Sad as it may be, but some businesses are bound to end. It is part of the risk of being a business owner. However, you should make sure you properly end the chapter to avoid additional fees and headaches. You can do this by following the steps on how to dissolve LLC in California.
Common Reasons Why LLCs Dissolve
There are various reasons why a business owner decides to close a company. Unless you follow the process on how to dissolve an LLC in California, your company will continue to exist. Here are some reasons why businesses decide to dissolve.
- The business venture failed, and the operating expenses are more than the profit.
- The LLC is experiencing internal problems due to disagreements between members. It may be about the management of the company, its operations, or the direction of the business.
- An event that members included in the operating agreement as a cause for dissolution happened.
- The LLC members feel like the business is not growing or performing the intended service.
Dissolve LLC In California
The first thing you should do is to check the company’s Articles of Organization and Operating Agreement. Find out if there is a section that includes rules on dissolving the LLC. Most companies include the voting of the LLC members to come up with a resolution to dissolve. Follow all the rules on dissolution, as stated in your LLC’s documents.
In case you do not find any section about dissolution on your LLC’s formational documents, follow California’s LLC Act. It allows an alternative method for voluntary dissolution. All you will need is a majority vote of all members of the LLC. Do not forget to record the decision of the members and include it in the official minutes of the meeting or have it in the form of written consent.
Following The Process
Officially ending the existence of your LLC as a state-registered business entity in California starts with a process. When you formed your LLC, you have undergone a process that the state has set. Similarly, you will need to go through another to dissolve LLC in California. You will have to file documents with the Secretary of State.
· Method To Use
Choose the method of dissolution that best fits your company’s situation. The state of California offers three methods of dissolution for LLCs.
- First, you can file a Certificate of Dissolution and a Certificate of Cancellation.
- Second, if all members of your LLC have agreed to close down the business, you can choose to file only the Certificate of Cancellation.
- Third, you can file a Short Form Certificate of Cancellation. Requirements for this method are the following:
- The LLC is not more than one year old.
- The company does not have any debts aside from its tax liability.
- The business returned assets or investments
- The majority of the managers and members have voted for the dissolution.
· Forms To Fill Out
Next, you should fill out the forms that you will need. You can download copies from the official website of the Secretary of State of California.
· Certificate of Dissolution
You should file a Certificate of Dissolution with the Secretary of State, if applicable. Include basic information about your business, such as the filing number, the name of your LLC, the name of the person who will receive the filed copy of the certificate, his or her address, the date you filed the form, and the signature of an authorized person.
· Certificate of Cancellation
If all members of your LLC agree to the dissolution, then you should file a Certificate of Cancellation. If not all members agree, you have to file the Certificate of Dissolution prior to or in conjunction with the Certificate of Cancellation.
Prepare the necessary information such as the filing number, your LLC’s name, the name of the person who will receive the filed copy of the certificate, his or her address, the date you filed the form, and the signature of an authorized person.
· Short Form Certificate of Cancellation
If the appropriate form for you is the Short Form Certificate of Cancellation. Secure a copy and fill it out. As with the other forms, you will have to provide basic information about your company. Additionally, you will have to indicate if your LLC has no known assets or distributed all of its known assets, settled all its debts, and undergone a member or manager voting process.
After filling out the appropriate forms, submit the documents to the Secretary of State by mail. The dissolution does not require you to pay for a fee. Address your document to the Document Filing Support office.
What Happens Next: Other Obligations of Your LLC
After dissolution, your LLC will still exist. However, instead of transacting business, your company’s purpose is to take care of obligation. You can designate one or multiple members or managers to handle this responsibility, which is also known as winding up. You have to mail a notice of the commencement of your company’s winding up to all creditors and claimants based on the records of your LLC.
The California LLC Act requires you or a representative to handle the winding up of the company, which includes the following tasks:
- Prosecution or defense of actions by or against the LLC for the collection and discharge of obligations
- Disposal of and conveying the properties of the LLC
- Collection and Division of assets following a particular order
- All known debts and liabilities
- Payment of any interim distributions of members as stated in the operating agreement, unless otherwise stated in the formational documents
- Payment of remaining assets to members, unless otherwise stated in the formational documents
Follow all the steps that the California state law requires to ensure that you will not be facing any more problems.
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