How To Get A Certificate Of Dissolution In California

If you decide that you no longer want to operate your business, you’ll need to secure a certificate of dissolution in California.

There comes a time when things change, and a transition is needed. The same is true for businesses. In some cases, years of hard work may result in a person’s retirement or stepping away from a business. In other cases, a company may not have performed as well as one hoped, and it may be time to move onto something else. This case is statistically normal when it comes to startups. Due to various circumstances, a business may end up shutting down. When you decide to shut down your business, you don’t just lock the doors on a physical building one final time and walk away. Depending on where you own and operate your business, you’ll need to declare that it is shutting down. In the case of this article, that means getting a Certificate of Dissolution in California.

So what is it, and how do you go about securing one?

Why Do You Need It?

When you start a business, you interact with customers, pay your taxes, and work with other vendors, entrepreneurs, and financial institutions during your time of operation. Thus, you are creating a network of professional contacts. These aren’t social contacts that may only wonder where you’ve gone to if you stop interacting with them. You’ve established contracts. You may have taken loans. You also have an annual obligation to report revenues and pay what you owe to the government as a citizen and entrepreneur within the state of California.

It means that if you decide to stop operating a business, there is a formal process you need to do. You have to notify all the relevant organizations. It’s not enough to put a closed sign on a building and leave it at that. There are corporate bank accounts that you need to address, debts that you need to settle, and official notice that you have to give agencies related to your taxation.

In other words, shutting down a business that has established professional, financial, and legal connections will leave these threads dangling. That is why you should take some steps to ensure that everyone knows what is happening so they can respond appropriately. The certificate of dissolution in California is a vital legal document in this process.

It Protects You

Aside from showing good professional ethics, securing your certificate of dissolution in California also provides you with a valuable benefit. It is financial protection and will prevent you from facing possible liability in the future. In some states, all you have to do is fill out a certificate of dissolution, as your “final notice.” However, the state of California takes financial liability very seriously.

Before you can get to that stage of protection from additional financial liability, California requires that you should reasonably address any outstanding liability, except for next year’s taxes. Doing so is just being professional.

If you’re facing huge financial liability, don’t look at getting the certificate as a way to absolve you of that obligation. The state will not grant the dissolution certificate until you’ve indicated on the form that you’ve addressed your financial liability.

Who Needs To Get A Certificate Of Dissolution?

If you are a more formal business structure in the state of California, then you will need to secure a certificate of dissolution to close down your company. A Doing Business As (DBA)/Sole proprietorship does not require approval from the Secretary of State of California.

However, if you are a Limited Liability Company (LLC) or a corporation, then you’ll need to secure your certificate. In either case, the owners should approve the dissolution. Corporations should also document the actions and include them in their record books. LLCs do not have to undergo such formalities. However, it is highly recommended to document the members’ approval of the decision.

How Do You Dissolve Your Business?

If you are running an LLC, this is simple and straightforward, especially if you are single-member LLC or a partnership. Once you’ve decided you would like to close down your business, you need to ensure you’re in a good position to address any liabilities and then fill out a certificate of dissolution. If your LLC has multiple members, then you’ll need the members’ approval of the dissolution.

If you run a corporation, then it’s a much more involved process. Your board of directors should have a majority vote to agree to dissolution. At the very least, this means that over 50% of the controlling interest in the company agrees to do so. Once you reach an agreement, the process of addressing liabilities begins.

Getting Your Form

If you have an LLC and you’ve decided to dissolve your company, all you have to do is get a single form and fill it out. It requires details like your LLC name, LLC file number, and the reason for the dissolution. The most common reasons are in a checkbox list, including a vote by members to dissolve, or a surviving associate filing for dissolution because the single-member has died.

A corporation may undergo several steps. That is why it may be helpful to hire a lawyer or an expert. After the board of directors approves of and the majority of shareholders authorize the dissolution, all corporate owners should sign a written agreement. Then, you should file the certificate with the California Secretary of State.

You can either mail the form off to the Secretary of State or drop it off for processing.

After filing the dissolution forms, you should inform the IRS and the state regulator that you have dissolved your business. You may have to file final tax returns and get a tax clearance. You should also close the company bank accounts and credit lines.

Once you have your certificate, you are free to move on and pursue new ventures.

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