Key Takeaways

  • Dissolving and canceling a California LLC are legally distinct but connected processes.
  • The LLC members must follow internal rules or state law to approve dissolution.
  • To cancel an LLC in California, you must file specific forms with the Secretary of State.
  • Final tax returns must be filed and debts paid before cancellation.
  • Failing to notify creditors or cancel licenses may result in legal or financial issues.
  • No tax clearance is required, but the Franchise Tax Board has strict filing rules.

Are Dissolution and Cancellation the Same?

When considering a California LLC cancellation, the question often comes up regarding whether dissolution and cancellation are the same. Cancellation and dissolution of an LLC are two different processes. Dissolution, also called winding up, is a process that members of an LLC will go through in preparation to cancel with the secretary of state and terminate the existence of the LLC. Cancellation is on the secretary of state's side, which terminates the rights, privileges, and powers of an LLC. The cancellation process happens after the LLC has gone through the winding-up process and dissolution. 

Although they are separate processes, cancellation and dissolution do work in sync with one another. In other words, the processes of cancellation and dissolution each include their own set of steps that must be taken, although the processes are handled by two different parties.

The LLC handles the dissolution, while the secretary of state handles the cancellation. Both steps typically must be taken to end the existence of an LLC. If dissolution and cancellation were the same, two terms would likely not exist for a single process. Put another way, dissolution and cancellation are the two steps that must be taken by two different parties. In many cases, dissolution happens based on Corporations Code Section 17707.01, while cancellation occurs in accordance with Section 17707.08(c).

One exception is if an LLC doesn't conduct business. Neither winding up nor dissolution would be necessary, so this LLC could go straight to the cancellation step. Within California, dissolution is done by both corporations and LLCs. Cancellation only applies to LLCs and does not apply to corporations. 

Dissolving Your LLC

Any California company that engages in some type of commerce in the state is legally required to register the business with the secretary of state. State laws govern processes around the dissolution and creation of any business that has been registered with the secretary of state. Before you can dissolve an LLC in California, you must file the appropriate documents. These are filed with the secretary of state. The required documents will depend on the company status and whether the LLC owners agreed through a unanimous vote to dissolve the business. 

The formal process of dissolution is the first step in ending a company's existence as a business entity registered in California. This process puts the business outside of the reach of any creditors. LLCs can be voluntarily dissolved by members or involuntary dissolved due to a legal decree in court. California has its own set of dissolution rules over an LLC that hasn't conducted business. These rules often apply to newly formed LLCs.

The first step in the voluntary dissolution of an LLC is reviewing the documents used to form the company. These include the operating agreement and the articles of organization. At least one of these documents should include a section that will detail the plan for the dissolution of the LLC. Oftentimes, the documents will outline a rule that requires all members of the LLC to vote to dissolve the business. The rule could also indicate the percentage of members that must vote in favor of dissolution in order to make it a voluntary action. 

When moving forward with dissolution, it is important to follow all procedural requirements outlined in your documents. These requirements could include:

  • Giving advance notice to all members
  • Setting a specific time to meet
  • Allowing members to vote by proxy 

Additionally, whether or not your operating agreement and/or articles of organization include provisions around dissolution, a law in California offers an alternative dissolution method. Under the LLC Act, a majority vote by the members of the LLC could allow for voluntary dissolution, if this is specified in the agreement. If every member of the LLC votes in favor of dissolution, you can skip the step of filing a certificate of dissolution and move straight to the step of filing a certificate of cancellation with the secretary of state.

Whether your LLC members choose to stick to a majority vote or follow the rules outlined in your formation documents, it is important to make a record of the decision. The record should be included in a written consent form that all members sign or in the official dissolution meeting minutes.

Final Tax and Compliance Requirements

Before you can cancel an LLC in California, you must settle any outstanding tax obligations with the California Franchise Tax Board (FTB). While California does not require a tax clearance certificate, the FTB mandates that you:

  • File all overdue tax returns and pay any remaining balances, penalties, or fees.
  • File your final state tax return. Mark the "Final Return" box and write “Final” at the top of the return.
  • Ensure that the LLC ceases all business activity in California after the final taxable year.

If your LLC is taxed as a corporation, file IRS Form 1120 and check the “final return” box. If it’s taxed as a partnership, file IRS Form 1065 accordingly.

File the Correct Cancellation Forms

The required forms to cancel LLC California depend on how the dissolution decision was made:

  • If the dissolution vote was unanimous among all members: File only the Certificate of Cancellation (Form LLC-4/8).
  • If the vote was not unanimous: You must file both the Certificate of Dissolution (Form LLC-3) and the Certificate of Cancellation (Form LLC-4/8).

You can file these forms:

There is no fee to file either form as of 2024.

Notify Creditors and Settle Debts

You must inform all known creditors that your LLC is in the process of winding up. While California law doesn’t specify the exact contents of this notice, it should:

  • Identify your LLC and state that it is dissolving.
  • Include a deadline by which claims must be submitted.
  • Provide an address where creditors can send claims.

Optional but recommended: Publish a notice of dissolution in a local newspaper. This can help protect you from future liability by serving as public notice.

All known debts and liabilities must be paid or adequately provided for before distributing any remaining assets to members. This includes taxes, vendor invoices, payroll, and loans.

Distribute Remaining Assets

Once all debts are settled, California law requires you to distribute remaining LLC assets in the following order:

  1. Repayment of any interim distributions to members per the operating agreement.
  2. Return of each member’s capital contributions.
  3. Final distribution of any remaining assets according to the members’ ownership percentages.

For example, if three members dissolve an LLC and have repaid all debts and obligations, remaining assets are split according to their ownership structure (e.g., 40/30/30) unless otherwise specified in the operating agreement.

Cancel Licenses, Permits, and Registrations

Be sure to cancel all business licenses, permits, and local registrations. This may include:

  • Seller’s permits from the California Department of Tax and Fee Administration (CDTFA)
  • Local business licenses from city or county agencies
  • Fictitious Business Name (FBN) registrations
  • Out-of-state registrations (if your LLC was operating in other states)

Failure to cancel these may result in ongoing tax obligations or fees.

Frequently Asked Questions

  1. Do I need tax clearance to cancel an LLC in California?
    No. California does not require tax clearance, but you must file all final tax returns and pay outstanding balances with the Franchise Tax Board.
  2. What forms are required to cancel a California LLC?
    You must file either just Form LLC-4/8 (Certificate of Cancellation) or both Form LLC-3 and Form LLC-4/8, depending on how the LLC members voted.
  3. Can I cancel my LLC online?
    Yes. You can file your dissolution and cancellation forms online through California's BizFile portal.
  4. What happens if I don’t notify creditors?
    You could remain liable for outstanding debts. Notifying creditors and publishing a dissolution notice reduces the risk of future claims.
  5. What is the deadline for filing cancellation paperwork after my final tax return?
    You must file your cancellation documents with the Secretary of State within 12 months of submitting your final tax return to the FTB.

If you need help with cancel llc california, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.