Difference Between Dissolving and Terminating an LLC
Dissolving an LLC starts the process of closing a business. Dissolution does not mean the business is terminated. It starts when an event triggers the need to dissolve or the need for the LLC to stop operating. There are different reasons why an LLC may decide to dissolve.
When you file to dissolve your LLC in a state, it is called dissolution. On the other hand, it is termed as termination when the state cancels or terminates your company from the state. In California, there are three methods to dissolve an LLC. Depending on how long you’ve been in business and whether you have the consent of all LLC members, different form(s) may be necessary. The first step in shutting down a company is to decide to dissolve.
LLC Dissolution vs. Cancellation
Dissolution is the winding up of the affairs of the entity in advance of the termination of the entity. Termination of the entity occurs when the entity ceases to legally exist. While both steps are required, they are not the same thing. Dissolution is the legal process of terminating an LLC, while cancellation occurs when a business license or permit issued by the state is revoked because of noncompliance with regulations or statutes.
Tax Consequences
For federal income tax purposes, the consequences will depend on whether you were the only owner or if there were other owners.