If you are the owner of an LLC in California and have made the decision to dissolve it, you will need to take the necessary steps to make that happen.
This article will provide a complete guide on how to dissolve an LLC in California. This guide will walk you through all the steps of the dissolution process and explain the reasons why people might choose to dissolve an LLC in this state.
Steps to Dissolving a California LLC
A California limited liability company must take several steps to dissolve properly. If LLC members don't perform every step correctly, they may face personal financial liability. To avoid any issues, follow these steps to dissolve your LLC.
Step 1: Notify LLC members
The formal process of dissolution begins with a notice to all the members of the LLC. At the meeting, the LLC members vote to dissolve the business entity. A resolution to dissolve is only valid if a majority of all the members approve it.
However, sometimes the LLC operating agreement states different voting requirements. If you're the sole member of your LLC, you can skip this notification step. Ensure that all members sign a written consent form to dissolve the LLC.
Step 2: Follow the Points in the Operating Agreement
Apart from outlining the way LLCs conduct business, the operating agreement contains provisions about their dissolution.
If you and your fellow LLC members can't come to a consensus on how to dissolve the company, state law will dictate the process.
In California, an LLC is dissolved either by unanimous consent of all members or by a court order.
The operating agreement will outline the dissolution steps, including how members voted and distributed LLC assets.
For example, if the LLC owns real estate, state law will require a process to transfer the property's ownership.
Make sure you follow the steps in your operating agreement and that all members are on board with dissolving the company. This will help make the process go as smoothly as possible.
Step 3: Announce the Dissolution to Creditors and Lenders
If you dissolve your California LLC, you will not be relieved of your business debts. You are still liable for business debts and obligations incurred before dissolution. This includes business debts or loans, lines of credit, credit card debt, and leases.
To protect yourself from personal liability, it's important to notify creditors and lenders that your LLC is dissolving. Give them as much notice as possible - at least 30 days.
Be sure to include your contact information, your business name, and the dissolution date in any correspondence with creditors or lenders.
Only after you pay off debts to creditors and lenders can you distribute the remaining assets among members, in accordance with the ownership percentages outlined in the operating agreement. This is known as interim distributions.
Step 4: Close your Tax Accounts
California's LLC Act does not require you to file a final tax return when you dissolve your LLC.
However, the California Franchise Tax Board (FTB) may require you to close your LLC's tax accounts.
To close your LLC's tax accounts, contact the Franchise Tax Board and request that they be closed.
You will need to provide your LLC's name, federal employer identification number (EIN), and the date of dissolution on your final tax return.
Any outstanding taxes owed by your LLC will need to be paid before the FTB closes your tax accounts and file the final tax return.
Step 5: File the Appropriate Dissolution Form
The final step in dissolving a California LLC is to file Articles of Dissolution. The cancellation form varies depending on whether you have performed all the previous steps or not.
If you have, you must file the Short Form Cancellation Certificate.
Filing this form means you have obtained tax clearance, submitted your final franchise tax return, paid off creditors, followed your operating agreement, and distributed assets accordingly.
The Short Form Certificate of Cancellation is only available to those LLC that fulfill these requirements.
If not, your Certificate of Cancellation must be attached along with a Certificate of Dissolution.
Both forms for the Certificate of Cancellation and the Certificate of Dissolution can be found on the California Secretary of State website.
There is no filing fee if you file online or by mail. There is a $25 filing fee if you file in person.
Reasons to Dissolve an LLC in California
Every business in California can dissolve on a voluntary or involuntary basis. The reasons differ, but the business has to wind up its affairs and terminate its existence in both cases.
Voluntary dissolution of an LLC in California
Most LLCs decide to voluntarily dissolve when they have accomplished their business purpose or goals. Voluntary dissolution also happens when the LLC members agree that dissolution is in the company's best interests. Voluntarily dissolving your LLC is a multi-step process and has to follow the official business dissolution steps until it can finally file the Certificate of Dissolution Form with the Secretary of State.
Involuntary dissolution of an LLC in California
California requires all LLCs to maintain their good standing by filing an annual Statement of Information with the California Secretary of State. If your LLC fails to file this statement or any other required document, or if you do not pay your annual Franchise Tax, the California Secretary of State will administratively dissolve your LLC. An involuntary dissolution can also occur if the company's articles of organization or operating agreement are amended in a way that adversely affects the company's ability to operate.
If a California LLC continues to operate in violation of the law after dissolution, the company's owners may be held liable for any resulting damages.
How Long Does It Take To Dissolve a California LLC?
It takes up to one month for the Secretary of State to process the Certificate of Cancellation. If you choose expedited service, you can shorten the processing period to either 24 hours or same-day processing. There are additional fees for expedited processing.
How Much Does It Cost to Dissolve a California LLC?
The Certificate of Cancellation form costs $15 if you file in person, but online and mail filings are free of charge.
If you choose to have your Certificate of Cancellation processed through the SOS expedited service, there is a $750 filing fee for the same-day filing and a $350 fee for the 24-hour processing.
When Can You File a Certificate of Dissolution in California?
The Certificate of Dissolution can be filed when the company has completed its affairs and is no longer carrying on the business. Once you file final tax returns with the state and close all business accounts, you can file for dissolution.
This must happen within a 12-month timeframe from the date you file your final tax return. If you're unsure about whether or not your company is done conducting business, it's best to speak with an attorney beforehand.
Do I Need Tax Clearance to Dissolve a California LLC?
No, LLC in California don't have to obtain tax clearance. However, follow the proper procedure and fill in the required form when filing the final return.
Check the box indicating that the dissolution is tax-free and write "terminated" as the reason for dissolving.
What Is a Cancellation Form LLC 4 in California?
Form LLC-4/7 is the form used to dissolve an LLC in California. LLC 4 form is also known as the Articles of Dissolution. This is a document that needs to be filed with the Secretary of State in order to cancel or dissolve your LLC.
All members of the LLC must sign the form and it must include the name and address of the LLC, the date of dissolution, and the name and address of the person who will be responsible for winding up the LLC's affairs.
If you still have any questions and doubts about how to dissolve an LLC in California, it is important to seek help from a professional.
A law firm with great legal experience can help make the process as smooth and stress-free as possible for you and your business. At the end of the day, ensuring all the details are handled correctly is essential for ensuring a successful dissolution.