Steps to Dissolve a California Corp. or LLC


When a business comes to an end, you want to close it correctly to terminate incurring further liabilities, and perhaps, the ability to start a new business as cleanly as possible. Every business is different, so some steps may take longer, and require additional work. Here are some of the steps to consider when dissolving a California corporation.

Dissolve or File Bankruptcy?

You want to choose the most efficient way to wind-up your business’s affairs. If shutting down, a state dissolution is often more efficient and less invasive than filing for bankruptcy.

Approval of the Board of Directors.

If you decide to dissolve, a resolution to dissolve the business under state law must be passed by a majority of the board of directors.
*For an LLC, you will dissolve according to the operating agreement. If there is no operating agreement, a majority interest of the members must pass a resolution to dissolve the LLC.

Approval by Shareholders.

If shares were issued, a majority of the shareholders must approve a resolution to dissolve.

Retain Professionals.

Part of the resolution to dissolve will often contain a provision to retain certain professionals. The core of these is usually the attorney quarterbacking the process, a bookkeeper and tax professional. But it may include things like a business broker, auctioneer or other professionals relevant to the business wind-up.


Sell what you can to raise whatever money is possible to pay the professionals necessary to wind-up, then pay what debts you can, according to the rights of each creditor.

Identify and Prioritize Debts.

Who does the business owe money too? You want to identify every loan, lease, credit card, investor, vendor, etc. Some creditors are entitled to be paid before others. For example, if you subleased part of your space to a subtenant, any deposit that subtenant paid you is entitled to be paid before most other creditors.

Are any Creditors Secured?

This is an important part of prioritizing debts. It is really common for loans and some leases to contain security rights. The business pledges its collateral to the lender, and the lender files something called a UCC lien, perfecting its rights. An SBA loan is similar. Identifying these are critical, because the liens often give these lenders first rights over assets of the business, even intangible assets in some cases.

Send Notices to Creditors.

Notice is crucial, particularly if there are assets to distribute. The corporation can request a claim be filed where the creditor submits what is owed. If the debts and amounts are all known, the corporation can also just mail checks to everyone. If there are no assets, a notice of dissolution with a notice of no assets will be mailed.

Cancel Your Business License.

Inform the city where your business is licensed that the business has ceased operating.

Terminate other State Compliance Requirements.

Depending on your business, you may have certain permits and licenses that require informing the agency of closure. Always inform the Board of Equalization, the Employment Development Department and other entities as appropriate.

Discontinue Registered Agent for Service of Process.

If your business retained a third party to serve as your agent for service of process, inform them that you no longer need their services.

File IRS Form 966.

Your business has 30 days from passing the resolution to dissolve to file this, so coordination with your tax preparer is important. This also requires a certification by the business of the resolution to dissolve.

File IRS Forms 8594 and 4797, if Applicable.

These forms are filed if the dissolution involved the sale or exchange of corporate assets.

File Final Federal Return.

The business must file a final tax return with the IRS.

File Final State Return – Timing Issue.

If your business was formed in California, you can file your final return up to 215 days after dissolving. Not all states are the same. If your business is a Delaware corporation, registered to do business in California, it must file a final return before dissolving.

File Dissolution Paperwork with the State.

This is not always the last step. But the business must file a certificate of dissolution with the Secretary of State. Depending on the business, it can require signatures from a majority of the shareholders.

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