When the time comes, be prepared, ready, and knowledgeable of the process. We’ve broken down your dissolution into two easy parts.
We invite your attention to our disclaimer.
You’ve greatly enjoyed owning and running your own corporation in California. But now, it is necessary to shut the business down. The reasons for this can be varied; you may have enjoyed great success or endured failures. Maybe a little of both. It might be time to contemplate exciting future ventures or choose a new business path. In any case, now that you are ready to dissolve your business, our business lawyers and corporate attorneys at Nakase Wade can help.
Now that it is indeed time to make a change, you’ll need to both ‘dissolve’ and ‘wind up’ your business before you can look forward to the future. We have outlined the major, multiple steps that you must take in order to put an end to your business in a responsible and complete manner.
When you set up your company, you filled out the proper paperwork, including submitting the correct documents to the respective government entities. Now you will need to reverse this process and file for dissolution. This action will tell the proper parties that you will be shutting down your business.
What is dissolution? Before you dissolve your corporation, you should be familiar with this term. This process will not be too difficult to navigate, but it does involve several different phases.
While we hope the outline below will help you in this what is surely both an exciting and challenging time, we also suggest that you contact a tax expert or business lawyer before starting out. Good luck, and let us know if you have questions about dissolving your corporation in CA.
Douglas Wade, Attorney
Step 1: Making Sure Your Company is Closed Down
It’s good to be aware of the obligations you must fulfill as you begin this process to dissolve your corporation. Closing your business so that you can start a new chapter can be an exhilarating time. However, if you do not follow the proper steps and satisfy all of the requirements, you and your business can suffer. You may even be fined, so proceed carefully when you dissolve the corporation.
Initially, you must make sure that you have completely stopped running your business. This closing must be recognized by the government. If you fail to do complete this step, you will remain forced to abide by all the expected rules of running a business: your taxes will remain in place, you still need to provide informational statements biannually and pay securities, and so on. Therefore, one of the most important first aspects is to contact the correct state offices and make sure that your corporation is formally terminated.
Step 2: Vote to Dissolve Corporation
Like many important decisions, corporate dissolution begins with the democratic process. You must hold and participate in an important Board Meeting. Make sure to record the meeting in the corporate minutes so that there is a clear record of the event.
In this meeting, you must extend a motion to request that the corporation is recognized as dissolved. After this motion, a formal vote will occur among the Board. However, you are not done yet. After the Board has voted to suspend the business, you’ll need to also get the approval of the corporate shareholders. This must be a majority. Next, the corporate shareholders must produce a signed document that approves the dissolution of your corporation.
Step 3: Submit your Certificate to the state of California
What form(s) do I file to dissolve my California Stock Corporation? The corporation dissolution form is available for download: Form ELEC STK and Form DISS STK.
First, you must answer the below questions in the affirmative:
- This certificate (DSF STK) is meant to be used for businesses that have formed but have not truly conducted any business. This may or not be right for your own purposes.
- There is no fee for filing this, and it is important to recognize that these forms are unique to California corporations only. You cannot use this form to dissolve an LLC in CA or a nonprofit. The good news is that there are additional forms for those purposes.
Here is a shortlist of the questions you will need to be able to answer in order to fill out the form:
- Was your company registered in the state of California within the last 12 months?
- Do you have zero debts or liabilities (excluding what you provide in the next question)?
- Has your tax liability been satisfied?
- Has no additional business been conducted since the date of registration to suspend your entity?
- Have no shares been issued (zero)? If your business has been paid for shares from investors, then have those payments been returned?
- Has your corporation been correctly and responsibly dissolved?
- Do you have zero known company assets, or if you do hold assets, have they been correctly distributed?
- Have all your tax returns been correctly filed with the Franchise Tax Board?
To file the corporate dissolution papers, you may start at the FTB’s website on how to close a California corporation.
Step 4: How to Contact the Secretary of State
While it may be difficult to speak with Dr. Shirley N. Weber directly, most business owners rely on the use of the department’s helpful and comprehensive website.
First, find the certificate of election, fill it out and file it. The easiest way to do this is online, but you may also file in person or via mail if you prefer (note that in-person submissions cost an extra $15).
Next, you will want to do the same thing with the Additional Forms found online at the link provided as well. These will allow you to first wind up then dissolve the corporation in California.
Tip: You will not need to fill out the certificate of election if all your corporate shareholders voted to dissolve your corporation.
Step 5: How to File the Last Return
What used to be a more complex process, including getting a certificate of tax certification and contacting government offices, has grown easier over the years. AB 2341 in California in 2006 meant that there was no more need for the certificate anymore. However, you’ll still need to make sure that you do not have any leftover liabilities.
After your business is dissolved, your California corporation is still responsible for any remaining taxes.
Your ‘Final Return’ will be sent to the IRS and the Franchise Tax Board. You will need to notify both agencies of the termination of your company.
Step 6: Close Accounts and Spread the Word
You’ve accomplished a lot, and now it is time for new beginnings. You’ve checked all the tasks off your list so far, and your business is now closed.
However, do not neglect all the smaller and seemingly less important tasks, as these remain important. Here is a quick checklist to help maintain order and not forget any details:
- Bank accounts must be closed, and do not forget about all your other bills and transactions. Make sure that all financial agreements are in final working order.
- Get the word out: be certain that everyone in your network is aware of your big decision. Don’t be surprised if a few people offer congratulations!
- If you have licenses, permits, or additional statements in the state of CA or elsewhere, you will need to take care of these.
- Lastly: take a deep breath. When one opportunity ends, another begins. Good luck with your future business ventures in California, and please let us know if we can help out in any way. Nakase Wade offers free consultations and is here for you for all your business needs.