How to Close Your LLC in California: Steps to Follow

Closing an LLC in California is a significant decision that requires careful attention to legal and financial details. Ensuring the proper dissolution process can prevent future complications.

Dissolution Filings

To dissolve an LLC in California, you must file a Certificate of Dissolution with the California Secretary of State. This document can be submitted online or by mail and must be accurate to avoid delays. A Certificate of Cancellation is also required to finalize the termination. Unanimous consent from all members is typically necessary, unless the operating agreement specifies otherwise. Additionally, the LLC must be current with the Franchise Tax Board, as unpaid taxes can result in penalties or rejection of dissolution filings.

Paying Franchise Taxes

Addressing franchise taxes is critical when closing an LLC. California mandates an annual minimum franchise tax of $800, even if the LLC is not conducting business. This obligation continues until the LLC is formally dissolved. Outstanding taxes up to the dissolution date must be paid, and the tax for the final year should be prorated if operations cease mid-year. Failure to pay these taxes results in penalties and interest, with the Franchise Tax Board imposing a 5% penalty on unpaid amounts, plus 0.5% for each month of delay, up to 25%. The FTB may also place liens on the LLC’s assets, complicating asset distribution.

Canceling Permits

Canceling permits and licenses is essential when closing an LLC. Depending on its activities, an LLC may hold permits such as seller’s permits or professional licenses from state, county, or municipal agencies. Compile a complete list of all permits to ensure none are missed. Contact each issuing agency to understand specific cancellation requirements, which may include formal requests or proof of dissolution. Failure to cancel permits can result in ongoing obligations, such as renewal fees.

Distributing Assets and Debts

Distributing assets and settling debts requires careful financial management. Start with a detailed inventory of assets and liabilities, including tangible items like equipment and intangible ones like intellectual property. Creditors must be paid before distributing remaining assets to members, following the order of secured creditors, unsecured creditors, and other obligations. The LLC’s operating agreement may outline specific procedures for asset distribution, which must comply with legal standards.

Potential Liabilities After Closure

Certain liabilities may persist even after an LLC is dissolved. Contingent liabilities, such as those from ongoing litigation, can arise post-dissolution. Creditors can pursue claims against dissolved LLCs for up to four years under California law. Publishing a notice of dissolution in a local newspaper can reduce the statute of limitations for some claims to 120 days. Tax liabilities are another concern, as the Franchise Tax Board can audit LLCs post-dissolution. To mitigate risks, ensure all tax filings are accurate and retain financial records for at least seven years for potential audits or inquiries.