To dissolve a limited liability company one has to take up a set of required steps. In California, if you and the members of the LLC want to discontinue business, then it is necessary to dissolve their business legally to avoid any administrative and legal consequences. To dissolve an LLC in California, you are required to submit a complete Article of Dissolution to the Secretary of State. Before submitting the Article of Dissolution, one must follow the operating agreement.
If you have a California LLC (domestic or foreign) you must have an operating agreement. The first step towards the dissolution of California LLC is to follow the operating agreement. There are some points to be noted before proceeding with the official paperwork. At first, make sure all the members of the LLC are agreed to dissolve the business. Once all the members are ready, their consent should be recorded via voting. After casting their vote in favor of the dissolution, the legal process must be started. Here are the steps to address for dissolving California LLC.
On this page, you’ll learn about the following:
- How to Dissolve an LLC in California
- After Dissolving Your LLC
- California LLC Dissolution Review
How to Dissolve an LLC in California
Dissolution of California LLC requires three broad procedural steps. Having a California LLC Operating agreement, close all the tax accounts, and finally submit the Articles of Dissolution form to the California Secretary of State.
Step 1: Follow Your California LLC Operating Agreement
When you have started an LLC as a business entity, then there is an operating agreement that is formed. There are complete details of how the company will function and grow in that operating agreement, which acts as a comprehensive guide. There is also a dissolution process, which is added to your agreement. The common dissolution steps that almost every LLC follows are:-
First of all, the dissolution vote will take place among the LLC members in the dissolution meeting. If the majority is with the YES, then the process goes into legal proceedings.
- All the dissolution votes will be noted down and recorded with the minutes of the meeting or a consent form.
- After that, a formal date for dissolving the LLC will be decided.
- The next step is counting the LLC assets and dividing them among the stakeholders and members accordingly.
- Finally, the creditors of the business are notified, and the debts of the business are settled.
This is a general process. However, it is strongly recommended to seek professional help to avoid any complications when it comes to terminating an LLC.
Get a Professional Agent Service
When it comes to a limited liability company dissolution, it is important to get professional help. California registered agent will guide you with everything you need to close your limited liability company. While choosing a registered agent make sure they have a physical street address in the state. A professional service provider helps you to file the Article of Dissolution and close your various tax accounts without any hassle. Below are the best LLC services we strongly recommend for you.
Step 2: Close All Tax Accounts
Every action that an official business takes is legally bound to some minimum business taxes. For that, various accounts are maintained by the state government with the help of various departments. You should consider all the taxes that you have paid for your LLC’s duration and make a list of them.
You must contact all government entities and clear the amount of outstanding taxes due until the date you have decided for dissolution. All the taxes must be paid in advance so that you don’t face any issues in the further process of shutting down your LLC.
Some of the common taxes that limited liability companies have to pay are:
- Unemployment insurance tax
- Employee withholding tax if your LLC has employees.
- If your LLC is engaged in selling taxable goods then they are liable to pay the sales and use tax.
Most of these taxes are normally filed, but some departments require official paperwork, without which it is impossible for the business to close accounts. Apart from business taxes, federal taxes, and personal income taxes, franchise taxes are to be considered in some states. For the franchise taxes, a franchise tax form is required.
In California, if your LLC has annual revenue of $250,000 or greater, then LLC fees must be paid to the Franchise Tax Department. The franchise tax return should be done on time.
That is why the LLC owner should go through the sales tax guide and hire an accounting service. If you want to do the accounting yourself or make accounting easy, try FreshBooks.
While dissolving the California LLC, the owner does not require to obtain a tax clearance certificate. However, if you have filed federal taxes, then you must go through the final return option on your IRS form.
Step 3: File Articles of Dissolution
There is a list of dissolution documents that you, as an LLC owner, have to file. Once these articles are filed, the legal existence of the LLC will be over. Like a California Articles of Organization, one has to file an Article of Dissolution. The dissolution procedure and filing the articles of dissolution form is very easy and is discussed below.
