When your LLC no longer serves the purpose for which it was formed, dissolving it is necessary to terminate its existence. Each state has its own laws regarding how and when to dissolve an LLC. However, in every state the dissolution of an LLC starts the winding-up phase of the LLC and ends with the distribution of its remaining property -- if any -- to the members.

LLC Dissolution Basics

Your LLC came into existence after filing the proper formation document with the state and its existence ends when you file the proper dissolution document. For example, in Arizona you must file a certificate of termination with the Arizona Corporation Commission. In California, you file a certificate of dissolution and a certificate of cancellation or, depending on the circumstance, only a certificate of termination. The state agency that oversees LLCs in your state typically provides the required documents along with filing instructions.

Winding-Up Phase

A dissolved LLC continues to exist for the purpose of performing the necessary tasks to wind-up and cease business operations. The precise tasks required to wind-up your LLC depends on its specific business operations. However, it should include collecting accounts receivable and other debts. If necessary, the LLC should file a lawsuit to collect outstanding accounts. The LLC should also verify its remaining liabilities and remaining obligations.

Distribution of LLC Property

After completing the wind-up phase, all remaining property owned by the LLC must be distributed according to state law. Creditors are the first to receive LLC property -- which also includes any LLC members or managers who are also creditors. If necessary, the LLC property should be liquidated to have sufficient cash to pay these debts. The remaining LLC property is distributed to the members in proportion to their initial contribution, unless the members made an operating agreement that specifies a different method of distribution.

Other Considerations

If your LLC was remiss in making any required annual filings with the state, it may not be in good standing with the state at the time you want to dissolve it. Before you can file the properly dissolution documents, you must bring it into good standing by making the required filings and paying any fees and penalties. Some states also require you to obtain a tax clearance certificate from the state's taxing authority before the dissolution can be completed.