As an entrepreneur, you must be able to recognize when it is time to quit a business plan. Of course, the term “walking away” is a misnomer but if you’ve gone through the trouble of forming an LLC for your company, the right course of action is to dissolve the LLC. To dissolve an LLC or company in California, you must complete the appropriate documentation with the Secretary of State and submit your last franchise tax return to the California Franchise Tax Board. However, to save you the stress of going through all of these on your own, the most frequently asked questions concerning how to dissolve an LLC business in California, (including online options) are answered below.
How to Dissolve Your LLC in California: Overview
In California, dissolving an LLC is a formal process that ends the limited liability company’s existence as a state-registered corporate entity. If your LLC is currently inactive, you must reinstate it before filing for dissolution. The dissolution process removes the LLC from creditors’ reach and wraps up any loose ends.
Checking the operating agreement and articles of the organization, which often includes a mechanism for formally dissolving the firm, is the first step in voluntarily dissolving a California LLC. In most cases, these contracts will state that the LLC members must vote on a resolution to dissolve the firm and that a certain percentage must approve it. Basically, you’ll have to follow all of the instructions in these documents, including choosing a definite date and time for the vote and notifying members in advance.
California also allows an LLC to dissolve if a majority of members or a percentage more than that stipulated in the operating agreement, vote in favor. Afterward, you must file a certificate of cancellation and record the approved decision on a written consent form or in the official meeting minutes when members vote to dissolve the LLC. However, keep in mind that dissolving your LLC will not stop the company from facing a lawsuit.
How to Dissolve a Limited Liability Company in California
Below are steps to follow after a decision has been reached concerning dissolving an LLC in California. These steps also applies when you decide to go about this online.
Step 1: Comply with the terms of your California LLC Operating Agreement
The methods for dissolving most LLCs will be stated in the operating agreement. The following are some common disintegration steps:
- Dissolving the LLC through a vote of the LLC members
- Recording the vote to dissolve the LLC in the meeting minutes.
- Determining the dissolution’s formal date
- Distributing the assets of the LLC.
- Notifying creditors and paying up any outstanding company debts
If your LLC's operating agreement does not specify dissolution processes, you should contact the state for more information.
Step 2: Ensure that You Close Your Business’s Tax Accounts
Every active California LLC has a number of tax accounts that are under the management of various departments of the state government. You must first pay off all taxes and/or fines owed to these accounts before you will be able to dissolve your LLC.
The following are some of the most periodic taxes that your LLC might owe:
- Franchise Tax
- Unemployment Insurance Contribution
- Withholding Tax on Employees
- Tax on People with Disabilities
- Taxes on Sales and Use
The majority of the time, closing your tax accounts entails merely filing a final return with the relevant agency. Some accounts, however, demand the submission of additional official papers.
Meanwhile, before dissolving, LLCs having an income of $250,000 or more must pay their LLC fee to the Franchise Tax Board.
NOTE: If any of your LLC's tax accounts have a balance, they cannot be closed. Before you may dissolve your LLC, you must pay all taxes, penalties, fees, and interest.
Step 3: File the Articles of Dissolution With the Court
Articles of Dissolution are the documents you use to voluntarily disband your limited liability company. Your LLC will cease to exist after this form has been filed and processed.
For LLCs, California offers three different dissolution options.
You can file the Short Form Cancellation Certificate if your LLC meets all of the following criteria:
- Your limited liability company (LLC) was founded during the last 12 months.
- There are no obligations or payments owed to your LLC.
- Your limited liability company (LLC) has filed its last tax return.
- Your LLC’s assets have been distributed.
- The majority of voting parties (>50%) support the cancellation.
If you can’t respond yes to those questions and all of the voting parties agree to cancel, file the Certificate of Cancellation.
You must file a Certificate of Dissolution together with a Certificate of Cancellation if you cannot answer yes to those criteria and less than all voting parties vote in favor of cancellation.
Business owners in California must file Articles of Dissolution by mail, in person, or online to eventually dissolve an LLC.
What You Need to Know About LLC Dissolution
The following are other important pieces of information you should be are of when it comes to dissolving an LLC in California.
Your Timing Is Affected by the Annual Minimum Franchise Tax
All LLCs in California are required by law to pay an annual minimum franchise tax of $800, regardless of whether the LLC is actively in business or not. This tax must be paid even if the LLC is not actively generating money.
The LLC must also comply with additional yearly maintenance requirements, such as filing an annual information return and filing a tax return with the Franchise Tax Board of California.
If your LLC isn’t performing well financially and you’ve chosen to dissolve it, it’s a good idea to act quickly and have your LLC officially dissolved before the yearly minimum franchise tax and annual filings are due again.
According to the Franchise Tax Board, your LLC must do the following to avoid paying the yearly minimum franchise tax for the current or subsequent years:
- It must timely file its final franchise or annual tax return for the previous taxable year.