- First of all, the LLC owner(s) has to file the Article of Dissolution. There are multiple methods of filing available, i.e. file by mail, online or you can drop the form in person. To get the application form you need to visit the Secretary of State Website of California state.
- In that particular SOS website, the LLC owner has to look for the Domestic LLC Articles of Dissolution page.
- If you want to dissolve California Foreign LLC then look for the Foreign LLC Dissolution process.
- There is a form available on this page, which is the article of dissolution you are looking for. You have to download that pdf form and start filling it.
- You must fill in all the important and legal information in the form, so you should be extra careful.
- After filling in all the important information, you must choose the mode of payment you want to use to pay the LLC dissolution filing fees.
- After filling in every detail, one should submit the form through an official mail address and make a payment.
Types of Certificate of Dissolution
California state has special dissolution rules that are different from other states. When you file dissolution documents, there are three types of separate forms available. Though the steps for dissolution will be the same for all three types.
Short Certificate of Cancellation Form: (Form LLC-4/8): If the following cancellation filing requirements are met by your LLC, then you need to file this form,
- The LLC was formed in the last 1 year.
- The LLC has submitted the annual tax return.
- The LLC has no outstanding or business debts to creditors.
- The LLC has distributed all the assets.
- The majority of the votes (LLC members) are in favor of dissolution.
Certificate of Cancellation: (Form LLC-4/7): If the above-mentioned requirements are not met but the majority of the members (more than 50%) votes are in favor of dissolution then this form should be filed.
Certificate of Dissolution: (Form LLC-3): This form is needed along with the certificate of cancellation form if none of the requirements are met by the LLCs.
Mail to or In-person drop,
Secretary of State
Business Entities Filings Unit
P.O. Box 944228
Sacramento, CA 94244-2280
Online Filing: California LLC Articles of Dissolution
Filing Fee: $15 (in-person), $0 (by mail/online)
The LLC you owned is dissolved, and you are free from all the liabilities linked with the LLC and its taxes. A copy of both original articles and recorded articles should be submitted in front of the probate judge. Now it’s his call that he accepts your expedited dissolutions or not.
Points to Be Noted When Dissolving Your LLC
Apart from these three steps, no major dissolution rules are there in California. However, there are some other tasks one has to keep in mind while dissolving an LLC legally.
There are some purposes of LLC that require some attention even after dissolution, known as winding up. The task of winding up includes.
- For a certain period, the property of a business requires preservation.
- If there is any civil case against the LLC, then the owner needs to finish them.
- Settle all the existing disputes of LLC.
- Transfer all the property of LLC to the names of partners.
- Release all the liabilities that the LLC owes to others.
- Rightful distribution of all the assets among members, according to their percentage of partnerships.
Cost of Dissolving LLC
LLC cost in California includes the formation as well as dissolution fees. To dissolve an LLC in California, LLCs have to file an Article of Dissolution. The filing fee is $15 (in-person) and $0 (for mail/online). The details are mentioned on the second page of the article dissolution filing form. Following are the ways to pay for the dissolution,
- You can select a payment pick-up option.
- There is an option of direct account transfer through your prepaid accounts.
- LLC owners can also use their Credit cards, providing their complete details and types. Along with that, an original signature is required to authorize the transaction state will make.
After Dissolving Your LLC
After you formally dissolve your LLC, your business name will not be reserved anymore. Any other business entity will be eligible to use your California LLC name immediately after 120 days of dissolving your LLC. On the other hand, if you have a foreign LLC in other states, then you must comply with the SOS of the state after the dissolution of your LLC in California. A registered agent can help you do the needful.
Reasons Behind Dissolving California LLC!
Having a company comes with many liabilities, but it is not the same with an LLC. Such companies don’t make the owners or the partners get tensed up with liabilities. But, when we want to dissolve an LLC in California, we have to do it legally. The reason is, it is still a company made under the rules of the government. But what can be the possible reasons for the dissolution? We have some here,
- One of the reasons can be the planned expiration of the company.
- If the purpose of the business is completed, it can also lead to the company’s dissolution.
- If there is any disagreement between the members, it can also bind the owners for dissolution.
