As a Limited Liability Company owner, the responsibility falls on you to dissolve your LLC properly. Failing to officially terminate your LLC may result in tax liabilities, penalties, lawsuits, or other legal troubles.
Why Dissolve an LLC
No one wants to deal with business issues that no longer exist. We are sure, you also do not want to be held back by anything related to your LLC, that you do not want to continue.
Therefore, formally dissolving an LLC online is important for the following reasons:
- No More Obligations to Pay LLC Annual Fees and Taxes
- You Will Not be a Defaulter of any State or Fedral Agency
- No Surprises With Lawsuits for Unpaid Debts
How to Dissolve an LLC in California | Step by Step Guide
We know wrapping things up is more difficult than starting a new venture. Your level of enthusiasm is not the same while terminating your Limited Liability Company (LLC) compared to the energy you once had when you conceptualized an innovative business idea and materialized in the form of your LLC.
But, some things in life are inevitable. Even terminating your LLC is your voluntary decision, it still feels heavier to carry out the last few duties. Well, we can relate to your feeling.
This is why, in this LLC dissolution guide, we tried to make things simpler and easy for you in 5 simple steps.
- Decide to Dissolve your LLC
- Get an Expert Advice
- Resolve Your Financial Obligation
- File California Article od Dissolution
- Some Important Closings Related to California LLC
Keep on reading to learn the whole process of LLC termination in simple and concise steps.
Decide to Dissolve your LLC
If your LLC dissolution is voluntary, the LLC owners must make the decision to dissolve their LLC according to the guidelines drafted in the LLC articles of organization.
Remember to document the final decision with a written agreement. To do so:
- Hold a meeting of LLC members
- Take a vote with LLC members to terminate the LLC
- Determining the formal date of dissolution
- Through the LLC’s meeting minutes, record the LLC dissolution vote
Follow Your LLC Operating Agreement
An LLC operating agreement is the document that contains the information from an LLC’s day-to-day operation to the termination of an LLC. Most California LLCs outline all the steps for LLC dissolution. While terminating your LLC, follow the guidelines stated in your California LLC operating agreement.
In case you had not defined the LLC dissolution process in your California LLC operating agreement, you must consult the California Secretary of state for further instructions.
Get an Expert Advice
Terminating an LLC is a delicate and multi-step process. It is highly recommended that you seek professional help. Depending on your LLC’s personalized needs, expert advice may come from accountants, bankers, lawyers, the IRS, business brokers, tax experts, auctioneers, etc.
If you have been running your business in a compliant manner, you may not need all the professionals to dissolve your LLC. Hiring any of the famous LLC services online will suffice you.
LLC services such as IncFile or LegalZoom take care of everything related to closing your business. You can pick a package satisfying your LLC needs, and there you go.
Resolve financial obligations
Although the state of California does not require you to obtain tax clearance before dissolving your LLC, it is important to resolve any outstanding tax and other financial obligations before filing the Certificate of Dissolution with your state.
Failure to resolve these issues will result in penalties and interest assessed by state and federal tax agencies. If your LLC owes back taxes to the IRS or any other state agency, you will receive a Notice of Federal Tax Lien or a Notice of State Tax Lien.
Once the IRS places a tax lien on your LLC’s property, it can be very difficult to get the tax lien released. To avoid all such stress and headache, you should resolve all the financial obligations on your California LLC. Some common California LLC financial obligations are listed below:
California LLC Taxes
While filing income tax returns, check the box that indicates the document is a final return. Many state revenue agencies in California require additional filings for sales tax.
If your LLC has employees, you may risk personal liability if you fail to obligate your payroll tax responsibilities. Inform your California state and federal tax agencies that your business is closing. Moreover, notify them that you will cease to file an employer’s quarterly tax form and unemployment returns.
Business Debts
Notify all creditors and lenders of your LLC of your dissolution and settle the remaining debt. Moreover, contact the business associates who owe payment to you or to whom you owe a payment.
In case you can not pay your debts, you should consider filing for bankruptcy. It’s recommended to discuss with your attorney, accountant, and insurers to ensure that everything is accounted for.
File California Articles of Dissolution
California Statement of Dissolution is the legal documents that you file with the California Secretary of State to dissolve your LLC voluntarily.
