Dissolution and Formation: Closing One LLC and Opening Another

Dissolving your LLC in one state and forming a new one in another is the most involved and generally the most expensive way to move your business. It's the option to consider when the others aren't available to you.

Knowing what does and doesn't carry over is the most important part of this decision. A dissolution ends the entity, which means it also ends your EIN and any tax election attached to it. The process involves addressing existing federal and state obligations, settling outstanding liabilities, and meeting the requirements to establish an LLC in the new state, so it's worth reading this article in full before you commit.

This article applies to both LLC tier and S Corp tier members. S Corp tier members have additional steps around re-electing S Corp status and re-registering for payroll, covered below.

What dissolution and formation involves

Dissolution is a statutory procedure. It requires settling debts and liabilities, meeting all state tax and reporting obligations, and completing the steps to wind up and liquidate the business. The dissolution needs to be handled properly at both the federal and state level so that all tax and legal obligations are formally closed.

Separately, a new LLC has to be formed in the new state, and the dissolved LLC's assets, property, and liabilities have to be transferred to it by contract. Unlike a merger, nothing transfers automatically.

Why members choose it

Dissolution and formation is worth considering when redomestication, foreign registration, and a merger are all off the table. It fits members who plan to stop operating in their current state entirely. Afterward, you pursue clients and deliver services in your new state, and you pay fees, file state returns, and maintain your standing there only.

What you're trading is history. You're closing out the current entity and starting fresh with a new EIN, new formation documents, and a new tax election. It's a clean slate, and the prior entity's history and elections don't come with it.

Steps for formally dissolving your LLC

Requirements vary by state, but most states require the following:

1. File dissolution paperwork with the Secretary of State. This is often called a Certificate of Dissolution.
2. Settle outstanding debts. Clear what the business owes before winding down.
3. File final tax returns. Final returns go to the IRS and the relevant state agencies. S Corp tier members generally have a final Business Tax Return (BTR) to file, and Collective files it if your membership stays active through the filing. See "Your Collective account" below for how that works.
4. Distribute assets. Sell or distribute business assets after debts are paid.
5. Distribute remaining funds to the LLC's owners. Allocate what's left based on ownership stakes.
6. Cancel permits and licenses. Cancel business licenses, permits, and assumed business names tied to the LLC.
7. Close business accounts. Close the business bank account tied to the dissolved LLC.
8. Close your employer payroll account. If you were running payroll, Collective closes the state payroll tax account in your old state as part of the employer registration steps described below.

Forming your new LLC

Once your LLC is officially dissolved with the Secretary of State, you can move forward with the new entity. This checklist covers the transition:

1. Choose your LLC name. Confirm the name meets your new state's requirements. If you reuse the exact name of your previous LLC, expect possible delays getting your new EIN, since the IRS may need to sort out two EINs under the same business name.
2. File articles of organization. Submit the formation documents that legally create your new LLC.
3. Appoint a registered agent. If Collective is forming your LLC, we designate our third-party provider, Registered Agent Solutions, Inc. (RASI), as your registered agent. If you'd prefer someone else, tell us when you submit your initial request.
4. Create an operating agreement. This defines ownership and management structure.
5. Obtain a new Employer Identification Number (EIN). Apply through the IRS. Your previous EIN doesn't transfer.
6. Register for state and local licenses. Meet the requirements that apply in your new location.
7. File a new S Corp election if you want S Corp tax treatment. See the section below on timing.
8. Register a new payroll tax account in the new state, if you'll be running payroll.

What to know about S Corp status

If your previous LLC was taxed as an S Corp, that election ends when the entity is dissolved. It doesn't follow you to the new LLC.

To be taxed as an S Corp going forward, you'll need to file a new election with the IRS using the S Corp election form (Form 2553). Under current IRS rules, a newly formed entity generally has to file no more than 2 months and 15 days after the beginning of the tax year the election is to take effect. Missing that window doesn't necessarily close the door, since the IRS offers late election relief in some circumstances, but filing on time is considerably simpler. Check the current Form 2553 instructions on IRS.gov for the details that apply to your situation.

Because the timing matters, tell us your expected formation date early. That lets us track the election deadline alongside your formation filing.

Getting started

If you've chosen dissolution and formation, message us through the Message Center in your Collective dashboard. We'll ask you to confirm a few details, then introduce you to our partner, Registered Agent Solutions, Inc. (RASI), who will prepare a quote to handle the dissolution in your old state.

Depending on where you are in your membership and the status of your S Corp election, a new Collective membership may be required for the new LLC. Collective reviews your membership and outlines each step before anything begins, so you'll know what to expect.

Either way, Collective files your new formation documents to create the LLC in your new state and applies for your new EIN with the IRS, while RASI handles the dissolution in the old state. If a new membership is required, that account setup happens first.

Filing fees apply, and Collective passes those through to you after you approve the quote.

The dissolution and formation process

1. Review and approve the quote. RASI sends a quote for your review. Nothing moves forward until you approve it.
2. Review and sign the forms. Once approved, RASI prepares the filing documents and sends them to you for review and signature where required.
3. RASI files the dissolution. They submit the documents to the relevant state agency on your behalf.
4. Receive dissolution confirmation. When your old state finishes processing, RASI confirms your LLC is dissolved. Timelines vary widely by state and are generally listed on your original quote.

By default, RASI acts as your registered agent in your new state, and the cost is included in your membership fee. If you'd prefer a different registered agent, let us know when you submit your initial request.

Your Collective account

1. If this relocation option requires a new membership, you'll set up a new Collective account to proceed.
2. Collective files your new formation documents to create the LLC in your new state, applies for your new EIN with the IRS, and files a new S Corp election if applicable.
3. You can close your old Collective account once the dissolution is complete, or keep both accounts open while Collective finalizes remaining obligations and manages your books through the final return. If you'd rather not maintain both memberships, our tax filing partner, Taxfyle, can assist with the final return.

Employer registration

This applies if you run payroll, which includes S Corp tier members paying themselves as an owner-employee and any member with employees.

1. Collective registers you as an employer in the new state and obtains the state tax IDs you need to run payroll there.
2. Your new tax IDs are added in Gusto.
3. We close the payroll tax accounts in the state you moved from.

Notification

1. Inform your banks, clients, vendors, and any relevant government agencies of your LLC's relocation and any changes to your contact information.
2. Update your business address on your website, invoices, marketing materials, and anywhere else it appears publicly.

Next steps

To get started, head to the Message Center in your Collective dashboard and tell us your destination state and expected timeline. For a comparison of all four relocation options, see Moving States with Your LLC: Your Four Options.

For situations outside standard guidance, our team of experts can help you navigate next steps. If you have questions specific to your business, reach out to your Collective Team.