Your California corporation has a life of its own. Many people incorrectly think that if they never start operating the business or stop operating it for any reason, it is inactive and effectively closes down. Under California law, however, your corporation is an independent entity. Once you file its articles of incorporation, the corporation continues to exist until you file paperwork to dissolve it. An inactive corporation must still comply with state reporting requirements and pay a franchise tax every year until it files a formal certificate of dissolution with the California Secretary of State.
Dissolution of an Inactive Corporation that has Conducted Business and Issued Shares
Vote to dissolve the corporation. The board of directors should bring a resolution to dissolve the corporation before the entire body of existing shareholders with voting stock, either by holding a meeting or by requesting written consent. At least 50 percent of the shareholders must vote for dissolution under California law. Record the vote in the corporate record. If, for any reason, you cannot call a vote of all shareholders, you must complete a Domestic Stock Corporation Certificate of Election to Wind Up and Dissolve in lieu of a resolution and file it with the California Secretary of State office. You can download the election form from the "Forms & Fees" section of the secretary of state's website.
Wind up the corporation's affairs. Pay all outstanding bills. Put money aside for any contingent liabilities that you are aware may arise after dissolution. Place a public notice in a local newspaper asking any unknown creditors to make their claims known within a specific time frame. Liquidate assets and distribute any money remaining after debts have been paid to shareholders in proportion to their ownership interests.
Download a Domestic Stock Corporation Certificate of Dissolution form from the forms and fees section of the California Secretary of State website. On the homepage of the website, click on "Forms & Fees" under the "Business Programs" heading. Next, click on "Business Entities" and then on "Corporations." The correct form is number 17 on the provided list of forms. The state provides this form for convenience, but you don't have to use it. You can use any format that complies with California law to complete this filing.
Fill out the Certificate of Dissolution and file it with the secretary of state's office. The form requires information regarding the effective date of dissolution, verification that dissolution was authorized by shareholders -- ether by stating that a resolution passed or by attaching a Certificate of Election to Wind Up and Dissolve -- and the signatures of a majority of directors. Submit the form in duplicate by mail to the state office. There is no fee for filing this form unless you drop it off in person at the Sacramento office. The state will send you two certified copies of the certificate of dissolution for your records.
File a final California franchise tax return with the Franchise Tax Board. Your corporation is not formally dissolved until you file this last tax return with the state tax agency.
Dissolution of an Inactive Corporation Within 12 Months of Formation
Vote to dissolve the corporation within 12 months of filing the articles of incorporation if the corporation has yet to start transacting business and has not issued shares. A majority of existing directors or incorporators must vote for dissolution.
Wind up any outstanding corporate affairs. Pay any outstanding debts. Since the corporation did not commence operations, there should be very few accounts outstanding to close.
Download the Short Form Certificate of Dissolution from the secretary of state's website. This form is available for download from the same section as the regular dissolution certificate; it is number 18 on the list of forms. It should only be used by corporations that have filed articles of incorporation within the past 12 months, have not issued shares, have not commenced business and have no significant debts or tax liabilities.
Complete and file the Short Form Certificate of Dissolution in duplicate with the secretary of state's office. There is no fee for filing, unless you deliver the form by hand. The state will return two certified copies of the certificate to you for your records.
File a final franchise tax return with the California Franchise Tax Board. Once you file this return, your corporation is officially dissolved.
You cannot dissolve a California corporation that is suspended for not paying state taxes or filing state annual informational reports. You must first clear up the delinquency before the state will accept a certificate of dissolution.
- California Secretary of State: Domestic Stock Corporation Dissolution Filing Requirements
- California Corporations Code: Sections 1900-1907
- California Secretary of State: Frequently Asked Questions
- FindLaw: A Chronology - A Road Map to Closing Down Your Business
- State of California Franchise Tax Board: Why Was My Business Entity Suspended or Forfeited, and What Are the Effects?
Terry Masters has been writing for law firms, corporations and nonprofit organizations since 1995, specializing in business topics, personal finance, taxation, nonprofit issues, and general legal and marketing content creation for the Internet. Terry holds a Juris Doctor and a Bachelor of Science in business administration with a minor in finance.