Winding Up a California LLC

Each limited liability company (LLC) in California is registered with the state. Dissolving the LLC also requires state involvement.

The first step in ending an LLC in California is actually dissolving the LLC. Next, the LLC will “wind up.” During this period, the LLC only exists to deal with certain financial and practical matters that the company must address before closing its doors. Members of the LLC can often designate one or more members or managers to carry out the winding up process.

Winding up is required by California law, which means that members cannot just determine that the LLC no longer exists and ignore financial or business obligations.

What Tasks Does “Winding Up” Include?

Winding up may include the following activities:

  • Gathering or collecting assets
  • Disposing of property
  • Dividing assets among members
  • Dealing with litigation, including defending lawsuits
  • Collecting on accounts receivable
  • Making final tax filings or decisions
  • Closing business bank accounts
  • Canceling licenses and permits

The tasks within the winding up process will vary depending on the company’s industry and related operations. An LLC based on service will have a different winding up procedure compared to a business that sells products.

Creditors and Property Distribution as Part of Winding Up Your Business

The winding up process is usually in conjunction with the final accounting and distribution of assets. California law requires that no member waste the company’s assets during this process. Usually, winding up will be conducted according to the operating agreement. State law may also have an effect on how assets are distributed, depending on your type of business and requirements in your operating agreement.

Creditors must generally be paid as part of the winding up process. You may need to provide notice of the winding up to creditors as well. Even if it is not technically required for your particular business, it is a good idea to let creditors know about the changes to the LLC.

If there are insufficient assets to pay everyone, then California law will dictate which creditors are paid first. In some situations, the members of the LLC may not be paid anything because of the outstanding obligations to third parties. However, LLC members will generally be paid based on their contributions to the LLC and their respective ownership of the LLC, unless the operating agreement says otherwise.

Logistics of Winding Up a California LLC

The winding up process can go relatively quickly if the LLC has few creditors and limited assets. However, if the LLC is in the middle of a lawsuit or has not performed required contracts, winding up can take months or even years. Having an experienced business attorney to help with this process can make it run more smoothly and efficiently. Call (925) 399-1529 for more information.

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Written by Integrated General Counsel

Our focus includes handling a variety of corporate matters and also includes litigation in state and federal courts. Our current practice includes providing transactional services and representing a variety of small and medium-sized companies as their outsourced general counsel.