California LLC Dissolution: A Free How-To Guide

Last updated on: June 30, 2021

It’s no secret that many California limited liability companies have a long and successful history. Some of them have dissolved due to certain circumstances.

But there’s one type of LLCs, where the companies are initially created to operate for a certain period of time.

Whatever reasons you may have to close down your business, you have to know how to do it right. The California LLC dissolution process is governed by special legislation that must be followed to avoid tax issues, fines, and more severe legal repercussions.

In this article, we’ll help you understand what steps you need to follow to properly dissolve an LLC in California, e.g. what documents to prepare, forms to file, as well as the difference between the LLC dissolving procedures for local and foreign companies. Let’s get to it!

How Do You Dissolve an LLC in California?

If you no longer plan to conduct business through your LLC in California, it must be dissolved. However, the dissolution procedure can’t always be initiated right away. The company must necessarily have an active status, otherwise, if it has been suspended, this issue will have to be resolved.

The voluntary dissolution procedure for an LLC business is most often set forth in the operating agreement or bylaws. If the founding documents do not answer this question, however, the best thing to do is to seek advice from a professional familiar with state law. This will avoid the pitfalls and save your money and time.

What steps should be taken during the California LLC dissolution process (or the winding-up process) to ensure that none of the legal requirements are violated?

The most common stages of LLC dissolution are as follows:

  • Voting (LLC members have to decide on the business closure);
  • Recording the dissolution agreement in the minutes;
  • Choosing a date for official LLC dissolution;
  • Filing the paperwork with the Secretary of State;
  • Sending notifications about LLC dissolution to creditors;
  • Debt repayment;
  • Distribution of assets;
  • Closing of the business;
  • Filing a Certificate of Dissolution;
  • Final tax return.

The papers you will need to fill out are called Articles of Dissolution

There are three options for voluntary close an LLC in California, and each of them involves filing the following documents (no fees required):

After the LLC dissolution process, California no longer recognizes any powers, rights, or privileges of the LLC. The latter officially ends its existence and, therefore, can no longer do business. However, you should know that closing a business in California doesn’t in any way terminate a lawsuit (if any) taken against the company.

Dissolution for Domestic California LLCs

Domestic LLCs are defined as LLCs formed in California. These LLCs operate only within the state. If your company qualifies, then the steps that you need to take to dissolve your CA LLC are as follows:

Holding a meeting 

Articles of incorporation or a written operating agreement is the document that should have all the necessary points in terms of LLC dissolution in CA specified, including the voting procedure details, minimum number of votes needed to make a decision, etc. 

The California Revised Uniform Limited Liability Company Act states that 50% (or more) of member votes are needed to dissolve an LLC if you’re voluntarily dissolving your business. 

Either way, regardless of the outcome, it should always be recorded in a resolution or protocol (minutes).

Filing the dissolution documents

This step is only necessary for companies that:

  • were established not more than a year ago;
  • have never been engaged in commercial activities;
  • have a majority (>50%) of members voting in favor of dissolution;
  • have distributed assets;
  • have paid their debts and settled all other obligations;
  • have returned or never had any funds from investors;
  • all final tax returns have been filed with the California Franchise Tax Board.

If your case, without exceptions, meets all of the above conditions, it is acceptable to dissolve an LLC in California by filing the Short Form Cancellation Certificate (LLC-4/8), which only requires the following basic information:

  • Your LLC name (exactly as it appears on file with the CA Secretary of State);
  • The unique 12-digit file number that was issued to your LLC by the CA Secretary of State at the time of registration;
  • Name and signature of the applicant.

Creditor notifications 

In order to dissolve an LLC in CA, all creditors and claimants must be notified of the impending dissolution of the company, as required by law. This will allow them to prepare by getting paid or issuing existing bills and claims in a timely manner.

Distributing the assets

This step includes:

  • payments of company liabilities;
  • tax payments;
  • interim payments to the members, as provided in the operating agreement;
  • distribution of the remaining assets among the LLC owners. 

Tax payments are an important and unavoidable part of any company’s operations. Franchise tax, unemployment insurance, disability tax, income tax, etc. – whatever you do, everyone has to pay tax bills. Thus, you have to take care of them before you dissolve the LLC.

Winding up the business

The only purpose of maintaining the company after its dissolution is to ensure that you can close the business in accordance with all provisions of the liquidation law.

The key winding up tasks it sets are as follows:

  • Collection and fulfillment of remaining legal obligations, including participation in lawsuits;
  • Distribution or disposition of assets.

Completion of dissolution proceedings is just around the corner, so before you move on to the next step, make sure you haven’t missed anything.

Filing the Certificate of Cancellation

Companies that do not meet all of the requirements for the Short Form Certificate of Cancellation (Form LLC-4/8), but whose members voted unanimously to dissolve the business, have to file the regular Certificate of Cancellation (Form LLC-4/7).

The information to be entered on the Certificate of Cancellation includes:

  • Member signatures;
  • Information that the LLC has filed or is about to file a final tax return;
  • Owner-approved (or not-approved) dissolution of the LLC.

If the company does not meet the requirements for filing Form LLC-4/8 and the vote was not unanimous, different rules apply. In addition to the Certificate of Cancelation (Form LLC-4/7), you will also need to file the Certificate of Dissolution (Form LLC-3), specifying the reason for the dissolution.

Is the closing process conditioned by the articles of incorporation? Was the dissolution approved by a majority of voters? Or maybe the dissolution resulted from a decision of a court?

To fill out the Certificate of Dissolution properly, you will have to choose one of the mentioned-above options.

Once the appropriate form is completed, it must be sent to the California Secretary of State. This can be done in person or by mailing the documents to:

The Secretary of State
Business Entities Filings Unit
PO Box 944260
Sacramento, CA 94244

The second option is more versatile but the first one will get you priority for an extra fee ($15). The approximate document processing time is five business days. 

Final tax return

As you know, taxes are collected as long as the limited liability company continues to be listed with the IRS. To avoid unnecessary costs during the California LLC dissolution process, you can follow a few simple steps:

  • File your final tax return in a timely manner, remembering to check the box indicating this feature;
  • Do not conduct any business in the state after the last day of the year, in which the return is filed;
  • Within 12 months of filing your final tax return, file your California LLC dissolution paperwork to the Secretary of State’s office.

How to Dissolve a Foreign LLC in California?

So, we have covered comprehensively the procedure for dissolving companies based in California. But what about foreign LLCs in this state? What are their dissolution peculiarities with the law?

There really aren’t that many differences. In case of dissolution of foreign LLCs, i.e. formed in other states and expanded to California, there is also provision for filing the Certificate of Cancellation (Form LLC–4/7). Just like with domestic LLCs, the decision about LLC dissolution is totally valid even if it’s not unanimous. Plus, you will not have to file the Certificate of Dissolution.

Involuntary LLC Dissolutions in California

When talking about closing an LLC in California, you cannot skip involuntary dissolution. Both domestic and foreign LLCs in the state of California may, without an exception, be subject to involuntary dissolution.

There are a variety of reasons for the state to close a business. Most of them, as a rule, are related to serious legal violations or mistakes made by the owners at the stage of formation. 

For example, an LLC may get dissolved if a court determines that it can no longer continue doing business as defined in the founding documents. Alternatively, if the owners have been found guilty of fraud. Also, LLCs that have actually ceased doing business, but have not properly dissolved the company, are subject to involuntary dissolution.

If the state has grounds to involuntarily close a business in California, a notification, which can be appealed within 60 days, is sent to the participants. . Otherwise, the dissolution becomes irrevocable, and the company will permanently cease to exist, without the right to be reinstated. Attempting to ignore the state’s decision and continue to do business on its behalf will only lead to more legal problems.

Conclusion

Starting a business, operating an LLC in California, and especially closing an LLC can be challenging. Although the process involves only a few steps, closing a company requires thoughtful attention and monitoring each step.

The regulations for dissolving an LLC in California are quite clear. Only systematic adherence to them can help you avoid fees and legal problems. Once you have done everything the law requires, you will be free and confident to move on to the next phase of your life, without being worried about getting stuck at the worst possible moment of dissolving the company.

Senior Business Tax Writer, etc
Jean Wilson Murray
https://bestllcservices.co/
(323) 789-5289
Senior Business Tax Writer, etc
Jean Wilson Murray

In this IncFile vs ZenBusiness review, we're going to compare two of the most popular LLC formation services based on pricing, features, and drawing out differences and similarities to let you see which is most suitable for you and your business.

You can learn more about @Mike here.

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