Key Takeaways:

  • Articles of dissolution are essential to formally end a business entity in California and avoid future liabilities.
  • California offers several forms (Form DISS STK, ELEC STK, and DSF STK) for dissolution, depending on the corporation's circumstances.
  • Businesses must settle tax obligations, notify creditors, and close accounts.
  • Entities should ensure compliance with IRS requirements and California Franchise Tax Board rules.
  • Dissolution may also require canceling business licenses and permits and maintaining proper recordkeeping after closure.

The Articles of Dissolution California refer to a document that's filed to formally end an incorporated organization. It identifies the process regarding the distribution of assets.

How to Dissolve a Corporation in California

Dissolution occurs when a corporation closes and begins the process of winding up its business operations. There are five steps to dissolving a corporation in California.

1. Hold a Board Meeting With a Motion and Vote

Voluntary dissolution is possible when 50 percent of voting power stockholders vote for the dissolution of the corporation. However, it's more common for the board of directors to submit a proposal for dissolution and have the stockholders vote on the proposition. A formal meeting may be avoided in cases where 50 percent of the voting power stockholders provide written consent towards the dissolution of the corporation.

2. File a Certificate of Dissolution With the California Secretary of State

In cases where all of the outstanding shares of the corporation were voted to be dissolved, a certificate of election to wind up and dissolve must be filed with the Secretary of State (SOS). However, if the vote was less than unanimous, then the certificate doesn't need to be filed. The certificate of election to wind up and dissolve will indicate the following:

  • A statement declaring that the winding up and dissolution of the business is desired.
  • The voting power for the dissolution is 50 percent or higher.
  • The stockholders signing the certificate have the authority.

The certificate (Form ELEC STK) may be downloaded on the SOS website. After the corporation has completed winding up, a certificate of dissolution must be filed with the SOS and must include the following:

  • A proclamation that the business has been wound up.
  • Any known liabilities or debts for payment of which adequate arrangement has been made.
  • A proclamation that the organization's known liabilities and debts have been paid.
  • A proclamation of what provisions have been made.
  • The address and name of the business, individual, or government agency that's assumed or endorsed the payment.
  • The address and name of the depositary or any other relevant data.
  • A proclamation that the organization's assets have been disbursed to the appropriate individuals or that it has collected no known assets.
  • A proclamation that the corporation has been dissolved.

The certificate of dissolution (Form DISS STK) is available on the SOS website. The certificate of dissolution may be filed in person or by mail. Similar to the certificate of election to wind up and dissolve, there isn't a fee for the certificate of dissolution when it's mailed. However, when it's hand-delivered to the SOS, there is a $15 fee. Additionally, there's a $750 fee for same day delivery and a $350 fee for 24-hour expedited processing.

A domestic stock corporation may file the Certificate of Dissolution short form (Form DSF STK) when the following conditions have been met:

  • There are no debts or liabilities unpaid by the corporation.
  • DSF-STK must be filed within 12 months from the date that the articles of incorporation were filed with the SOS.
  • All tax liability is fulfilled on a taxes paid basis or assumed.
  • No business has been overseen by the corporation.
  • The concluding tax return for the franchise tax board has been filed or will be filed.
  • A majority of the directors or the incorporator have granted the dissolution and voted to have the corporation dissolved.
  • No shares of stock have been dispersed, and all payments have been refunded to investors.
  • All assets were allocated to the individuals entitled to them.

3. Advise Federal and State Tax Agencies of the Corporation Dissolution

California eliminated the tax clearance certificate stipulation regarding the franchise tax board in AB 2341. However, all California corporations that have dissolved must pay all liabilities associated with the final tax return. AB 2341 allows conditionally dissolved businesses to dissolve without receiving a tax clearance certificate from the franchise tax board.

Notify the IRS and File Final Returns

The Internal Revenue Service (IRS) must be informed when a corporation ceases operations. This involves:

  • Filing a final corporate income tax return (Form 1120) and checking the "Final Return" box.
  • Including Schedule K-1s for all shareholders, detailing each person’s share of income, deductions, and credits.
  • If employees were hired, filing final employment tax returns (e.g., Forms 941 and 940) and issuing final W-2s.
  • Canceling the business's EIN by sending a letter to the IRS with the legal name, EIN, address, and reason for closing.

Proper closure with the IRS reduces the risk of future tax assessments or penalties​.

4. Give Notice to Creditors and Other Claimants

It is highly recommended to consult a qualified attorney to ensure that the notices include all legally required information.

5. Close Bank and Open Accounts, Credit Lines, and Cancel Licenses

This includes closing all bank accounts, vendor accounts, and credit lines held in your corporate or business enterprise name. Additionally, make certain that in the process, you notify all consumers and vendors about your corporation's dissolution.

Retain Business Records Post-Dissolution

Even after a corporation is dissolved, it’s crucial to retain certain records for several years. These may include:

  • Tax filings and financial statements (retain for at least seven years)
  • Employment records (at least four years)
  • Meeting minutes and board resolutions regarding dissolution
  • Proof of filed articles of dissolution and final returns

Maintaining these records helps defend against any future audits, legal disputes, or creditor claims​​.

Cancel Permits and Business Licenses

Corporations must cancel any local business licenses, seller’s permits, or registrations that were issued to legally operate. This includes:

  • State sales tax permits (via the California Department of Tax and Fee Administration)
  • City and county business licenses
  • Professional or industry-specific permits

Failing to cancel permits may result in ongoing obligations, such as annual renewals or tax notices​.

Frequently Asked Questions

1. What are articles of dissolution and why are they important? Articles of dissolution formally terminate a corporation's legal existence and notify the state, tax agencies, and creditors that the business is no longer operating.

2. How long does it take to dissolve a corporation in California? Processing times vary, but standard filings by mail typically take several weeks. Expedited services (24-hour or same-day) are available for an additional fee.

3. Do I need to pay any fees to file articles of dissolution in California? There is no fee to file by mail, but a $15 handling fee applies for in-person submissions. Expedited processing fees range from $350 to $750.

4. What if my business has unpaid debts? You must disclose and arrange for payment of all known debts and liabilities before filing the certificate of dissolution. Otherwise, creditors may pursue claims against shareholders.

5. Can I dissolve my business if I never issued shares or did business? Yes. If the corporation meets specific criteria (e.g., no business conducted, no debts, and all taxes paid), you may file the short form (DSF STK) for a simplified dissolution process.

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