As the end of the year approaches, one very important question is on the minds of many our clients:
Should we dissolve our unused corporation or LLC, or face another year of taxes?
The end of a relationship can involve a mixture of emotions – pain, happiness, relief. The ending of a business is much the same especially when your business is often one of the most intimate relationships in your life.
As with so many partings, you and your business need closure. As far as the law is concerned, that will likely include the filing a certificate of dissolution for corporations and a certificate of cancellation of LLCs, and perhaps other steps for your situation, including shareholder. board, or member approval.
On its face, that seems easy enough – find the right business forms on the Secretary of State’s website, fill it out, send it in. In fact, there aren’t even fees unless you need a rush processing. Or use Formation Solutions to assist in this matter: California for-profit corporation dissolution, LLC dissolution
But read carefully. Every form has conditions. The state wants to know things have ended responsibly.
In order to wind-up your corporation, you’ll need to have a few things done.
- Your corporation’s debts need to be provided for – either completely paid, arranged to be paid or paid to the maximum extent of which the corporation is capable.
- Any assets must be divided up equitably among the shareholders.
- The corporation must file a final return with the California Franchise Tax Board.
You must also report how it was determined to dissolve the corporation – whether by unanimous vote of the shareholders, or by partial vote. If it was by a vote of less than 100 percent, you will need to file a Certificate of Election to Wind-Up and Dissolve along with your Certificate of Dissolution.
LLCs face similar requirements. In order to make your way through a Certificate of Cancellation, you’ll need to have several issues resolved.
- Your LLC will need to distribute assets and any profits to its members.
- The company will need to have its debts paid or arranged to be paid.
- A final tax-return must be filed with the California Franchise Tax-Board or you must certify that it will be done.
Again, if the ending of the LLC wasn’t done my unanimous vote of the members, you’ll need to complete a supplementary Certificate of Dissolution to explain the circumstances surrounding the cancellation. The form requests any supplementary proof you have of an honest, correct dissolution vote.
With both corporations and LLCs, if a company never had assets or the entity was never actually used to conduct business, the dissolution forms become simple and easy. In activity of a significant length of time provides a similar benefit.
The main thing is to keep good records – especially of ownership votes to dissolve and your wind-up accounting.
Although situations may vary, many believe that completing the legal dissolution process is an important step to protect yourself. Please consult with an attorney on such matters. If it’s daunting or there are complicated circumstances surrounding your dissolution – get a qualified business attorney to assist you and guide you through the process.