Key Takeaways

  • Dissolving an LLC in California involves several steps to ensure the business is legally closed, from voting on dissolution to filing the necessary paperwork.
  • A certificate of dissolution must be filed with the Secretary of State.
  • After filing, the LLC must wind up business, which includes paying debts and distributing remaining assets.
  • Notices must be sent to creditors, and a certificate of cancellation is required to complete the dissolution.
  • The process must adhere to both state requirements and the LLC's internal agreement.

Dissolving Your California LLC

Dissolving an LLC in California requires a formal process that ends the limited liability company's existence as a business entity registered with the state. If your LLC is currently suspended, you must bring it into good standing before pursuing dissolution. The dissolution process puts the LLC out of reach of creditors and ties up other loose ends.

The first step in voluntarily dissolving a California LLC is checking the operating agreement and articles of organization, which often include a procedure for formally dissolving the company. In most cases, these documents will note that the LLC members vote on a resolution to dissolve the company and indicate a specific percentage required to approve the resolution. Follow all requirements detailed in these documents, such as setting a specific date and time for the vote and providing members with advanced notice. 

California also allows an LLC to dissolve if a majority of members or a greater percentage than specified in the operating agreement vote in favor of this action. After members vote to dissolve the LLC, you must file a certificate of cancellation and record the approval decision on a written consent form or in the official meeting minutes. Keep in mind that dissolving your LLC will not halt legal proceedings against the company.

Certificate of Dissolution

If your LLC members have unanimously voted to dissolve the LLC, a certificate of cancellation is sufficient; this should be filed with the Secretary of State. If the vote was not unanimous, you must file a certificate of dissolution. This form includes a file number and the name of the LLC along with a return mailing address and at least one authorized signature. The certificate of dissolution does not require a filing fee. If you deliver the document in person to the Secretary of State office in Sacramento, it is subject to a $15 handling fee. You can also receive expedited service for a fee, since normal service can take several weeks.

To receive file-stamped copies of your certificate of dissolution, include two additional copies with your mailing. Note that once you dissolve your LLC, another entity can immediately apply with the same or similar business name.

Judicial Dissolution Process

If a majority of LLC members cannot agree on dissolution or if there are disputes that cannot be resolved internally, a judicial dissolution may become necessary. This is a legal process through which a court intervenes and dissolves the LLC. Judicial dissolution is often a costly and lengthy process, generally considered a last resort when members are unable to agree on the closure of the business .

Winding up Business

After the certificate of dissolution is filed, the LLC exists only to wrap up certain final managers. You can designate one or several members or managers to handle these tasks. Winding-up tasks designated by the state's LLC Act include: 

  • Collecting and discharging outstanding legal obligations through prosecution or defense actions.
  • Collecting and distributing LLC assets.
  • Distributing and/or disposing of LLC property.

Assets must be divided in a specific order: 

  • Pay known liabilities and debts of the LLC, including those owed to LLC members as well as all outstanding taxes.
  • Pay interim distributions to members as required by your operating agreement. These are usually valued based on the member's individual contribution.
  • Pay remaining assets to LLC members. First, return their initial contributions, then pay out the remaining funds based on typical distribution percentages unless your operating agreement states otherwise.

Finalizing LLC Taxes and Debts

Before finalizing the dissolution of your LLC, ensure all financial obligations are met. This includes filing a final LLC tax return with the California Franchise Tax Board (FTB), even if the business has not generated any income. The FTB must be notified that this will be the final tax filing for the LLC. Additionally, any remaining debts, including the mandatory annual $800 franchise tax, should be paid.

Notice to Creditors and Claimants

In California, an LLC that has dissolved must mail a notice to that effect to all creditors and claimants whose addresses are on record. It may be prudent to hire a business attorney to assist with this legally binding document.

Handling Out-of-State Registrations

If your LLC does business in other states, you must follow the procedures for withdrawing from those states. This may include filing a certificate of withdrawal or termination in each state where your LLC is registered. This step ensures the LLC is no longer authorized to do business in those states and prevents future liabilities

Certificate of Cancellation

After winding up official business, file the LLC certificate of cancellation with the Secretary of State. This document requires the official LLC name and filing number, along with a statement indicating that the final tax return has been filed with the Franchise Tax Board. You can download the required form from the Secretary of State website.

When you fill out the form, you can check a box indicating that members voted to dissolve the LLC and sign a specific tax statement. You'll also need to provide a return mailing address and at least one authorized signature.

For most LLCs, Form LLC-4/7 is the correct document. Do not use the short form, LLC-4/8, unless your LLC has not conducted any business during its existence. As with the certificate of dissolution, there is no filing fee unless you deliver the document in person or want expedited service.

Filing the Certificate of Cancellation

Once all business activities are wrapped up, file the Certificate of Cancellation with the Secretary of State. This document confirms that the LLC has completed all necessary steps, including tax filings and creditor notifications. The certificate includes the LLC's name, filing number, and a statement that the final tax return has been submitted. Failure to file this certificate can leave the LLC in an inactive state, possibly incurring unnecessary fees.

Frequently Asked Questions

  1. Do I need to file a certificate of dissolution if all members agree to close the LLC?
    If all members agree, you may skip the certificate of dissolution and directly file the certificate of cancellation, stating that the dissolution was unanimous.
  2. How long does it take to dissolve an LLC in California?
    The process can take several weeks, depending on whether you file in person or choose expedited processing. Be sure to allow time for the Franchise Tax Board and creditor notifications.
  3. What happens if I don’t notify creditors before dissolving my LLC?
    Failing to notify creditors could result in legal issues, as creditors may not have the chance to claim what they are owed, potentially leading to future liabilities.
  4. Can I cancel my LLC if it's not active?
    Yes, but you must still file the necessary dissolution forms and address any unpaid franchise taxes.
  5. What are the consequences of not filing the Certificate of Cancellation?
    Not filing the Certificate of Cancellation can result in your LLC remaining in an inactive state, potentially incurring fees or taxes from the state of California.

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