Running a small business can be an incredible journey, but sometimes the time comes to close your doors. Maybe the market changed, or you’re restructuring your business to better serve your customers. Whatever your reasons, it’s important to understand how to properly dissolve your limited liability company (LLC) and to plan for the associated costs.
Properly “closing up shop” protects you from future liabilities and makes sure you meet all legal requirements. The team at Law 4 Small Business (L4SB) has created this comprehensive guide to the process, considerations, and cost to dissolve an LLC in New Mexico. While the primary focus is on New Mexico law, many of these steps and insights apply to other states as well.
Introduction
When forming an LLC, you likely spent time, money, and effort to make sure you set it up correctly. Dissolving an LLC should be approached with the same diligence. Common reasons for dissolving an LLC include:
· Financial challenges: It might no longer be profitable to run the business.
· Business closure or retirement: Owners might be moving on to new ventures or retiring altogether.
· Restructuring: Merging with another company or forming a different type of entity may require dissolving the current LLC.
Dissolving LLC entities should not be taken lightly. If you fail to follow the proper steps, you could face ongoing taxes, fees, and other legal obligations. New Mexico small business owners need to be aware of state-specific requirements, but even if your LLC operates in multiple states, the basics you’ll learn here will help you avoid costly mistakes.
Understanding the LLC Dissolution Process
What Does Dissolving an LLC Mean?
“Dissolving an LLC” means officially ending the legal existence of your business entity. Once you dissolve your LLC, you won’t be responsible for routine state filings or fees, but you must address all outstanding business matters first. These include:
- · Settling any outstanding debts or obligations.
- · Distributing any remaining assets to members.
- · Filing final tax returns.
If you neglect these steps, your LLC could linger on state records and leave you open to unexpected taxes and liabilities.
Why Proper Dissolution Matters
- Avoiding ongoing obligations: Even if your business no longer operates, an undissolved LLC may be subject to recurring fees (such as LLC filing fees) or taxes.
- Preventing legal penalties: States can impose fines or other penalties if you ignore dissolution requirements. In New Mexico, failure to file necessary forms can cause complications with the Secretary of State’s office.
- Maintaining your professional reputation: Proper dissolution demonstrates professionalism and protects your standing in case you decide to form another business in the future.
Hard Costs Associated with Dissolving an LLC
When most people think of dissolving their LLC, they focus on government filing fees. The cost to close an LLC can extend beyond those fees. Some of the major expense areas you should expect are:
State Filing Fees
Every state is different, but let’s take an in-depth look at L4SB’s home state, New Mexico.
New Mexico LLC Fees
In New Mexico, you must file the official Articles of Dissolution with the Secretary of State to formally end your LLC. The cost to dissolve an LLC in New Mexico can vary, but the filing fee generally ranges from $25 to $100. Keep in mind that fees do change from time to time, so checking the latest fee schedule on the New Mexico Secretary of State’s website is essential before you file.
If you choose to expedite your filing, you might pay an additional charge. Some states also impose extra fees for certificate requests or certified copies of your dissolution documents.
Other State LLC Fees
If your business operated in multiple states, you need to dissolve or withdraw your LLC in each state. This often requires additional filings and fee payments to each state’s business authority. For instance, if your LLC was registered as a “foreign LLC” in another state, you must also file the appropriate withdrawal paperwork in that jurisdiction.
Processing Times and Expedited Service Fees
After you submit your Articles of Dissolution, the state will process the paperwork. Standard processing times in New Mexico can vary. If you need a faster turnaround, an expedited service fee may be required. Although the price of expedited services differs depending on the state, expect to pay at least an extra $25 to $100, depending on the urgency and the specific service level.
Legal and Administrative Costs
Attorney Fees
While hiring a lawyer for a straightforward dissolution might not always be necessary, there are many situations where professional advice is critical. If your LLC has significant debts or assets, or if disputes exist among members, an attorney’s guidance can help you avoid legal pitfalls.
When you might need a lawyer:
- Complex business structures or multi-member LLCs
- Tax considerations or existing lawsuits
- Unresolved conflicts among members
Estimated costs: Lawyer fees for dissolving an LLC can start around $99 but may be higher depending on your specific needs. A more complex dissolution could result in hourly charges that add up to hundreds or thousands of dollars.
Accountant or Tax Advisor Fees
You may also need a tax professional or accountant to finalize your books and navigate the tax implications of dissolving an LLC. This includes preparing final tax returns, ensuring payroll taxes are paid, and confirming no outstanding sales taxes remain. The cost varies widely, but you can expect to pay a few hundred dollars or more, especially if your business finances are complex.
