I Started an LLC and Never Did Anything With It. What Should I Do?
Learn how to manage an inactive LLC, understand filing obligations, tax requirements, and steps to dissolve it to avoid penalties.
Starting an LLC can be exciting, but sometimes plans change, leaving the business inactive. Knowing how to handle an idle LLC is crucial to avoid unnecessary complications or financial burdens.
State Filing Obligations for an Idle LLC
Even if an LLC is inactive, it must meet state-specific filing obligations, which vary significantly. Many states require an annual report or statement of information, even if the LLC has no business activity. These reports typically include basic details like the LLC’s address, registered agent, and member information. Failure to file can result in penalties or administrative dissolution.
Some states impose fees or taxes on LLCs regardless of operational status. For example, California mandates an annual minimum franchise tax of $800, even for inactive businesses. Delaware charges a flat annual fee to maintain good standing. Business owners should review their state’s requirements to ensure compliance.
States also periodically update their regulations, which may affect filing obligations. Checking the Secretary of State website or seeking professional advice helps businesses stay informed about changes.
Federal Tax Requirements With No Revenue
An inactive LLC with no revenue still has federal tax obligations. Single-member LLCs report activity on the owner’s personal tax return using Schedule C, even if no income exists. Multi-member LLCs, treated as partnerships, must file Form 1065, an informational return.
If an LLC had employees earlier in the year but ceased operations, it must still file employment tax returns like Form 941. Failure to submit these forms can result in penalties.
LLCs electing corporate tax status must file Form 1120 regardless of revenue. These entities may also face the accumulated earnings tax if they retain earnings beyond reasonable business needs.
Non-Compliance Fees and Potential Penalties
Failing to meet federal and state requirements can lead to financial penalties. States often impose late fees or interest on overdue filings. For instance, in California, neglecting to pay the annual franchise tax results in escalating penalties.
The IRS also enforces penalties for late or incomplete filings, even if there is no taxable income. For example, failing to file Form 1065 on time incurs a penalty of $220 per month, per partner, for up to 12 months. Additional fines apply for missing informational returns like Form 1099, depending on the delay and business size.
Non-compliance can also lead to administrative actions, such as suspending or revoking the LLC’s right to conduct business. This can harm the entity’s legal standing, creditworthiness, and ability to secure financing or establish partnerships.
Steps to Formally Dissolve an Unused LLC
Formally dissolving an unused LLC involves several steps to ensure the entity is legally terminated. The process typically begins with a resolution to dissolve, agreed upon by the LLC members or managers as outlined in the operating agreement. Documenting this resolution is recommended for clear records.
Next, the Articles of Dissolution must be filed with the state where the LLC is registered. This filing officially notifies the state of the LLC’s intent to dissolve. Each state has its own form and fee for this process, which must be followed precisely. Before filing, ensure all outstanding obligations, such as final tax returns or fees, are settled to complete the dissolution process.