The First Steps in Dissolving Your California Corporation
The first step in dissolving your corporation is to stop actively conducting corporate business. That said, legally speaking, the corporation will continue to exist under state law regardless of whether you continue operating the business. Thus, unless you formally close your corporation through the Secretary of State, you will still be responsible for corporate legal requirements such as filing biannual statements of information. In fact, failure to comply with these requirements may subject the corporation to monetary fines and penalties.
How to File Corporate Dissolution in California
To dissolve a corporation in California, take the following steps:
1. Board Meeting, Motion, and Vote
Once you have decided to close the operations of your California corporation, you should hold a formal Board of Directors meeting. Then, during the meeting, place a formal motion requesting to dissolve the corporation. Finally, the attendees should take an official vote. Remember to memorialize the activities of the meeting in the corporate minutes.
Even if the Board of Directors approves the vote to dissolve, the majority of the corporation shareholders still need to approve dissolution as well. Therefore, they must sign a written agreement approving the corporate dissolution before you file with the Secretary of State.
2. File a Certificate of Dissolution With the California Secretary of State
Believe it or not, it’s nearly impossible to physically speak to the Office of the California Secretary of State! However, luckily, their website hosts forms for filing a certificate of dissolution. Thus, to initiate the dissolution of a general corporation with the California Secretary of State, you must complete and file a certificate of election to wind up and dissolve (Form ELEC STK) and a certificate of dissolution (Form DISS STK). That said, if all shareholders have voted unanimously to dissolve the corporation, you will only need the certificate of dissolution.
Short Form Certificate of Dissolution
On the other hand, a California domestic stock corporation can file the short form certificate of dissolution (Form DSF STK) if the corporation…
- is filing within 12 months of the date of filing articles of incorporation with the Secretary of State;
- has not conducted any business;
- has or will file a final tax return with Franchise Tax Board;
- owes no liabilities or debts other than tax liability;
- ensures any tax liability will be satisfied on a taxes paid basis or the tax liability will be assumed;
- has not issued any shares of stocks and returned all payments by investors for shares;
- has been approved for dissolution by the incorporator or the majority of the directors; and
- distributed all assets to the persons entitled thereto or no assets have been acquired.
These special forms are only applicable to California general corporations. Thus, they cannot be used to dissolve a California LLC or nonprofit organization, both of which require different forms.
3. Advise Federal and State Tax Agencies of the Corporation Dissolution
As soon as you have filed the proper forms with the state, you need to alert the Internal Revenue Service (IRS) and California Franchise Tax Board (FTB) of the dissolution. Note that you should identify your tax return as “Final Return”.
In the past, this process involved filing final tax returns to obtain a tax clearance certificate for submission to the Secretary of State. However, in 2006, California’s AB 2341 eliminated the tax clearance certificate requirement for the Franchise Tax Board. Nonetheless, a dissolved California corporation must still file a final return and pay any liabilities. Upon dissolution, a corporation and its transferees remain liable for any outstanding returns or tax liabilities per Cal. Code of Regs. §23151.
4. Close Accounts, Credit Lines, and Licenses
When a business closes, there are several housekeeping steps to tidy up the business affairs. These include closing all bank accounts, vendor accounts, and credit lines held in your corporate or business enterprise name. Also, make certain to notify all consumers and vendors about your corporation’s dissolution. Finally, you may also have to terminate special licenses, permits, and existing fictitious business name statements.