- After the last day of the previous taxable year, stop doing business in California.
- Within twelve months of the LLC’s final tax return, file the necessary documentation to cancel the LLC.
Dissolving an LLC in California Requires the Proper Forms
In California, there are three important forms to dissolve an LLC. The required form(s) varies based on how long you’ve been in business and whether or not you have the permission of all LLC members. While the steps to formally dissolve your corporation are quite simple, managing the formal dissolution process on your own can be challenging. Fortunately, there are online resources available to assist you.
If you decide to dissolve your California LLC on your own, it’s essential to select the proper form for your situation, since submitting the incorrect form could cause your company’s dissolution to be delayed.
If Your Articles of Organization Were Filed Less Than a Year Ago,
You may be able to file the Short Form Certificate of Cancellation (Form LLC-4/8).
To file for cancellation using the Short Form Certificate, you must meet all of the California Franchise Tax Board’s qualifying conditions.
If All LLC Members Have Given Their Unanimity of Consent,
You can file for cancellation using the Certificate of Cancellation (Form LLC-4/7). This form only applies if you’ve taken a formal vote—following the processes and rules established in your LLC’s operating agreement or articles of incorporation for dissolving the company—and got unanimous permission.
Furthermore, to dissolve your California LLC using the Cancellation Form alone, you must specify on the form that all members of the LLC voted to dissolve the firm.
If You Don’t Get the Unanimous Approval of All LLC Members,
You can file for cancellation by submitting the Certificate of Cancellation (Form LLC-4/7) along with a Certificate of Dissolution if you can’t get unanimous permission from all LLC members but meet the conditions to dissolve your LLC (Form LLC-3).
The California Secretary of State’s website has all of the essential forms available for download.
How Do I File the California Dissolution Form?
Forms for dissolution or cancellation in California can only be submitted by mail or in person. Note that hand-delivering your dissolution form in Sacramento will cost you $15.00, however, hand-delivered filings take precedence over mailed filings.
Filings by Mail:
Business Entities Filings Unit,
Secretary of State, PO Box 944260 Sacramento, CA 94244
Filings Delivered by Hand:
1500 11th Street, 3rd Floor, Sacramento, California 95814
How Much Does It Cost to Dissolve a Firm in California?
The California dissolution forms are free to file. However, you can pay for expedited service and preclearance to accelerate the process. Preclearance implies you can drop off your document for a review in person before filing to guarantee you haven’t made any mistakes that will cause your filing to be denied. The following is an overview of what the pricing looks like;
Sacramento Counter Drop-Off: $15 10-day period $250 for pre-clearance 5-Day $300 for pre-clearance 72-Hour $400 for pre-clearance 24-Hour $500 for pre-approval.
How Long Does It Take To Dissolve a Firm in California?
The California Secretary of State’s processing periods vary according to traffic, but your dissolution will most likely take 3-to 4 weeks to complete.
What if I Just Don’t File Statements of Information Any Longer?
The California Secretary of State will certainly forfeit your business if you don’t legally dissolve your corporation or LLC. This means you’ll be barred from doing business in California and face a $250 fine. Until you file to dissolve, you’ll also owe the annual California Franchise Tax (a minimum of $800).
Furthermore, if your company is suspended or forfeited, you won’t be able to disband it until you resuscitate it, which will cost you an additional $20 and take hours of your time.
It’s far easier (and less expensive) to properly disband your company.
Is It Necessary for Me to Get Tax Clearance in Order to Close My California Business?
No, a tax clearance letter is not required to dissolve a California LLC or corporation. However, you must say on your dissolution form that you have submitted your final California Franchise Tax return and are current on your taxes.
Can I Dissolve a Forfeited Business in California?
No. You’ll need to revive a forfeited business before you can legally disband or cancel it. You’ll need to address the issues that led to the suspension or forfeiture in order to do so.
In California, the process for resurrecting a business is dependent on whatever government suspended or forfeited your company.
If the California Secretary of State has suspended your business, you must file a late Statement of Information and pay a $20 filing fee as well as a $250 penalty.
So, if the California Franchise Tax Board has suspended your business, you must file all past-due taxes, pay all penalties and fines, and complete the right reinstatement form. The Application for Certificate of Revivor – Limited Liability Company is filed by California LLCs (this form is only available by request from the California Franchise Tax Board). The Application for Certificate of Revivor – Corporation is filed by corporations (FTB 3557 BC).
But what if both agencies put a stop to your business? In that case, you should begin by resolving your difficulties with the Secretary of State of California. The SOS will send you a letter proposing relief from suspension or forfeiture once you’ve filed your missing Statement of Information. When you file your Application for Certificate of Revivor with the California Franchise Tax Board, you must include this letter.
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