There is a lot of talk in the legal community about how to dissolve an LLC or what happens when it becomes time to dissolve an LLC in California. The dissolution process can often be quite complicated and may require several steps before all assets have been transferred and all debts have been paid. If you are looking to dissolve your LLC, take note of the following steps that should be taken in order to meet your state’s requirements for dissolution.
What is an LLC?
An LLC is a legal entity created by filing an Articles of Organization with the California Secretary of State. In contrast to a corporation, LLCs are not required to have a Board of Directors. An LLC can be formed as a stand-alone business or as part of another business such as a Partnership or Corporation.
How to dissolve an LLC in California
First, the members of the LLC should create a resolution to dissolve. This is the first step in dissolving an LLC in California. The members of the LLC must also file a certificate with the Secretary of State’s office stating that they have dissolved the company and it is no longer a legal entity.
If you have been wondering how to dissolve an LLC in California or what happens when it becomes time to dissolve an LLC in California, take note of these steps involved with dissolution so you can meet state requirements for dissolution:
1. Take a Formal Vote on Dissolving the LLC.
The first step you will want to take when dissolving an LLC in California is to take a formal vote. The vote should be taken in public and allow all members of the company to participate. This vote should determine if the company will dissolve or not. If the majority of the members feel that dissolution is appropriate, then they can proceed with the next step.
2. File a Certificate of Dissolution.
Before the dissolution process begins, you will need to file a Certificate of Dissolution. This document must be filed with the California Secretary of State by a qualified professional (which is typically an attorney).
3. Send a Notice to Your Creditors.
First, you should send a notice to your creditors. This notice informs your creditors that the LLC is dissolving and instructs them on how to proceed with their claims against the LLC. This step is required by California law. If a creditor has any questions about this process, they should contact you well in advance of the dissolution date so that they can be clear on what needs to be done.
4. Wind Up the Business.
In the case of an LLC that is winding up its business, it ceases to exist after dissolution but continues so that its members or managers can finish their duties and responsibilities. In doing this, they may resolve legal matters like lawsuits or pay off debts and other obligations before distributing any remaining money or assets among the members.
The California Limited Liability Company Act (LLC Act) dictates priority in paying debts when dissolving – creditors should be paid first by an LLC before distributing any remaining money and assets among company owners.
5. File a Certificate of Cancellation.
To end your LLC’s existence, you must file a Certificate of Cancelation. The form should be signed by the owners and include information about when the company filed its final tax return with the California Franchise Tax Board and whether all members approved of dissolution. Once this is done, it will have no powers or privileges anymore!
Note– If your LLC was formed within the past 12 months and has never conducted a business, you can file a short form cancellation certificate (Form LLC 4/8), and else you must file a short form cancellation certificate (Form LLC 4/7).
6. File Final Tax Returns.
To avoid California’s annual $800 minimum franchise tax in the future, you need to:
Make sure to file your final state tax return on time, and check the box indicating that it is a final return.
After your final tax return’s last day of the year do not have any business in California.
Within 12 months of filing your final tax return, you will file dissolution with the Secretary.
There are many ways to dissolve an LLC in California. The quickest, easiest, and least expensive way is to take a formal vote, and finally, an LLC can be dissolved by filing a Certificate of Cancellation. This method is typically only used if an LLC is not going to continue operating or if it has gone out of business. It has a much more involved process and will result in paying due tax by LLC and its members.