Dissolving an LLC in California: What to Know

To dissolve your LLC in California, you file a Certificate of Cancellation with the California Secretary of State, and, if not all members voted to dissolve, a Certificate of Dissolution first. Neither filing has a state fee.

The LLC dissolution process requires compliance with your LLC’s operating agreement and the California Revised Uniform Limited Liability Company Act. 

Other steps include winding up affairs, liquidating assets, and filing your business’s final tax returns. 

Basics of LLC dissolution

Dissolution changes the purpose of your LLC’s existence, but it’s only the first step in terminating your business.

Dissolved LLCs only exist so the owners can proceed with winding up their business and liquidating its assets. 

Once you complete the wind-up process, file your final tax return and cancel your LLC, it will no longer owe California’s $800 annual tax or need to file new returns. 

Types of LLC Dissolution

There are 3 types of dissolution: voluntary, administrative, and judicial.

While each type occurs for different reasons, you must take similar steps to ensure the correct closure of your California LLC. 

Voluntary dissolution

Voluntary dissolution occurs when the LLC members choose to end their business. 

Voluntary dissolution can happen in two ways. 

• The LLC operating agreement implements a predetermined dissolution trigger, such as the death or departure of an LLC member.
• Members choose to vote for dissolution.

Members who vote for voluntary dissolution must adhere to the LLC operating agreement’s conditions, such as the majority vote required.

LLCs without an operating agreement follow California’s default rules. The Franchise Tax Board also explains how voluntary dissolution and cancellation affect your tax obligations.

Administrative dissolution

In California, an LLC that fails to pay its taxes or file required returns can be suspended by the Franchise Tax Board, and one that misses its Statement of Information can be suspended by the Secretary of State. LLCs that stay suspended for a long time can be administratively dissolved.

A suspended LLC loses the right to do business in California, so it’s better to file a voluntary dissolution and cancellation if you’re closing. 

Judicial dissolution

A court can order an LLC dissolved, for example when the business can no longer reasonably carry on under its operating agreement or its managers are acting illegally or fraudulently. 

The most common reason for judicial dissolution is when an LLC member sues to have the business closed. 

Dissolving your LLC in California

Dissolution is the first step in closing your California LLC. Depending on how your members voted, it starts with a Certificate of Dissolution or goes straight to a Certificate of Cancellation. 

Once your LLC is dissolved, you must take several other steps to ensure you terminate your LLC correctly. 

Step 1: Vote to dissolve your California LLC

LLC members who dissolve their business voluntarily must comply with their LLC operating agreement. 

Often this requires a majority member vote; however, the percentage vote can vary depending on the operating agreement conditions for dissolution.  

For LLCs without dissolution provisions, California’s default rules apply (see below). 

Depending on how the members voted, to dissolve your California LLC voluntarily you file:

• Certificate of Dissolution (Form LLC-3): If the decision to dissolve was not made by all members, the LLC first files a Certificate of Dissolution with the Secretary of State.
• Certificate of Cancellation (Form LLC-4/7): If all members voted to dissolve, the LLC can skip the Certificate of Dissolution and file only a Certificate of Cancellation. Every LLC files this certificate once its affairs are wound up.

Single vs. multi-member LLC dissolution

Single-member LLCs have one owner, so the decision is automatically unanimous and they can file the Certificate of Cancellation directly. 

Dissolution rules in your LLC operating agreement

When forming your California LLC, it’s prudent to create an LLC operating agreement California outlining your LLC’s dissolution triggers and procedures.

LLC dissolution rules can include:

• The voting requirements to dissolve your LLC.
• How the vote will take place, such as in-person, written consent, or a virtual meeting.
• The date of the dissolution meeting.
• Date and procedure of informing members of the voting result.

California-specific rules for voting to dissolve your LLC

LLCs whose operating agreements don’t specify the dissolution process must follow California’s default dissolution rules.

Under those rules, members holding 50% or more of the LLC’s voting interests can vote to dissolve the business.  

Step 2: Wind up all business affairs and handle any other business matters

Closing your California LLC involves more than filing a certificate of dissolution.

After you decide to dissolve, you must also take steps to wind up your business affairs and close your LLC. Once dissolved, the LLC can only conduct business needed to wind up.  

Wind-up measures can include:

• Settling debts
• Disbursing assets
• Ending or assigning contracts
• Closing all business bank accounts and lines of credit
• Letting employees go
• Canceling leases
• Canceling the LLC’s business licenses, permits and seller’s permit
• Closing any LLC registrations in other states
• Notifying all customers and suppliers
• Notifying your registered agent

Step 3: Settle debts and assets with creditors

To dissolve your California LLC, you must pay or make provision for all known debts and liabilities before distributing any remaining assets to members.

It’s a good idea to notify your known creditors in writing that the LLC is closing, so they can submit any outstanding claims before you close your business in California. 

Step 4: Notify tax agencies and settle remaining taxes

California doesn’t require a tax clearance certificate to dissolve an LLC.  

However, you must file your final Form 568 with the California Franchise Tax Board, marking it as a final return, and pay any annual tax and LLC fee you owe. Your cancellation form also asks you to confirm the final return has been or will be filed. To avoid owing the $800 annual tax for the next year, file your Certificate of Cancellation within 12 months of filing your final return, and stop doing business in California.

Step 5: File your dissolution and cancellation forms 

The forms you file depend on how the members voted and how long the LLC has existed. All of them can be filed online through bizfile Online or on paper, and none has a state fee.

• Certificate of Cancellation (Form LLC-4/7): Filed by every LLC once it has wound up. If all members voted to dissolve, this is the only form you need.
• Certificate of Dissolution (Form LLC-3): Filed first when the decision to dissolve was not made by all members.
• Short Form Cancellation Certificate (Form LLC-4/8): For LLCs canceling within 12 months of filing their Articles of Organization that haven’t conducted business or incurred debts.

Conclusion

Dissolving your LLC takes several steps, and you must complete each one to wind up your business correctly.

If you do not formally dissolve and cancel your LLC, it will keep owing the $800 annual tax and Statement of Information filings, stay open to litigation, and risk having its identity stolen.

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