Checklist for LLC Dissolution in California
Dissolving LLC in California Requires Formal Process
Whether a Limited Liability Company (LLC) is a domestic or foreign entity, ending the LLC's business within California means filing formal paperwork. If the LLC's operation is in suspension status, the managers must bring the company into good standing with the state before submitting any dissolution papers. The dissolution process is more complicated than setting up an LLC. After all, dissolution secures the LLC away from creditors and sets the rules to wind up any outstanding business issues. Also, bear in mind that once the LLC files for dissolution, another business can file a California business using the LLC name or a similar name. The following dissolution steps are instructive.
Step One. What Do the Articles of Organization Provide?
The first step in the dissolution journey is to read the LLC's Articles of Organization or the agreement under which it operates. Often, the Articles of Organization will incorporate formal procedures that the managers must follow to accomplish dissolution. At a minimum, the operating rules will tell if the LLC members must vote on a resolution to dissolve the business and what percentage of votes to approve the resolution will accomplish the dissolution. It is essential to follow any operating rules precisely, including instructions on how to structure the vote, the timing, and any advance notice to members' requirements. Under California's Revised Uniform Limited Liability Company Act (LLC Act), if a majority of the LLC members (or if a percentage higher than the one described in the operational agreement) approve dissolution, the company can dissolve.
Step Two. After the Vote.
If all the LLC members vote to approve the dissolution, the company must wind up the business before it files a Certificate of Cancellation with the Secretary of State. The LLC must record its approval vote either on a consent form or in the LLC's official minutes.
Step Three. Filing a Certificate of Dissolution.
If the LLC membership voted unanimously to approve the company's dissolving, then the Certificate of Cancellation is all that business needs to file with the California Secretary of State. The Certificate of Cancellation is Form LLC-4/7 obtainable from the Secretary of State. If, however, less than all the LLC members voted to dissolve the company, but enough as required by the operating rules, then the company must file a Certificate of Dissolution containing the following information:
- A file number
- LLC name
- LLC address
- One authorized signature
- Two additional copies of the filing and a self-addressed stamped envelope for a return stamped copy of the filing. The filing does not require a filing fee. In general, the final dissolution processing with the state takes a few weeks.
Step Four. The Windup.
After the LLC files for dissolution, the business exists only to wind up the following actions:
- Identifying, collecting, and prosecuting or defending the LLC's legal actions (Dissolution does not stop legal actions against the LLC.)
- Collecting/distributing LLC assets
- Distributing/disposing of LLC property
- Close checking/savings accounts and credit cards
- Cancel licenses, permits, and terminate fictitious business names
- Publish a notice in newspapers that business is closed
- California's LLC Act requires that assets be disposed of in particular order:
- Paying known debts of the LLC, including debts owed to LLC members, and outstanding tax obligations including the payment of all penalties and the filing of the final return
- Paying distributions to LLC members according to the terms of the operating agreement
If assets remain after disposing of them in accordance with the LLC Act, then the LLC must
- Return contributions to LLC members, and then
- Pay anything leftover to LLC members based on contribution percentages or according to the terms of the operating agreement.
Step Five. Notice to Creditors and Claimants.
California's LLC Act requires a dissolved LLC to notify all creditors, vendors, suppliers, clients, and claimants (for whom the LLC has addresses) of the dissolution. The notice is a legally binding document for which legal counsel's drafting skills is recommended.
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