Not every limited liability company (LLC) lasts forever. In fact, many LLCs in California are only intended to operate for a designated time period. Whatever your reasoning for closing up shop, the state of California has a specific process that all LLCs must go through before they are considered to be officially dissolved.
Which steps are involved in the California LLC dissolution process? Are there different processes for businesses based in California and those expanded from other states? When do you need to dissolve your LLC? We’ll answer all of these questions and more in this article.
How Do You Dissolve a California LLC?
When closing a business registered as an LLC in the state of California, you’ll need to take care to dissolve your business exactly as the state outlines. The most important part of this process is filing the correct paperwork with the relevant legal entities, but this is far from the only vital step.
In addition to filing documentation of your California LLC dissolution, you will need to liquidate the assets of your business, notify all individuals and business entities that have an interest in your company, and resolve any outstanding liabilities with vendors, suppliers, or clients.
There are potentially severe penalties for failing to comply with the California LLC dissolution process, and you as a business owner could be personally responsible for your LLC’s liabilities and debts. Therefore, it’s extremely important that you complete each step outlined in this guide to ensure an effective and compliant dissolution.
As for the question of when you should dissolve your LLC, you should do this as soon as you’re certain you will no longer conduct business through this entity. This gives you an opportunity to close up shop with the knowledge that you’re not transacting any business after you start the dissolution process.
Dissolution for Domestic California LLCs
Is your LLC based in California, and registered as a domestic entity in this state? If so, there are three different documents you may need to complete, based on how long your business has been open and what your LLC’s ownership situation looks like. These forms will include some crucial information about your business, so you should fill them out carefully and accurately.
If your LLC has been open for less than a year, has no debts or liabilities (other than a final franchise tax payment), has distributed its assets, is not conducting business, at least 50% of owners have voted to dissolve, and any payments from investors have been returned, you can file the Short Form Cancellation Certificate. This is a simple form that only requires the name of your business, your LLC’s 12-digit California Entity Number, your printed name, and your signature. There is no fee to file the Short Form Cancellation Certificate.
If your LLC does not meet all of the requirements for the Short Form Cancellation Certificate, but your owners do unanimously vote to dissolve the business, you can use the Certificate of Cancellation. Just like with the Short Form Cancellation Certificate, the Certificate of Cancellation requires the same information and has no fee.
The third option is for LLCs that do not meet the Short Form Cancellation Certificate’s requirements but also do not have unanimous agreement among their owners to dissolve the business. In these cases, you’ll need to file both the Certificate of Cancellation and the Certificate of Dissolution. Making things more convenient is the fact that both of these forms are available in the same .pdf file.
The Certificate of Dissolution requires you to indicate the nature of your dissolution. Is your business dissolving because the process was outlined in the Articles of Organization or in the LLC’s operating agreement? Did at least 50% of the LLC’s voting interests vote to dissolve the business? Has the LLC operated without an owner for at least 90 days? Has a judge issued a decree to dissolve your LLC? On this form, you’ll select one of these options to explain why you’re dissolving your business. Again, there is no fee for this filing.
Once you’ve completed the relevant forms, you can submit them to the California Secretary of State by mail or in person. If you deliver your forms in person, you’ll need to pay a $15 counter drop-off fee which provides priority service compared to mailed filings. The standard processing time for any of these documents is roughly five business days via mail, although in-person filings are processed faster.
But what does this process look like for a business that was formed outside the state and then expanded to California?
Dissolution for Foreign LLCs in California
If you operate a foreign LLC in the state of California, the dissolution process involves the filing of the same Certificate of Cancellation described in the previous section. The only difference is that no foreign LLCs are required to file the Certificate of Dissolution — only the Certificate of Cancellation is needed, regardless of whether your withdrawal from this state is unanimous or not.
Involuntary Dissolutions in California
We should also discuss the potential for an LLC to be involuntarily dissolved by the state. There are several reasons this could happen, and most of them revolve around significant mistakes made by the LLC’s ownership group.
For instance, California could involuntarily dissolve your LLC if a court determines that there is no feasible way for the business to continue operating as outlined in the Articles of Organization or the operating agreement, if dissolution is required to protect the rights or interests of its owners, if the LLC is no longer conducting business, if the management of the business is deadlocked in disagreement, or if the owners have engaged in fraud or abuse of authority.
It’s obviously never advisable to operate your LLC in a way that leads to the state dissolving it against your will. If the state decides to administratively dissolve your LLC, they will send you a notice which you have 60 days to contest. It’s important to note that this is your only shot at reviving your LLC if the state chooses to dissolve it, as once the dissolution becomes final, your business is permanently canceled and there is no way to revive it.
In addition, if you keep operating your business after the state involuntarily dissolves it, you could open yourself up to all sorts of legal issues due to the continued operation of a non-compliant entity. In general, you should be as careful as possible when it comes to following the rules and regulations in this state.
It’s not that the process for dissolving or withdrawing your LLC in California is terribly difficult. However, it is a process that you need to take great care to complete in a compliant fashion, or you could expose your business to a wide variety of potential legal complications and financial penalties. Trust us when we say it’s much smarter and easier to simply follow the directions with care to avoid any issues.
Do you need more information about operating an LLC in California? Take a look at the following resources: