As of 2023, there are over 4.1 million small businesses in California, which is a 2.1% decrease from 2022. While the state has a fantastic economy, some companies just don’t fill the right niches, which causes their shutdowns.
There’s no shame in starting over though. If you’ve got a limited liability company (LLC) in California, then you should understand how to dissolve the business before starting another one. That way, you’ll hit fewer snags as an entrepreneur.
Below, we’ll show you how to dissolve an LLC in California to facilitate a smoother process.
Dissolve Your Company at the Right Time
In California, all LLCs have to pay $800 every year as part of the annual franchise tax. You might think that if your company’s inactive, you won’t have to pay. But the fact is, all LLCs must pay this tax, even if they’re not making any money.
This means that if you’re considering cutting your losses, you have to do it fast. More specifically, you should stop doing business in the state in the new tax year, file your final tax return on time, and then submit the dissolution papers within a year after that.
After that, you can start a new LLC if you want. When doing so, use our business registration service, as we can minimize the downtime between companies. You won’t have to spend a fortune either, as our services are extremely affordable.
Dissolution for a “New” Company
Did your LLC file its Articles of Organization less than 12 months ago? Then dissolution is pretty simple, as long as the business meets the following requirements:
- There are no outstanding debts or liabilities (besides for taxes)
- All final tax returns have been or will be filed
- The assets are distributed
- The LLC hasn’t conducted business since filing the Articles of Organization
- 50% or more of the Articles of Organization signers have voted to dissolve the company
- Investment payments have been returned
If you’ve checked off all of the above, then you can use the Short Form Certificate of Cancellation, or Form LLC-4/8. While you can always send the form in through snail mail, or even hand it in yourself (this comes with a $15 special handling fee), you’ll get quicker results by filing online, as the state gives priority to online submissions.
How to Dissolve an LLC in California
If your LLC filed its articles of organization over a year ago, or it doesn’t meet the above criteria, then you’ll have to go through more trouble to dissolve it. Here are the steps you should take.
Hold an LLC Member Vote
To cancel an LLC in California, you must have a unanimous vote to proceed. This means calling an official LLC member meeting, holding the vote, and documenting the final decision in writing.
You’ll want to check your company’s operating agreement too. This document might have additional information about how to call the meeting, hold the vote, and more.
File the Articles of Dissolution
If you’re unable to get a unanimous vote, but still meet all requirements for dissolution, you can use the Certificate of Cancellation (Form LLC-4/7) on top of the Certificate of Dissolution (Form LLC-3). On the latter form, you’ll have to explain the circumstances that brought on your LLC’s dissolution.
Otherwise, if you’ve achieved a unanimous vote, you can use just the Certification of Cancellation. If you go this route, you’ll have to make a note on the form that all LLC members voted for dissolution.
How much does it cost to dissolve an LLC in California? In theory, it doesn’t cost a cent, but you’ll pay $15 if you want to hand over the form in person. You can also pay $350 for 24-hour expedited processing or $750 for same-day expedited processing.
How long does it take to dissolve an LLC in California? You can expec tto wait over eight weeks, although if you opt for expedited routes, you’ll be done within a day or so.
File Your Final Tax Returns
Although you don’t need a Franchise Tax Board clearance, you’ll have to file both state and federal tax returns to dissolve your California LLC. These include income and employment tax returns.
It’s a good idea to consult with a tax professional here, as things can get complicated.
Settle All Existing Debt
To properly dissolve your company, you must first settle all existing debt. Pay off all of your loans, credit card balances, and taxes, and resolve lawsuits if applicable.
And while you’re at it, inform creditors, vendors, and other parties you had obligations with. This will give them ample time to collect any debts owed by your LLC, if there are any.
Other people to inform include your employees. At this point, you should close payroll accounts, as well as business bank accounts and insurance policies associated with your LLC.
Cancel All Permits and Licenses
Your company will no longer be in business, so you have no use for permits and licenses anymore. To avoid paying fees and fines, you should cancel these things as soon as you know you’re closing up shop.
Distribute the Remaining Assets
After you’ve settled all financial obligations, there may be assets remaining in the company. These should be distributed to the LLC members in a fair fashion.
Typically, you’d check the operating agreement, as it’ll outline terms for doing so. It’ll usually have each member’s percentage ownership, which corresponds with how much profits they get.
Dissolve Your California LLC Correctly
Learning how to dissolve an LLC in California can be useful, especially if you’re planning on going through the process in the near future. There are so many moving parts and steps that it can be confusing, and you don’t want to do it wrong. Otherwise, you might face fines and penalties.
It’s always wise to consult with professionals to ensure that you’re not missing anything. But hopefully, this article’s given you a better picture of what to do when the time comes.
Sign up with Business Anywhere now to get started on a new LLC. We can provide you with a virtual mailbox and registered agent services too.
