Is it time to close your California corporation, but you’re not sure where to start the process?

Dissolving a corporation is a lengthy but manageable endeavor. And every state’s procedure looks a bit different. In this guide, we’ll cover the state-specific components of dissolving your California corporation. In no time, you’ll be on your way to whatever’s next.

The Basics of Dissolving a California Corporation

In general, every dissolution follows the same basic structure, with 5 basic steps. There are, of course, a lot more “nuts and bolts” to the process (read more about them here), but for now, let’s get a bird’s eye view:

  • Vote to dissolve the corporation: Corporations are not solo endeavors, and ending them isn’t one individual’s call. First, your board will need to convene and vote on a motion to dissolve the corporation. After that, some corporations will need to have their shareholders vote for the dissolution as well (depending on the corporation’s bylaws).
  • File the dissolution paperwork: Once your corporation’s members have decided to dissolve, you’ll reach out to the California Secretary of State and fill out the appropriate Articles of Dissolution (and if applicable, the Certificate of Election).
  • Fulfill your tax obligations: Your corporation will need to pay any taxes due to the IRS and the California Department of Tax and Fee Administration. This can be a multi-step process as you liquidate assets and pay any creditors.
  • Cancel licenses and close accounts: If your corporation maintains any licenses or permits, this is the time to cancel them so you aren’t charged renewal fees. You should also close down accounts with vendors and your bank (once your financial affairs are settled).
  • Notify your stakeholders: A dissolving corporation must settle any financial debts, liquidate its assets, and distribute the appropriate funds to its shareholders. Stakeholders must be notified so they can lay claim to their share in a timely fashion.

That’s the gist of dissolving a California corporation. But before you can truly start the process, you’ll need to answer one important question.

Who’s Dissolving the California Corporation?

Two key groups can dissolve a corporation: the original incorporators and the initial board of directors or the shareholders. The group initiating the dissolution affects how you file with the Secretary of State. So let’s talk about each.

Dissolving a California corporation by the incorporators or initial board of directors

In some cases, a California corporation might decide to dissolve before they really get things up and running. More specifically, if the corporation hasn’t issued stock or conducted any business yet, then the incorporators or initial directors will be the ones who vote to dissolve the corporation.

Once the dissolution vote passes, the corporation can file the Certificate of Election to Dissolve and the Certificate of Dissolution, both linked here. Both require some information about your business. Let’s start with the Certificate of Election to Dissolve:

  • Name of the corporation
  • 7-digit entity number
  • Who affirmed the vote to dissolve
  • The name, signature, and authority of person(s) signing the form

There’s no filing fee for this document. You can file it in advance of the Certificate of Dissolution or in conjunction with it, but you cannot skip it.

Next, here’s the information you’ll need to include on the Certificate of Dissolution:

  • Name of the corporation
  • 7-digit entity number
  • If the election was approved by all the shareholders OR an attached Certificate of Election
  • The status of any debts or liabilities
  • Name and signature of either the sole director or of a majority of the corporation’s directors

The combined filing fee for these forms is free unless you drop it off in person; then there’s a $15 handling fee.

Dissolving a California corporation by the shareholders

In a corporation that has issued shares, the dissolution process looks a tad different. In most cases, the board votes for a motion to dissolve the corporation. Then that vote is brought before the shareholders for approval.

Once that approval is obtained, the corporation will file the Certificate of Election to Dissolve and the Certificate of Dissolution (both linked above). The forms are identical, but you’ll fill in some slightly different information.

Here’s what changes for the Certificate of Election to Dissolve:

  • How many shares voted for the dissolution (must be at least 50% of the voting power)
  • Confirmation that your corporation elected to dissolve
  • Name and signature of directors, a chairperson, or shareholders authorized to sign for the rest of the shareholders

Then there’s the Certificate of Dissolution. The only thing that changes about this form is one section, where you may confirm that the entire group of shareholders voted to dissolve, if applicable. If that’s the case, you may skip the Certificate of Election to Dissolve. All other sections are identical.

There is no filing fee for this form unless you drop it off in person (then it’s $15). California processes most filings within 15 business days.

What About Administrative Dissolutions?

Sometimes, the state of California may force a corporation to dissolve against its will. Usually, this happens because a corporation hasn’t filed its annual report, paid its taxes, maintained its registered agent, renewed appropriate licensure, or some other clerical error. A corporation may also be dissolved for any activities that are ruled fraudulent or otherwise harmful to the public.

In most cases, these corporations can be restored and resume business. The process can be quite a hassle, but it is manageable. First, a corporation must resolve whatever issue caused its dissolution. A corporation with defunct annual reports, for example, would need to submit the reports and pay any missing fees (plus late fees).

In California, you have to determine which entity dissolved your business. If just the Franchise Tax Board dissolved you, you’ll need to file an Application for Certificate of Revivor. This will start the process of reinstatement. If you were dissolved by the Secretary of State and the FTB, you’ll have to file a Statement of Information and then apply for the Certificate of Revivor once you get the go-ahead from the Secretary of State. Throughout the process, you’ll have to pay any late fees or penalties that you incurred.

It’s far easier to avoid dissolution entirely; remain compliant with your corporation, and you can skip this step completely.

Frequently Asked Questions

What happens to my California business name?

Some states leave your name on the records temporarily after you file your dissolution, but California doesn’t. Your name immediately becomes available for others to use as soon as the state approves your dissolution paperwork.

Can I change my mind and go back into business?

California only allows you to reinstate your business and revoke your dissolution if you haven’t distributed your remaining assets to your shareholders. If that’s the case, you can draft a request to the Secretary of State revoking your election to dissolve. You’ll need to draft this letter yourself. Find more information about this process here.

What if I want to become an LLC instead of closing my business?

California allows corporations to convert into almost any entity type they choose, provided the proper procedure is followed. To convert into an LLC, you’ll need to draft a plan of conversion, including how you’ll protect the interests of your shareholders. Once the plan is approved, you’ll need to vote to convert. Only after the vote passes can you convert by filing the Articles of Organization. The filing fee is $70, plus an additional $20 to file your first Statement of Information. For more information on starting and running an LLC, check out our guide to starting a California LLC.

Do I have to publish a notice that my corporation is dissolving?

You are not legally required to notify your stakeholders through a newspaper publication, but you must notify them. California requires you to notify your shareholders by mail within 20 days of your dissolution. You can add a newspaper notification if you want to, but it’s not required.

How can I avoid being dissolved because of a registered agent issue?

California will administratively dissolve your business if you let your registered agent coverage lapse for too long. Thankfully, it’s easy to avoid this problem. If you’ve picked a new agent or your old agent has resigned, simply file the Statement of Information form as soon as possible. There’s a $20 fee. If your agent resigns, they are required to give you advance notice so you have time to appoint a new one.

As long as you avoid a lapse in your agent coverage, your corporation will stay compliant.

How long do California stakeholders have to lay claim to my corporation’s assets?

It depends on how your corporation is dissolved. If it’s dissolved by the courts, your stakeholders must make their claims during the window the court prescribes (4-6 months). But if you dissolve administratively, any shareholders who disapprove of the dissolution plan may request to have their distributions given as cash within 30 days of your corporation’s mailed notice.

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