Winding up refers to the process of closing and liquidating a company, typically to pay off its debts and distribute any remaining assets to shareholders or creditors before ceasing its operations.
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Last Updated: December 18, 2025
Winding up is one step in dissolution, where the owners work to “wind up” the business operations. During winding up, the owners publicly announce the closing and distribute the value of the business to their creditors and shareholders. According to the business definition of winding up, the owners will sell off the business or liquidate the business assets. Once the business assets are liquidated, the business will settle its outstanding debts. Shareholders get paid last out of any remaining assets.
Here are the basic steps to winding up a limited liability company:
Corporations take similar steps for winding up, but distributions go to the shareholders instead of members.
If a business is dissolving, it’s essential for the business owners to follow their state’s requirements for their legal entity type. It’s also essential to cancel business licenses and file final tax returns with the IRS and the state so the business doesn’t continue to incur tax liabilities. Once the company is wound up, the business owners can file the Articles of Dissolution (or comparable form) to officially close the business with the state.
Winding up the business can also be referred to as:
No matter the name, winding up has its benefits. By winding up, a small business owner will officially close the business and attend to all the loose ends. If winding up is overlooked, the top disadvantages include owing taxes, paying late fees, and being sued by shareholders or creditors who didn’t get their share.
Winding up can be compulsory or voluntary. Compulsory winding up occurs when a court orders the business to close. This might happen if a business is behind on its taxes or other legal obligations. If things aren’t going well for a company, its owners can vote to close, starting a voluntary winding up. Here are a few examples of companies that chose to wind up:
These companies voted to wind up after years of deep financial distress. That said, small business owners don’t have to wait until the business is in dire straits before winding up.
Winding up is the process of selling off business assets and paying off creditors. After all the winding-up steps are completed, a business can close down without worrying about lingering obligations.
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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. For specific questions about any of these topics, seek the counsel of a licensed professional.
Written by ZenBusiness Editorial Team
The ZenBusiness Editorial Team has more than 20 years of combined small business publishing experience and has helped over 850,000 entrepreneurs launch and grow their companies. The team’s writers and business formation experts are dedicated to providing accurate, practical, and trustworthy guidance so business owners can make confident decisions.
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