In the State of California you cannot simply choose to stop running an LLC and walk away without tying up all the loose ends. Just as there are specific legal steps you have to take to create an LLC, there are specific legal steps you must take in order to dissolve an LLC.
Whatever your reason for wanting to cease business, in order to voluntarily dissolve an LLC in California, you need to take the following actions:
1) Follow steps outlined in operating agreement or partnership agreement for making a decision to dissolve
If your LLC is the equivalent of a partnership with more than one owner, or if your LLC has employees with stakes in the company, there are going to be other people affected by your decision to shut down, and depending on the operating or other agreements you created when you founded the LLC, they probably have a say in whether or not to dissolve the company. Follow the steps detailed in your agreements for dissolving the company, which may entail holding a vote amongst the members. If, within the bounds of your agreement, enough members vote to dissolve, you can move forward.
2) File a certification of dissolution with the California Secretary of State
A certification of dissolution is a legal document that states your company’s intention to dissolve. Your LLC could be exempt from filing a certification of dissolution if your members voted unanimously to dissolve the company.
3) Winding Up
“Winding up,” as stipulated in the California LLC Act, is a process by which an LLC essential ties up all the loose ends of its affairs. The winding up process includes collecting and discharging any obligations that your LLC has, disposing or conveying any property owned by the LLC, and collecting/dividing all the LLC’s assets. There may be a specific order in which you must distribute the LLC’s assets, starting with paying off all outstanding debts, liabilities, and taxes. You may also have to distribute outstanding payments to members unrelated to the dissolution, and then depending on your operating agreement you must divide the assets amongst the members depending on their contributions and how much of a distribution of the LLC’s assets their employment entitled them to.
4) Notify creditors
Under California law, you must alert all of your LLC’s creditors and claimants that you are dissolving the company in the form of a “notice of the commencement of winding up.”
5) File certification of cancellation
While LLCs whose members unanimously vote to dissolve the company are exempt from filing a certification of dissolution, all dissolving LLCs must file a certification of cancellation with the California Secretary of State that includes:
- Your LLC’s name
- Your filing number with the Secretary of State
- And a statement that the proper final tax return has been or will be filed with the Franchise Tax Board
Keep in mind, if your LLC is registered outside of California, you will also need to take action to terminate those registrations as well. Once you have completed the process of dissolution, your company will cease to exist and will be free of the reach of creditors. For help and guidance with dissolving your LLC, please contact Integrated General Counsel so that you can close your company’s affairs in a legal manner which will maintain your reputation and good standing in the business community and allow you to open new businesses in the future.
- California Government Fights Fee Collection - April 23, 2024
- California’s Stance on Noncompete Clauses - April 23, 2024
- Simplifying Cal/OSHA Workplace Safety in California - March 4, 2024