Important Note: California provides three different LLC dissolution forms. Depending on your LLC situation, you will choose the forms that best suits your need.
Once the LLC Statement of Dissolution has been filed and processed by the concerned authority, your LLC will be officially dissolved and no longer legally exist.
Dissolve a Domestic LLC in California
A) Choose to dissolve your Calofornia LLC through Form LLC 4/8 or Short Form Cancellation Certificate if:
- Your LLC was registered in California within the last 12 months.
- Except as provided in Item c, your LLC has no debts or other liabilities.
- Your LLC has resolved or will resolve all the financial obligations to California Franchise Tax Board.
- Your LLC acquired no known assets OR the assets have been distributed.
- From the date of registration in California, your LLC did not conduct any business.
- 50% of the LLC managers or members voted to dissolve the LLC.
- LLC has returned any payments received from investors.
B) If your LLC does not fulfill any of the criteria given above (from point 1 to point 7) but all the LLC members have voted to dissolve the LLC, you need to dissolve your LLC through the Certificate of Cancellation Form LLC 4/7.
C) If your LLC does not fulfill any of the criteria given above (from point 1 to point 7) and one or more LLC members have not voted to dissolve the LLC, you need to dissolve your LLC by filing the Certificate of Dissolution Form LLC-3 before or with the Certificate of Cancellation Form LLC 4/7.
You can dissolve your California Domestic LLC online or by downloading the form given below.
Complete the respective form, sign the document, and send it to the California Secretary of State at the address given below:
Mailing Address:
Secretary of State
Business Entities Filings Unit
P.O. Box 944228
Sacramento, CA 94244-2280
In-Person Address:
Secretary of State
Business Programs Division
Business Entities
1500 11th Street, Sacramento, CA 95814
Cost of Domestic LLC DissolutionIn California
The in-person filing fee of California Domestic LLC Short Form Cancellation Certificate (Form LLC 4/8), Certificate of Dissolution Form LLC-3, Certificate of Cancellation (Form LLC 4/7 ) is $15 each. There is no filing fee for mail or online filings. This fee is payable to the Secretary of State and can be paid through credit card, check, or money order.
Dissolve a Foreign LLC in California
File the California Foreign LLC certificate of cancelation with the California Division of Corporations online or by downloading the form given below:
Foreign LLCs only need to file the certificate of cancelation (LLC form 4/7) to dissolve their LLC in California. Sign the document, and send it to the California Secretary of State at the address given below:
Mailing Address:
Secretary of State
Business Entities Filings Unit
P.O. Box 944228
Sacramento, CA 94244-2280
In-Person Address:
Secretary of State
Business Programs Division
Business Entities
1500 11th Street, Sacramento, CA 95814
Cost of Foreign LLC DissolutionIn California
California Foreign LLC Certificate of Cancellation Fee is $15 for in-person filings. This fee is payable to the Secretary of State and can be paid through credit card, check, or money order. There is no filing fee for mail or online filings.
Step 5: Some Important Closings Related to California LLC
Close your EIN
LLCs are required to contact the IRS (Internal Revenue Service) to close their Employer Identification Number (EIN) account. The IRS cannot cancel your EIN account, but you notify the agency that you no longer plan to use that EIN in the future by closing your EIN account.
When closing a business as an LLC, the IRS provides a checklist of typical tax actions to take. Make sure you fulfill all the requirements.
Close Your Business and Tax Accounts
While operating as California LLC, you would have various tax accounts maintained by different departments within the state of California. Some of the common taxes that an LLC may owe are:
- Sales & Use Tax
- Employee Withholding Tax
- Unemployment Insurance Tax
- State Income Tax
- Local Taxes
Simply filing a final return to the concerned tax agency usually means closing your tax accounts. However, you may need other official paperwork to close some accounts. Contact the concerned tax agency to close your tax account.
It is also important to close your business bank account and cancel your credit cards to avoid any financial or legal trouble in the future.
Cancel Licenses, Permits, Professional Registrations, and Business Names
After terminating your California LLC, it is crucial to cancel all licenses and permits that you will no longer need. Doing this will protect your reputation and finances.
Trade name, Assumed Name, or Doing Business As (DBA) is a business name other than your own name that you registered with the state or local government for rebranding, branching out into new services, products, or brands, or franchising purposes, etc.
