Taking the Exit: How to Dissolve an LLC in California

If California were its own country, it would have the sixth-largest GDP in the world. But even with booming businesses, sometimes you need to close the doors and move on. When a business has run its course, or an LLC is no longer needed, you’ll want to take steps to dissolve a California LLC. This can protect you as the owner from additional fines and penalties for failing to file or dissolve the company. 

Fortunately, it’s not difficult to dissolve a California LLC. Specific procedures apply, depending on the business situation. Read on to learn how to dissolve an LLC in California.

Understanding LLC Dissolution in California

Limited liability dissolution is the process of officially closing a legal business entity and wrapping up the business affairs. You can dissolve an LLC in California at any time. To dissolve a business in the state of California, you’ll need to make a filing with the Secretary of State. 

You may dissolve a California LLC when the company is no longer economically viable, if the company’s business purpose is completed, or when you no longer need the LLC. 

Why Dissolve an LLC in California?

Business owners choose to dissolve LLCs for a variety of reasons. The most common reasons are if the business is closed and you no longer want to operate the LLC or no longer need the LLC. 

If you want to pursue another business venture through a different business entity, you could dissolve an LLC you don’t need. Likewise, if you opened multiple LLCs, dissolving unused ones can simplify filings and management. Reasons to dissolve an LLC include:

• Loss of business viability 
• The business is closed 
• Bankruptcy
• The business no longer operates in the US 

Note that if you’re a visa holder who created an LLC, you don’t need to dissolve a California LLC that is still in use or has a business purpose, even if you’re no longer in the US. 

How to Dissolve an LLC in California in 7 Steps

All California LLCs are subject to the state’s annual $800 franchise tax. If you have three LLCs, you’re not using, that’s $2,400 a year just in franchise taxes. 

Dissolving an LLC by a member or owner agreement requires that the LLC is in good standing with the Secretary of State, has paid all taxes and filed necessary tax returns, and all creditors have been paid or will be. Then, you can file with the California Secretary of State. 

California has different forms depending on how long the LLC was formed and whether the members unanimously agree about dissolution. Here are the steps to take.  

1. Review Your LLC’s Operating Agreement

It’s essential to understand the specific dissolution procedures outlined in your LLC’s operating agreement. Review any requirements or stipulations in the operating agreement before proceeding, such as the need for a formal vote or unanimous agreement. 

In California, for an uncontested LLC dissolution, all members must agree to dissolve the company. However, if the LLC meets other dissolution requirements, you can dissolve the LLC without members’ unanimous agreements. 

2. Vote to Dissolve an LLC

Next, you will need to convene a meeting with all LLC members to discuss and approve the dissolution decision. If all members agree, you can request voluntary administrative dissolution and cancellation.

3. Inform Creditors and Settle Existing Debt

The business will need to settle all debt as part of dissolution and cancellation. Make a plan to pay off all credit card debt or loans. You should also notify creditors and close any lines of credit as part of dissolving an LLC. It’s important to pay off all debt or make plans to pay off the debt before paying final taxes.

4. Notify Tax Agencies and Pay Remaining Taxes

In California, the next step is to notify the State of California Franchise Tax Board and ensure you file all necessary tax returns, including income tax and employment tax returns. Consult with a tax professional to accurately complete these filings.

According to the State of California Franchise Tax Board, your business must certify by written request while filing for dissolution that:

1. It never did business or stopped doing business. 
2. It is not actively engaging in transactions for profit or financial gain.
3. Has distributed all assets and does not have any remaining assets

To avoid continued California Franchise tax of $800 annually, the LLC must:

• File its final franchise or annual tax return for the preceding taxable year on time
• Cease doing business in California by the last day of the preceding taxable year
• File cancellation documents for the LLC within 12 months of filing the LLC’s final tax return

5. Distribute Remaining Assets

Once all debts, obligations, and tax liabilities have been settled, distribute the remaining assets and profits among the LLC members according to the agreed-upon terms outlined in the operating agreement, including the percentage of ownership of each member and their rights to a percentage of any profits.

6. File Articles of Dissolution

California offers different filing options for dissolution based on the LLC’s standing and members’ agreement to dissolution.

First, if you filed the articles of organization less than 12 months before dissolution, you’ll need to file a Short Form Certificate of Cancellation Form LLC-4/8.

Second, if the LLC has existed for more than 12 months and all members agree to dissolve the LLC, you will file for cancellation using the Certificate of Cancellation Form LLC-4/7. To use this form, all LLC members must have held a unanimous formal vote and followed any other procedures outlined in the operating agreement. 

If you could not obtain unanimous consent from all LLC members, but the LLC meets the requirements to dissolve the entity, you can file the Certificate of Cancellation Form LLC-4/7 plus a Certificate of Dissolution Form LLC-3. You can submit the forms in person, by mail, or for faster service online at bizfileOnline.sos.ca.gov. 

7. Wind Up Other Business Affairs

Finally, you will need to wind up all remaining business affairs to close the company officially. At this stage, if not already done, you need to inform the California registered agent and cancel any registered agent services. Some additional steps may need to be taken while closing a business entity, including:

• Notify suppliers and customers
• Cancel business licenses and permits
• Handle employee matters like final paychecks or severance packages
• Cancel any DBAs
• Close company bank accounts, checking accounts, and credit cards

In addition, you can consider publishing a statement in a local newspaper near the place of business stating that the company is no longer in business to inform the community and the public.

How Much Does It Cost to Dissolve an LLC in California?

There is no filing fee for the certificate of dissolution in California. However, you will need to pay a $15 special handling fee for processing documents delivered in person at the Sacramento Secretary of State office. 

Should I Dissolve My LLC Myself or Hire an LLC Dissolution Service in California?

You can dissolve an LLC yourself, but hiring a professional service can simplify the process. The support of a tax professional, lawyer, or professional dissolution service can offer reassurance that you’ve completed the process correctly. Even with a simple dissolution, it can be advantageous to tap professional assistance to handle the dissolution for you.

How doola Can Help Dissolve a California LLC

Wrapping up business operations, dealing with employees, and the other obligations of closing a business can take time. Why not get professional help to work on LLC dissolution and ensure correct filings?  

With doola dissolution service, you just need to create an account and upload basic information about your company. Then, doola will prepare the Articles of Dissolution and/or cancellation relevant to your LLC situation and request any additional information needed. When California confirms the dissolution, doola will let you know immediately. Get doola LLC dissolution to save time!

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