diff --git a/daemon/daemon.go b/daemon/daemon.go
index aec26eb5d7..68afdfccaa 100644
--- a/daemon/daemon.go
+++ b/daemon/daemon.go
@@ -817,6 +817,12 @@ func NewDaemonFromDirectory(config *Config, eng *engine.Engine) (*Daemon, error)
 	}
 	config.DisableNetwork = config.BridgeIface == disableNetworkBridge
 
+	// register portallocator release on shutdown
+	eng.OnShutdown(func() {
+		if err := portallocator.ReleaseAll(); err != nil {
+			log.Errorf("portallocator.ReleaseAll(): %s", err)
+		}
+	})
 	// Claim the pidfile first, to avoid any and all unexpected race conditions.
 	// Some of the init doesn't need a pidfile lock - but let's not try to be smart.
 	if config.Pidfile != "" {
@@ -879,6 +885,12 @@ func NewDaemonFromDirectory(config *Config, eng *engine.Engine) (*Daemon, error)
 		return nil, fmt.Errorf("error intializing graphdriver: %v", err)
 	}
 	log.Debugf("Using graph driver %s", driver)
+	// register cleanup for graph driver
+	eng.OnShutdown(func() {
+		if err := driver.Cleanup(); err != nil {
+			log.Errorf("Error during graph storage driver.Cleanup(): %v", err)
+		}
+	})
 
 	// As Docker on btrfs and SELinux are incompatible at present, error on both being enabled
 	if selinuxEnabled() && config.EnableSelinuxSupport && driver.String() == "btrfs" {
@@ -956,6 +968,12 @@ func NewDaemonFromDirectory(config *Config, eng *engine.Engine) (*Daemon, error)
 	if err != nil {
 		return nil, err
 	}
+	// register graph close on shutdown
+	eng.OnShutdown(func() {
+		if err := graph.Close(); err != nil {
+			log.Errorf("Error during container graph.Close(): %v", err)
+		}
+	})
 
 	localCopy := path.Join(config.Root, "init", fmt.Sprintf("dockerinit-%s", dockerversion.VERSION))
 	sysInitPath := utils.DockerInitPath(localCopy)
@@ -1003,22 +1021,9 @@ func NewDaemonFromDirectory(config *Config, eng *engine.Engine) (*Daemon, error)
 		statsCollector: newStatsCollector(1 * time.Second),
 	}
 
-	// Setup shutdown handlers
-	// FIXME: can these shutdown handlers be registered closer to their source?
 	eng.OnShutdown(func() {
-		// FIXME: if these cleanup steps can be called concurrently, register
-		// them as separate handlers to speed up total shutdown time
 		if err := daemon.shutdown(); err != nil {
-			log.Errorf("daemon.shutdown(): %s", err)
-		}
-		if err := portallocator.ReleaseAll(); err != nil {
-			log.Errorf("portallocator.ReleaseAll(): %s", err)
-		}
-		if err := daemon.driver.Cleanup(); err != nil {
-			log.Errorf("daemon.driver.Cleanup(): %v", err)
-		}
-		if err := daemon.containerGraph.Close(); err != nil {
-			log.Errorf("daemon.containerGraph.Close(): %v", err)
+			log.Errorf("Error during daemon.shutdown(): %v", err)
 		}
 	})
 
diff --git a/docker/daemon.go b/docker/daemon.go
index 74901d09d9..e3bd06d901 100644
--- a/docker/daemon.go
+++ b/docker/daemon.go
@@ -7,6 +7,7 @@ import (
 	"io"
 	"os"
 	"path/filepath"
+	"strings"
 
 	log "github.com/Sirupsen/logrus"
 	"github.com/docker/docker/autogen/dockerversion"
@@ -101,13 +102,11 @@ func mainDaemon() {
 	// load the daemon in the background so we can immediately start
 	// the http api so that connections don't fail while the daemon
 	// is booting
-	daemonWait := make(chan struct{})
+	daemonInitWait := make(chan error)
 	go func() {
-		defer close(daemonWait)
-
 		d, err := daemon.NewDaemon(daemonCfg, eng)
 		if err != nil {
-			log.Error(err)
+			daemonInitWait <- err
 			return
 		}
 
@@ -119,7 +118,7 @@ func mainDaemon() {
 		)
 
 		if err := d.Install(eng); err != nil {
-			log.Error(err)
+			daemonInitWait <- err
 			return
 		}
 
@@ -129,11 +128,10 @@ func mainDaemon() {
 		// after the daemon is done setting up we can tell the api to start
 		// accepting connections
 		if err := eng.Job("acceptconnections").Run(); err != nil {
-			log.Error(err)
+			daemonInitWait <- err
 			return
 		}
-
-		log.Debugf("daemon finished")
+		daemonInitWait <- nil
 	}()
 
