To dissolve your LLC in California, you must file a certificate of cancellation of articles of organization and a certificate of dissolution with the California Secretary of State.
The LLC dissolution process requires compliance with your LLC’s operating agreement and the California LLC Act.
Other steps include winding up affairs, liquidating assets, and filing your business’s tax returns.
Dissolution changes the purpose of your LLC’s existence, but it’s only the first step in terminating your business.
Dissolved LLCs only exist so the owners can proceed with winding up their business and liquidating its assets.
Once you dissolve your LLC and complete the wind-up process, your business will no longer be liable for tax return compliance, and the owners will be free from any future liabilities.
There are 3 types of dissolution: voluntary, administrative, and judicial.
While each type occurs for different reasons, you must take similar steps to ensure the correct closure of your California LLC.
Voluntary dissolution occurs when the LLC members choose to end their business.
Voluntary dissolution can happen in two ways.
Members who vote for voluntary dissolution must adhere to the LLC operating agreement’s conditions, such as the majority vote required.
LLCs without an operating agreement must follow the California state rules for voluntary dissolution.
Administrative dissolution is when a Secretary of State’s office imposes closure upon an LLC for failing to comply with state LLC laws or for failing to file an annual LLC report
Each US Secretary of State’s office has its triggers for implementing administrative dissolution. Still, in most states, an LLC can be forced to close for whatever reason the Secretary of State deems fit.
A state court can impose judicial dissolution upon an LLC for failing to pay taxes or complying with the state’s LLC operating laws.
However, the most common reason for judicial dissolution is when an LLC member sues the business to close it.
Dissolution is the first step in dissolving your California LLC and requires filing Articles of Dissolution.
Once the state approves your dissolution request, your LLC is technically dissolved; however, you must take several other steps to ensure you terminate your LLC correctly.
LLC members who dissolve their business voluntarily must comply with their LLC operating agreement.
Often this requires a majority member vote; however, the percentage vote can vary depending on the operating agreement conditions for dissolution.
For LLCs without dissolution provisions, California State provides an alternative that allows dissolution if a greater percentage of members (or most) vote to dissolve the business.
Depending on the member’s percentage vote, to dissolve your California LLC voluntarily, you must file one of the following certificates:
Single-member LLCs have one owner, so they do not require a majority vote to dissolve the business.
When forming your California LLC, it’s prudent to create an operating agreement outlining your LLC’s dissolution triggers and procedures.
LLC operating dissolution rules can include:
LLCs with formation documents that do not specify the LLCs dissolution process must comply with California State’s default dissolution rules.
California law allows LLC members to dissolve their business by obtaining a minimum of a 50% vote in favor of closure.
Closing your California LLC involves more than filing a certificate of dissolution.
After you file for dissolution, you must also take steps to wind up your business affairs and close your LLC. Once the state approves your dissolution, you cannot conduct business on your LLCs behalf.
Wind-up measures can include:
To dissolve your California LLC, you must pay all outstanding debts and inform your creditors of closure by publishing a dissolution commencement notice and mailing it to your suppliers, lenders, and claimants.
A notice of commencement of the voluntary dissolution of your LLC allows your creditors and claimants (if any) to collect outstanding debts before you close your business in California.
California State doesn’t require a tax clearance to dissolve an LLC.
However, you must pay all your outstanding taxes and confirm on your dissolution form that you have filed your final California tax return with the California Franchise Tax Board.
The certificate of dissolution you file depends on how the members voted to dissolve the LLC.
Dissolving your LLC is complex; you must take every step to wind up your business correctly.
If you do not dissolve your entity, it will be liable for an annual report and state and federal taxes, open to litigation, and risk having its identity stolen.
Some entrepreneurs create an LLC in California with a pre-set closing trigger or date. In contrast, others go out of business for internal or external reasons.
Such as becoming unprofitable, internal disagreements between business partners, and unfavorable economic changes in California's laws.
Not dissolving LLC can cause the California Secretary of State to forfeit your business and implement a $250 penalty. Your LLC might also be liable for annual taxes and California LLC law compliances.
California does not implement a fee for filing a dissolution form. However, you can speed up the process by paying for the state's expedited and pre-clearance services.
You can file a California dissolution form online using your California bizfile account.
Dissolution processing times in California take between 3-4 weeks.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.
Terry is a serial entrepreneur with over 25 years of experience building businesses across multiple industries – construction, real estate, e-commerce, hotelier, and now digital media. When not working, Terry likes to kick back and relax with family, explore Taoism’s mysteries, or savor the taste of fine Italian red wine.
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