If you have registered a California assumed name, you must cancel that business name registration with your local government.
Winding Up | Things to Do After Dissolving your California LLC
After the dissolution, your LLC continues to exist to take care of certain final matters. These matters are known as “winding up” the business. To handle winding up your LLC, you are required to designate one or more LLC members or LLC managers.
California’s LLC Act outlines the following key winding up tasks:
- As a going concern for a reasonable time, preserving the LLC’s business or property
- Prosecuting and defending all civil, criminal, or administrative proceedings and actions
- Discharging LLC liabilities
- Settling all LLC disputes by arbitration or mediation
- Transferring and disposing of LLC property
- Paying off debts to creditors and lenders
- Distribution of the remaining LLC assets among LLC members.
Involuntary California LLC Dissolutions
The state of California can cause an LLC LLC to be involuntarily dissolved. There are several reasons for involuntary LLC dissolution and mostly revolve around significant mistakes made by LLC members. Some of the reasons are:
- If LLC is fraudulently formed in the first place
- LLC did not appoint a registered agent let the registered agent lapse
- If LLC failed to file the proper forms to change the registered agent
- If LLC abused the privilege to operate a business in California
- If LLC did not pay taxes, annual reports
- If LLC fails to operate in California state-compliant manner
It is advisable not to operate your LLC in a manner leading to the state dissolving it against your will. The penalties and legal consequences are steeper than you might imagine.
For instance, your LLC cannot operate in California ever again after the involuntary dissolution. You would need to create an LLC again from the start, which would cost you time, money, and mental peace.
If you continue to operate a non-compliant LLC in California, you could open yourself up to all sorts of legal issues. Therefore, when it comes to following the state rules and regulations, be mindful and stay compliant.
FAQs on How to Dissolve an LLC in California
How do I dissolve my LLC in California?
To dissolve your LLC in California, you are required to file Short Form Cancellation Certificate (Form LLC 4/8), Certificate of Dissolution Form LLC-3, or Certificate of Cancellation (Form LLC 4/7 ) with the California Secretary of state. See the LLC dissolution section of this article to know which form you need to file. Moreover, you also proceed with the winding-up process of your LLC.
How do I close a business in California?
To dissolve a business in California you need to follow the following steps:
- Hold a meeting of business owners and record a resolution to Dissolve the California business.
- Resolve all the finacial obligations
- File cancelation certificates with the state
- Clear up any business debts
- Distribute the remaining assets among business owners
- Close all business bank accounts
- Cancell all the business licences and certificates that you no longer wish to use
How long does it take to dissolve a business in California?
Processing of articles of dissolution usually takes approximately 5 business days. The form will not be processed if the official signing of the articles of dissolution form does not match the official on record sign for the entity. Moreover, the entity’s biennial report should be current.
Is it hard to dissolve an LLC?
Dissolving a business seems hard at the start. However, this is the best practice to avoid future penalties, liabilities, and lawsuits which are harder to deal with. How to dissolve an LLC guide made the LLC dissolution simple and straightforward. Follow the guide and shut the doors of lawsuits or penalties forever.
Why would you dissolve an LLC?
No one wants to deal with business issues that no longer exist. Therefore, formally dissolving an LLC is important for the following reasons:
- No More Obligations to Pay LLC Annual Fees and Taxes
- You Will Not be a Defaulter of any State or Fedral Agency
- No Surprises With Lawsuits for Unpaid Debts
What is the difference between dissolution and termination?
The terms LLC termination and LLC dissolution are often used interchangeably but have distinct legal meanings. When an entity ceases to legally exist, it is called termination of the entity. On the other hand, dissolution is the winding up of the affairs of the entity before the termination of the entity.
How much does it cost to dissolve an LLC?
California Foreign LLC Certificate of cancelation Fee or domestic LLC Articles of Dissolution fee is $15 for in-person filings of each form and no fee for online or through mail filings. This fee is payable to the Secretary of State and can be paid through credit card, check, or money order.
Aisha Noreen is an owner of a small business with more than 9 years of experience in the marketing industry. With the wisdom of an old soul, she always seeks innovation and mind-blowing ROI techniques. Her unique approach helped many small businesses thrive and she can surprise you in many ways as well. Believe it or not, her energy, passion, and creativity are contagious enough to transform your business and take it to another level.