 	// Serve api
@@ -150,16 +148,46 @@ func mainDaemon() {
 	job.Setenv("TlsCert", *flCert)
 	job.Setenv("TlsKey", *flKey)
 	job.SetenvBool("BufferRequests", true)
-	err := job.Run()
+
+	// The serve API job never exits unless an error occurs
+	// We need to start it as a goroutine and wait on it so
+	// daemon doesn't exit
+	serveAPIWait := make(chan error)
+	go func() {
+		if err := job.Run(); err != nil {
+			log.Errorf("ServeAPI error: %v", err)
+			serveAPIWait <- err
+			return
+		}
+		serveAPIWait <- nil
+	}()
 
 	// Wait for the daemon startup goroutine to finish
 	// This makes sure we can actually cleanly shutdown the daemon
-	log.Infof("waiting for daemon to initialize")
-	<-daemonWait
-	eng.Shutdown()
-	if err != nil {
-		// log errors here so the log output looks more consistent
-		log.Fatalf("shutting down daemon due to errors: %v", err)
+	log.Debug("waiting for daemon to initialize")
+	errDaemon := <-daemonInitWait
+	if errDaemon != nil {
+		eng.Shutdown()
+		outStr := fmt.Sprintf("Shutting down daemon due to errors: %v", errDaemon)
+		if strings.Contains(errDaemon.Error(), "engine is shutdown") {
+			// if the error is "engine is shutdown", we've already reported (or
+			// will report below in API server errors) the error
+			outStr = "Shutting down daemon due to reported errors"
+		}
+		// we must "fatal" exit here as the API server may be happy to
+		// continue listening forever if the error had no impact to API
+		log.Fatal(outStr)
+	} else {
+		log.Info("Daemon has completed initialization")
 	}
 
+	// Daemon is fully initialized and handling API traffic
+	// Wait for serve API job to complete
+	errAPI := <-serveAPIWait
+	// If we have an error here it is unique to API (as daemonErr would have
+	// exited the daemon process above)
+	if errAPI != nil {
+		log.Errorf("Shutting down due to ServeAPI error: %v", errAPI)
+	}
+	eng.Shutdown()
 }
diff --git a/integration-cli/docker_cli_daemon_test.go b/integration-cli/docker_cli_daemon_test.go
index 3cda179a47..315da6f28e 100644
--- a/integration-cli/docker_cli_daemon_test.go
+++ b/integration-cli/docker_cli_daemon_test.go
@@ -481,6 +481,33 @@ func TestDaemonUpgradeWithVolumes(t *testing.T) {
 	logDone("daemon - volumes from old(pre 1.3) daemon work")
 }
 
+// GH#11320 - verify that the daemon exits on failure properly
+// Note that this explicitly tests the conflict of {-b,--bridge} and {--bip} options as the means
+// to get a daemon init failure; no other tests for -b/--bip conflict are therefore required
+func TestDaemonExitOnFailure(t *testing.T) {
+	d := NewDaemon(t)
+	defer d.Stop()
+
+	//attempt to start daemon with incorrect flags (we know -b and --bip conflict)
+	if err := d.Start("--bridge", "nosuchbridge", "--bip", "1.1.1.1"); err != nil {
+		//verify we got the right error
+		if !strings.Contains(err.Error(), "Daemon exited and never started") {
+			t.Fatalf("Expected daemon not to start, got %v", err)
+		}
+		// look in the log and make sure we got the message that daemon is shutting down
+		runCmd := exec.Command("grep", "Shutting down daemon due to", d.LogfileName())
+		if out, _, err := runCommandWithOutput(runCmd); err != nil {
+			t.Fatalf("Expected 'shutting down daemon due to error' message; but doesn't exist in log: %q, err: %v", out, err)
+		}
+	} else {
+		//if we didn't get an error and the daemon is running, this is a failure
+		d.Stop()
+		t.Fatal("Conflicting options should cause the daemon to error out with a failure")
+	}
+
+	logDone("daemon - verify no start on daemon init errors")
+}
+
 func TestDaemonUlimitDefaults(t *testing.T) {
 	testRequires(t, NativeExecDriver)
 	d := NewDaemon(t)
diff --git a/integration-cli/docker_utils.go b/integration-cli/docker_utils.go
index 9466d13256..87aa3c120d 100644
--- a/integration-cli/docker_utils.go
+++ b/integration-cli/docker_utils.go
@@ -267,6 +267,10 @@ func (d *Daemon) Cmd(name string, arg ...string) (string, error) {
 	return string(b), err
 }
 
+func (d *Daemon) LogfileName() string {
+	return d.logFile.Name()
+}
+
 func daemonHost() string {
 	daemonUrlStr := "unix://" + api.DEFAULTUNIXSOCKET
 	if daemonHostVar := os.Getenv("DOCKER_HOST"); daemonHostVar != "" {