A business owner can close their business at any time, simply by shutting the doors (both literally and figuratively, if it's an online venture). But to legally dissolve a corporation, the business owner would have to follow a specific legal process and file certain documents. A Certificate of Dissolution in California must be filed with the Secretary of State. It's important to do it properly to avoid fines and other penalties.
Voting on Dissolution of a Corporation
The first step in dissolving a corporation in California is to hold a formal meeting of the company's Board of Directors. This is where the owners request that the corporation be dissolved, and take a vote. The result of the vote must be documented in a written agreement and signed by all corporate owners.
Forms to Dissolve California Corporations
The form required to request a legal dissolution of a corporation is available from the California Secretary of State’s website. Different forms are available, so it’s important to select the one that applies to the company's circumstances. For example, the Short Form Dissolution Certificate (Form DSF STK) requires that all of the following statements about the corporation be true:
- Was registered in California within the last 12 months;
- Has no debts or other liabilities, except as provided in Item c;
- Will satisfy the tax liability on a taxes paid basis or the tax liability will be assumed;
- Has filed, or will file, all required California final tax returns with the California Franchise Tax Board;
- Has conducted no business from the date of registration;
- Has not issued shares, and if the corporation has received payments for shares from investors, those payments have been returned to those investors;
- Has been dissolved; and
- Has distributed assets or the corporation acquired no known assets.
If any of these statements aren’t true, the company must file a Certificate of Election to Wind Up and Dissolve (Form ELEC STK) together with a Certificate of Dissolution (Form DISS STK). However, if all shareholders voted unanimously in favor of dissolution, only Form DISS STK is required.
With the form, the owner will include a completed Mail Submission Cover Sheet, providing information about herself and her business entity. If she wants to submit her form by mail, she would post it to the Secretary of State Business Programs Division, Business Entities, P.O. Box 944260, Sacramento, CA 94244-2600.
Certificate of Dissolution for LLC
A business may take a different form than a corporation, such as an LLC, nonprofit or partnership. Each entity has different rules and procedures. Accordingly, different forms are required to dissolve an LLC, nonprofit or partnership.
Fee for Dissolution in California
The fee payable to the Secretary of State depends on the form filed and the method of filing. No fee is payable for filing Form ELEC STK by mail, but if it is delivered it in person to the office, a $15 faster service fee is payable. This gives priority to documents submitted in person over documents submitted by mail.
Tax Liabilities After Dissolution
After the business owner has filed his forms with the state, he must notify the IRS and California Franchise Tax Board (FTB) of the dissolution of his corporation. As part of the process, he must file final tax returns. Thereafter, “tax clearance” can be issued and submitted to the Secretary of State. When the final tax return is filed, make sure to mark it “final return.”
A corporation can be legally dissolved while there are outstanding tax liabilities, but the corporation and its transferees are still liable for those amounts.
After the company has received its Certificate of Dissolution in California, it might still have various housekeeping items to attend to, like closing corporate bank accounts, any credit lines in the business' name, and letting all vendors and customers/clients know about the dissolution.