Legal

Dissolving a California LLC or Corporation

Legal

Dissolving a California LLC or Corporation

Forming your LLC or Corporation can be a big decision. Dissolving it may be an even bigger one. We’re here to help. Below you’ll find information on when dissolution may be appropriate, what you need to consider, and the proper steps to take.    

LLCs and Corporations are similar in a lot of ways, and that doesn’t change much when faced with dissolving them. However, there are some small differences which are discussed below.  

Why Should You Dissolve Your Business?

There are a variety of reasons that you may want to do dissolve your LLC or Corporation. Some of the most common reasons include:  

  • A failed business venture resulting in a lack of funds. This can also encompass stagnant business growth where the members feel it is best to part ways.  
  • Incompatible members. Let’s face it, sometimes business partners can’t always work out their differences. Dissolution may be the best option in those circumstances.
  • A defined triggering event. These are events that are outlined in the initial operating agreement for the LLC or Bylaws of the Corporation in which the parties have stipulated what will result in dissolution. For example, the loss of a particular asset or the death of an organizing member as well as events defined by the state business entity codes.

How Your Governing Documents Can Help

When facing dissolution, your LLC’s operating agreement or Corporation’s Bylaws can help outline the procedures going forward. Often, these documents include important time frames and obligations for the entity as a whole and members on an individual basis.  

Although the beginning of a business is an exciting time, preventative measures taken at the start can help ease the operations of the entity and allow for a smooth dissolution.  

What are the Methods For LLC Dissolution?

California recognizes three different methods of dissolving your LLC. Picking the one most appropriate for your situation will save you time and money. Most commonly, you can dissolve your LLC by filing a Certificate of Dissolution and a Certificate of Cancellation. However, there are a few situations where you may file different forms. For example, if all members of the LLC choose to dissolve, you can file only the Certificate of Cancellation. Alternatively, if your LLC is less than one year old, you may dissolve it by filing only a Short Form Certificate of Cancellation.  

Once you have established which method is right for you, the forms are filed with the Secretary of State by mail and there is no fee. Unfortunately, this is one of the few things that cannot be completed electronically.  

What Are the Steps for Corporation Dissolution?

With a Corporation, the steps are a little different. First, there must be a vote to dissolve the Corporation. This vote is held with all relevant directors, shareholders, and voting stock, and must be supported by a majority. The Domestic Corporation Certificate of Dissolution form is the proper form for Corporations. Also, as with LLC’s, there is a different form option if your Corporation was created less than a year (12 months) ago which is the Short Form Dissolution Certificate.

Corporation dissolution forms are also filed with the Secretary of State and can be submitted in person with the Secretary of State for a small fee or by mail without fee.

What Are the Liabilities of Dissolution?

As with any business venture that is ending, it is important to wrap-up your LLC or Corporation’s affairs. This may include paying all outstanding bills, notifying any relevant parties, settling any remaining debts, filing final tax returns, and taking note of the entity’s assets.

Another important consideration is liability: are members of the LLC or Corporation liable after it has been dissolved? There are certain circumstances where former members of an LLC or Corporation may still be liable to suits after the dissolution of their entity. These situations are fact specific and unique to each case. It is important to consult with an attorney do be aware of your potential for liability and how to protect your interests.  

We understand that dissolving your LLC or Corporation can be a daunting task. Here at Slate Law, we are here to help. We are experienced in all stages of business ventures from formation to dissolution. Just contact our office to set up a flat rate consultation.

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