- Continuous and ongoing debts of the company can lead to voluntary dissolution too.
Top Businesses to Look For in California!
California is the best-known state for the innovations in the market. It is also a reason why it is a favorable place to start an LLC in California too. But how can we be sure about the profits? It is only possible if we take care of the sector we are choosing. It is all about the sectors that give us the top business ideas. So check some of the sectors that we have given here,
- International trade and tourism: Travel and tourism are a favorite aspect of a lot of people. Just because of that, the industry makes over $84.6 billion annually for the GDP. It contributes a total percentage of 2.5 to the GDP and makes it easier for the state and its economy.
- Oil and gas industry: If we talk about the total amount it adds to the GDP, it amounts to $66 billion (average) every year. The amount becomes 2.7% of the total GDP of the state. There are other industries too, but it is the one that seems to be an important one for the state.
- Agriculture: Agriculture sector is not just important for California’s economy; it makes a lot of impact on every state. But if we talk about this specific state, it produces a considerable bounty for it. It generates around $49.8 billion annually, which means it represents 2.8 percent of the total GDP of the state.
California LLC Dissolution Review
Time needed: 5 minutes.
Here’s a recap of the steps you must follow when dissolving your California LLC. Click on the steps in this list if you want to read the full detail.
- Follow Your California LLC Operating Agreement
Remember that when you started, you created an operating agreement. Use this agreement as a guide in proceeding with the dissolution of your LLC.
- Close All Tax Accounts
Make sure you close all your tax accounts to avoid incurring further costs.
- File Articles of Dissolution
File the article of dissolution to make it known to the state where your LLC operates that you are indeed no longer in business.
What is the Cost to Dissolve an LLC in California
The first step in dissolving an LLC in California is to meet with your board of directors. Once you’ve reached consensus, the next step is to file a Certificate of Dissolution with the Internal Revenue Service and other taxing authorities. Once you’ve finished with those steps, you’ll need to close your business, notify your registered agent, and settle any outstanding claims with your creditors. If possible, discuss the dissolution process with your members in advance so that they can vote on it formally.
If you’ve opted to dissolve your LLC, you’ll need to complete a certificate of dissolution. This certificate is required to terminate the LLC’s obligations. If the dissolution vote is not unanimous, you’ll need to obtain a certificate of dissolution from all members of the LLC. The certificate of dissolution should include the name of the LLC, its SOS file number, and at least one authorized signature. There’s no filing fee associated with a certificate of dissolution, but it is subject to a $15 handling fee. If you’re in a rush, you can opt for expedited service.
You can file a certificate of dissolution with the Secretary of State in California. However, you cannot file the dissolution online; you must submit the form in person or by mail. You can avoid the filing fee entirely by hand-delivering the certificate yourself, but you should seek the help of a business attorney if you are not sure what you’re doing. After you’ve filed the Certificate of Dissolution, you’ll need to file your final tax return.
Yes, in California, there is a fee of $15 (in-person) and/or $0 (for mail/online) to be paid for filing the Articles of Dissolution. Articles of Dissolution must be submitted to the California SOS.
No, there is no requirement of revenue department clearance till the time the SOS of California accepts the dissolution form.
The name will also get deregistered with the dissolution of the LLC. But the name will not be allotted for the next 120 days. After that, if some business wants to name their LLC after the name chosen by you, then it is their choice.
If you have not dissolved your LLC, you are liable for business privilege tax, and if it is not paid on time, you are leveraged with 10% of the amount of tax or $50. After that, the additional penalties will increase by $1 per month. If it goes unpaid for a longer duration, then the chances of seizing your property can also recover the tax.
Yes, if you are dissolving your LLC, you have to pay some amount to the probate judge who was also present during your LLC formation in the probate office. The minimum fee of the judge is $50, which can vary.
Limited liability companies reduce owners’ personal liability. Having an LLC is quite cost-effective. However, if it is required to close down the business, then the dissolution process should be done legally. Get a professional service to get everything done. We hope this article helps you to close your LLC in California. If you have any query do let us know in the comment box.