all known creditors that your business is ending. You can do this by sending a notice by mail. Some states may also require you to publish a notice of dissolution in a newspaper. If there are any remaining assets, you can distribute them to the owners based on their share of ownership.
Closing a business takes courage. However, it can help you move on to a new chapter in your life as an entrepreneur. If you think you need help in handling the dissolution process, contact a reliable third-party organization like DoMyLLC.