When you initially set up a corporate entity, you must file Articles of Incorporation with the Secretary of State. If you decide you want to close or dissolve a corporation, you need to file a Certificate of Dissolution with the Secretary of State. The filing of a Certificate of Dissolution notifies the California Secretary of State that you are terminating and dissolving your corporation.

What is the Best Way to Dissolve a California Corporation?

The process of closing a corporation and winding up the affairs of the business is known as “dissolution.” There are several steps required to officially close a corporation. Sometimes it may be helpful to consult a lawyer or tax expert. The first step in dissolving a company is to stop actively conducting corporate business. This alone, however, is not the only action required to dissolve a corporation and legally speaking, the corporation will continue to exist under State law regardless or irrespective of whether you continue operating the business.  Unless you formally close the corporation through the Secretary of State, the State will require that the corporation complies with all legal requirements such as filing biannual Statements of Information. Failure to comply with these legal requirements, even though the corporation is not actively doing business, may subject the corporation to monetary fines and penalties.

How Do You Dissolve a California Corporation or Receive a Corporate Dissolution?

Dissolving a corporation effectively requires several actions to be taken, and these actions vary between the States. To dissolve a corporation in California, the following steps should be taken.

1. Board Meeting, Motion and Vote

Once you have decided to close the operations of your California corporation, you should hold a formal meeting of the Board of Directors. During the meeting a formal motion should take place requesting the corporation be dissolved. A vote should be taken and the activities of the meeting memorialized in the corporate minutes. Once the vote to dissolve has been approved by the Board of Directors, it needs to be authorized by a majority of the corporation shareholders (if there are actually shareholders). A written agreement approving the corporate dissolution and signed by all corporate owners should be executed before filing for dissolution with the Secretary of State.

2. File a Certificate of Dissolution with the California Secretary of State

It is nearly impossible to actually speak to the Office of the California Secretary of State, however, forms are available through the Secretary of State’s website for filing the required Certificate of Dissolution.

To start the dissolution of a general corporation with the California Secretary of State, a Certificate of Election to Wind Up and Dissolve (Form ELEC STK) together with a Certificate of Dissolution (Form DISS STK) must be filed. If all shareholders have voted unanimously to dissolve the corporation, only the Certificate of Dissolution is required.

A California domestic stock corporation can file the Short Form Certificate of Dissolution (Form DSF STK) if the following conditions are met:

  1. Short Form Certificate Form DSF-STK must be filed within 12 months from the date Articles of Incorporation were filed with the California Secretary of State;
  2. There are no liabilities or debts (other than tax liability) owed by the corporation;
  3. Any tax liability will be satisfied on a taxes paid basis or the tax liability will be assumed;
  4. Final tax return with Franchise Tax Board has been or will be filed;
  5. No business has been conducted by the corporation;
  6. No shares of stock have been issued by the corporation and all payments by investors for shares have been returned to those investors;
  7. The incorporator or the majority of the directors have authorized the dissolution and elected to have the corporation dissolved; and
  8. All assets have been distributed to the persons entitled thereto or no assets have been acquired.

These Certificates of Dissolution forms are only applicable to California general corporations and cannot be used to dissolve a California LLC or Nonprofit organization, both which require different forms.

3. Advise Federal and State Tax Agencies of the Corporation Dissolution

As soon as you have filed the proper dissolution forms with all the state agency, you need to let the Internal Revenue Service (IRS) and California Franchise Tax Board (FTB) know that you have dissolved your corporation. The process requires final tax returns be filed so that “tax clearance” certificate can be issued and submitted to the Secretary of State. When the corporation’s tax return is filed, the return should be marked “Final Return.”

In California, AB 2341 eliminated the tax clearance certificate requirement for the Franchise Tax Board; however, a dissolved California corporation is required to file a final return and pay any liabilities associated with the return. AB 2341 allowed all “conditionally dissolved” corporations to become dissolved without a tax clearance certificate from the Franchise Tax Board. Even though a corporation is dissolved, the corporation and its transferees remain liable for any outstanding returns or tax liabilities per Cal. Code of Regs. §23151

4. Close Bank and Open Accounts, Credit Lines and Cancel Licenses

When a business closes, there are several housekeeping steps required to tidy up the business affairs. These steps include closing all bank accounts, vendor accounts and credit lines held in your corporate or business enterprise name, making certain that, in the process, you notify all consumers and vendors about your corporation’s dissolution. It might also be necessary to terminate special licenses and permits and terminate existing Fictitious Business Name Statements.

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Closing your corporation is not complicated if you carefully undertake every step needed to do it properly. A People’s Choice can create and file your corporate dissolution paperwork for you with the California Secretary of State. If you need it right away, rush service is also available. If you have more questions about how to dissolve a California corporation, call A People’s Choice for further information or contact us through our website.