This article was updated for new California regulations in 2022 and 2023.
Limited liability companies (LLCs) are popular business entities because they offer legal protections without the tax disadvantages and complex organizational structure of corporations. Many Californians opt to use this designation when they establish a business. But what should you do when you want to dissolve your LLC?
When you establish an LLC, you need to register with the state of California. If you want to dissolve the company at any point, you need to officially cancel this registration. This step is necessary to protect you from any future liability.
The rules of dissolving an LLC differ from state to state. However, most places require you to file paperwork, meet outstanding debt and tax obligations, and take other steps to wind up your operations and notify those who work with you or for you.
Here are the specific steps you need to take to dissolve your LLC in California.
Steps to Dissolve an LLC
Dissolving an LLC in California is more complex than you might expect. It involves filing paperwork with the state, ensuring you meet all legal obligations, paying your taxes, and proving that you have made the decision to close with the business’s other owners.
Agree with Your Partners to Dissolve the LLC
The first step to dissolving an LLC is getting all stakeholders to agree to cease business operations and end the business. If your business has two or more owners, you usually vote on dissolution. When you do this, you need to follow any procedures laid out when you started the company. This step is important because you need to file additional paperwork if some owners do not agree to the dissolution.
If you are the sole owner of your company, this step isn’t necessary.
File Certificate of Dissolution and Certificate of Cancellation
If the vote to dissolve the LLC is not unanimous, you need to file a Certificate of Dissolution with the California Secretary of State (SOS) and a Certificate of Cancellation. However, if all owners agree to end the company, you can simply file a Certificate of Cancellation.
The Certificate of Cancellation contains business details, such as your LLC’s registration number and company name. The Certificate of Dissolution details the circumstances for dissolving the company and proves that you are legally able to do so based on California laws or the rules laid out when you formed the LLC.
When you file this paperwork, you must also prove that you have met all other outstanding legal and tax obligations. You will be required to do so before you can fully dissolve the company.
Meet Other Legal Obligations
Along with filling out the appropriate paperwork for the ultimate dissolution of the LLC, you should also take all other necessary steps to wind up your business.
For instance, you will need to notify creditors, suppliers, clients, vendors, and employees of your intent to close the business. They need to be given a fair warning so that they have time to make the necessary adjustments.
The dissolution of the LLC will end your liability, but only if you meet all legal obligations. That means you need to pay off existing debts, cover your taxes, and arrange for the end of any agreements you entered using the business’s name.
You should also close bank accounts and end any services that use the business’s registered name and tax identification number.
Cover All Federal, State, and Local Taxes
Active corporations and LLCs in California are all subject to various taxes, including franchise tax, sale and use tax, and unemployment insurance tax. These tax accounts are maintained by different state departments and must be paid in full (including any penalties, interests, and fees) before you can dissolve your company.
In most cases, you must file a final return with the necessary authorities for the year during which you plan to dissolve your business. Once you cover these taxes, you can move forward with the dissolution.
When you file the Certificate of Cancellation with the California SOS, you need to include proof that you have paid all the necessary taxes.
Divide Assets and Profits
After meeting the business’s legal obligations and paying taxes, you can liquidate your company’s assets and divide any remaining profits between the owners.
The amount you give to each partner in the LLC will depend on the rules outlined when you established the company. If there are disputes, you need to solve them before the final dissolution of the company.
If you do not have guidelines for distributing company assets and profits, the division will be subject to California’s business statutes.
File Out-of-State Paperwork
If your LLC was registered or qualified to do business in other states, a final step would be to file all necessary out-of-state paperwork. Since rules for dissolving an LLC differ, you might need to fill out different types of documents. Some states have Certificates of Dissolution and Cancellation, like California, while others require you to file a Certificate of Termination of Existence, an Application for Withdrawal, or a Termination of Registration.
If you do not file this paperwork in other states, you will continue to have liability even if your business is officially dissolved in California.
Is There an Easier Way to Dissolve an LLC in California?
The multiple steps involved in the dissolution of an LLC make it a complex and confusing process. Missing a detail or skipping a step can delay the closure of your business and cause headaches for you and the other owners.
You can avoid confusion, setbacks, and delays by using ClickDissolve.com. With ClickDissolve, you can dissolve your LLC by answering a few basic questions and providing details about your business.
ClickDissolve handles the paperwork, notifies the relevant authorities, and reviews your information to confirm that you have met the legal requirements needed to officially close your business. They can even notify the IRS that you are ceasing operation and no longer need to use the tax ID number (EIN) associated with your LLC.
Get in touch with ClickDissolve to ensure a quick and pain-free dissolution of your LLC.