Business Debt Settlement Costs
If your LLC has outstanding debts or liabilities, these must be addressed before dissolution. Negotiating with creditors or banks can potentially minimize your payouts, but you may still need to put money toward unpaid bills, rents, leases, or other obligations. Failing to settle these debts could bring about legal action, even after you file your dissolution paperwork.
Tax Implications of Dissolving an LLC
Closing a business isn’t as simple as stopping operations. You must also wrap up your tax responsibilities.
Final Tax Returns
Filing a final federal and state tax return notifies tax authorities that your business won’t be filing in subsequent years. For federal taxes, check the box on your return that indicates it’s the final filing. In New Mexico, confirm that all gross receipts taxes, income taxes, and any local business taxes have been paid.
Outstanding Tax Obligations
· Payroll taxes: Make sure all federal and state payroll taxes are paid if you had employees.
· Sales taxes: Confirm that any remaining sales tax obligations are settled.
· Local business taxes: Don’t forget local tax obligations, like city or county business taxes, if applicable.
Tax Deductions or Credits for LLC Dissolution
Dissolving your business might offer some tax benefits. For example, you could write off certain business losses or unrecoverable debts. Check with a tax advisor to understand how these rules apply to your unique situation. Even if you don’t anticipate any major tax credits, it’s good to confirm whether any are available to you.
Additional Considerations Before Closing Your LLC
Notify Stakeholders
Be transparent with partners, employees, and clients once you decide to dissolve your LLC. Communication can avoid misunderstandings and preserve your professional relationships. If you had ongoing contracts with clients, you may need to address these obligations or terminate those agreements properly before closure.
Cancel Business Licenses and Permits
If your LLC holds any local or state business licenses, you’ll want to cancel them to avoid renewal costs. This step is also critical for protecting your LLC from future obligations or fees linked to those licenses.
Close Business Bank Accounts
Close all business-related bank accounts to prevent further fees or unauthorized transactions. This includes credit lines, checking accounts, and any merchant services accounts. If multiple members are involved, confirm that everyone agrees on who receives any remaining funds.
Handle Business Assets and Intellectual Property
Before filing the dissolution, decide what to do with any leftover assets. This could include office furniture, equipment, or intellectual property rights. Some LLC members decide to sell or distribute assets according to their ownership percentage. Properly handling assets ensures everything is settled fairly and transparently.
Step-by-Step Guide to Dissolving an LLC in New Mexico
The general outline below shows you how to close your LLC in New Mexico. Always remember that specific steps might vary depending on your LLC’s operating agreement and the complexity of your business.
1. Review Your LLC Operating Agreement: This document often outlines the procedure for dissolving the LLC. It might specify who needs to vote on dissolution or what percentage of members must agree.
2. Get Member Approval (If Required): If your LLC is multi-member, confirm that everyone agrees to dissolve the company. Some operating agreements require a formal vote or resolution.
3. File Articles of Dissolution: Fill out the Articles of Dissolution form from the New Mexico Secretary of State’s website and submit it along with the required state LLC fees (generally $25 to $100 in New Mexico).
4. Settle All Business Debts and Liabilities: Pay outstanding bills, including vendor invoices, loans, and any leases, and notify creditors of your LLC’s closure.
5. File Final Tax Returns and Notify the IRS: Mark your final returns as “final,” and ensure you close any tax accounts associated with your LLC, such as payroll taxes, sales taxes, or local business taxes.
6. Close Remaining Business Obligations: Cancel all permits, licenses, and business bank accounts, and notify any remaining stakeholders of your official closure date.
Your Path to a Smooth LLC Dissolution
Successfully dissolving LLC entities might feel overwhelming, but it’s a vital part of responsible business ownership. In New Mexico, the cost to dissolve an LLC typically starts with a filing fee. However, your total outlay can include various state LLC fees, attorney fees, accountant fees, and potential debt settlements. You may also need to navigate the tax implications of dissolving an LLC, such as filing final returns and paying off any outstanding tax obligations.
Taking the proper steps to close your LLC helps you avoid unwanted fines, taxes, or lawsuits down the road. By properly filing Articles of Dissolution, settling all debts, and staying compliant with tax laws, you ensure a smooth exit from your business.
If you’re not sure where to start or simply want to ensure you’re doing everything by the book, we invite you to call L4SB. Our law firm focuses specifically on small businesses and their unique challenges, including dissolution, so you can rest assured you’ll receive friendly, knowledgeable, and cost-effective guidance.
Let us handle the hard parts of dissolving your LLC while you move on to the next chapter of your business journey. When you’re ready to start the process, give us a call. We’ll guide you every step of the way.
Law 4 Small Business (L4SB). A little law now can save a lot later. A Slingshot company.
