Two of the most common questions business lawyers get are: how to start a business – and how to close one. In each case, the answer depends on the type of business and business structure. In this article we will talk about how to dissolve a limited liability company, or LLC, in California.
Check the operating agreement and articles of organization
Before you do anything else, review the key documents you created when you started the business. These documents, called the operating agreement and articles of organization, will probably include instructions for ending or wrapping up the company.
More often than not, the directions will call for members to vote on a resolution to dissolve the company. Pay close attention to additional instructions regarding:
- Scheduling a date and time for the vote
- Providing advanced notice
The members voting for dissolution must represent a percentage of shares specified in the instructions for the measure to pass. However, state law provides for the dissolution of an LLC if most of the members vote for approval. It also provides for the dissolution if members holding a greater percentage of shares than stipulated in the operating agreement vote for approval.
If the resolution passes, note the approval on a written consent form. You can also make a note of it in the official meeting minutes.
File a certificate of dissolution with the Secretary of State’s office
The next step is to file a certificate of dissolution with the California Secretary of State’s office. Be sure to include the LLC’s name, the filing number and details about the members’ vote (or other action) that led to the dissolution of the LLC. An important caveat is that you do not have to file this certificate if there was a unanimous vote for dissolution.
Notify your creditors
In California, you are legally obligated to let your creditors know that you are dissolving an LLC and winding up business. This gives customers, clients, vendors or other relevant parties an opportunity to submit bills, invoices, and so forth. It also allows them to receive outstanding payments before the business closes permanently. We can help you draft this notice to ensure it is worded correctly.
Winding up business
By law, you must also “wind up” the company, or finalize certain financial matters after filing the certificate of dissolution. You can assign one or more members to act as “managers” and handle the following tasks, which are mandated by California’s LLC Act:
- Addressing any outstanding legal matters of a financial nature.
- Gathering and allocating business assets.
- Distributing and/or disposing of business property.
Assets must be allocated as follows:
- Any known liabilities and debts to members and non-members must be paid first. Any outstanding taxes also have top priority.
- Payment of interim distributions to members in accordance with the operating agreement.
- Payment of any remaining assets to the members as set forth in the operating agreement.
File a certificate of cancellation
To ensure your LLC no longer exists, you must file a Certificate of Cancellation upon completion of the winding-up process. If you created the LLC in the last 12 months but never conducted any business, you may be able to file a Short Form Cancellation Certificate (Form LLC 4/8). If not, you must file the standard Certificate of Cancellation (Form LLC 4/7). If you established your LLC in another state but it is registered to do business in California, you must also a Certificate of Cancellation. This effectively cancels your California business registration.
The LLC’s managers must sign the certificate. A signed statement indicating the LLC has filed or will file a final tax return with the California Franchise Tax Board must be submitted along with the certificate. It should also specify whether vote for dissolution was unanimous.
As soon as this certificate is filed, the LLC no longer has any capabilities, entitlements, or benefits.
If you still have questions or concerns about ending, winding up or dissolving an LLC, contact the business litigation team at the Los Angeles law offices of Parag L. Amin P.C. to schedule a consultation, today.