How Do You Dissolve Or Terminate An LLC In California?

How Do You Dissolve Or Terminate An LLC In California?

How Do You Dissolve Or Terminate An LLC In California?

When it comes time to close your business in California, you want to make sure you do it correctly the first time to save both time and money. 

If you’re shutting down a limited liability company (LLC) anywhere in the country, the first step is to review your Articles of Organization and LLC Operating Agreement, which (hopefully) include information about how the business will wind down.

In California, there are specific steps that must be taken to shut down a California limited liability company (LLC). You must file all delinquent tax returns and pay any balances owed to California’s Franchise Tax Board (FTB). 

You must file the final/current year tax return and indicate that it is a final tax return by checking the box and writing “final” on the first page.

And, of course you must stop doing business in California.

Then within 12 months of filing that final tax return, you must file the appropriate dissolution, surrender, or cancellation SOS form(s) with the Secretary of State. There are three main forms for closing your California LLC:

  • Domestic corporations (those originally incorporated in California) may legally dissolve.
  • Foreign corporations (those originally incorporated outside California) may legally surrender.
  • Limited liability companies and partnerships (both domestic and foreign) may legally cancel.

Of course those are just state requirements. Your business will also need to take care of federal tax obligations, including: 

  • File a final tax return for the year you close the business,
  • Pay and reporting employment taxes, 
  • Provide employees with W-2 wage and tax forms, 
  • Provide contractors with 1099 forms if your business is required to provide one
  • Cancel your EIN and business tax account with the IRS

The IRS provides helpful information for small business owners who want to close their business, and you may want to consult your tax advisor. 

Other general steps you’ll need to take care of to wind up the affairs of your business include:

  • Close your business checking account 
  • Pay off and cancel business credit cards
  • Pay off or resolve other small business loans or debts
  • Terminate your lease and utility accounts, if applicable
  • Cancel any business licenses or permits
  • Cancel your fictitious business name (DBA) if you are using one

Not all of these tasks will take place immediately. For example, you may need to keep the business bank account open long enough to ensure financial obligations are taken care of. And while you can’t “close” a business credit report, you can make sure it is updated to reflect this business is closed. This is helpful since some closed businesses can be targeted for business identity theft.

What is a Certificate of Dissolution in California?

You must file certain forms with the state when dissolving your LLC in California. You can obtain these on the California Secretary of State website and you can file electronically as well. 

California Certificate of Dissolution form (LLC-3) is to be filed when dissolving a domestic California LLC. 

California Certificate of Cancellation Limited Liability Company (LLC-4/7) can be used by both foreign and domestic LLCs. If all LLC members do not vote to dissolve the LLC then Form LLC-3 must also be filed before or with this form. 

Short Form Cancellation Certificate Limited Liability Company (LLC 4/8) is a form that can only be used by California LLCs formed in California in the prior 12 months that also meet additional requirements. 

To use the short form Certificate of Cancellation LLC 4/8, the business must meet all the requirements listed on the form which include no known unpaid debts (other than tax debt that will be paid), all assets have been distributed, investor’s investments have been returned, and the business did not conduct business in California since filing Articles of Incorporation. 

How Much Does It Cost To Dissolve An LLC In California?

There is no fee to file these dissolution forms by mail or online; however, in-person submissions carry a $15 fee. There are also expedited services available for additional fees. Keep in mind that you must still pay any taxes due.

How Long Does It Take To Dissolve A California LLC?

Dissolving a California LLC is fairly straightforward, provided you are able to meet all the requirements and stop doing business in the state. 

The paperwork itself is straightforward and will usually be processed in less than eight weeks. 

The California Secretary of State also recommends you publish a statement in a local newspaper of general circulation near the principal place of business that the business entity is no longer in business. This allows creditors and other interested parties to notify the business of any claims against it. 

Examples of Dissolving an LLC

There are many reasons you may want to close your LLC. Some are negative, such as the death of the business owner or a business failure, for example.  But sometimes voluntary dissolution is for a positive reason, such as the completion of a business project or the sale of the businesses’ assets. 

FAQs About Closing An LLC In California

What Is The Difference Between LLC Dissolution And Cancellation?

Here’s the easiest way to think about it: Dissolution is what the LLC does to wind down its business affairs. Cancellation is what the Secretary of State does when the LLC is canceled. 

If all members voted unanimously in favor of the cancellation then you can file for cancellation using Form LLC-4/7. If not, you must first go through the dissolution process and file the dissolution form, then file the cancellation form. (You can also file both forms at the same time.) 

Can I Use A Bank Account After Dissolving An LLC?

You may need to use your business bank account to take care of unpaid financial matters, such as paying final bills, final return for state or federal taxes etc. Any remaining funds will be distributed to members according to your operating agreement.

But you shouldn’t use those funds to start a new business, or to pay non-essential business expenses. 

Where To Find Help With Terminating An LLC In California

In addition to providing helpful information about how to start an LLC in California, the California Franchise Tax Board website has helpful information about how to dissolve an LLC, along with forms you can use to terminate your California business. 

You can also hire a small business attorney to provide you with legal advice as you navigate the process. This may be especially important if you have business debts you can’t pay, or if the business has been sued. 

If you used a business formation to start your business, check with them as they may offer services to help you close your business.

Your CPA or accountant may also help you make sure you follow the required steps with regard to state or federal tax obligations. 

Do You Have To Pay The $800 California LLC Fee The Final Year?

California charges an annual tax of $800, and you must pay that tax until you cancel your LLC, even if you are no longer doing business.

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