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 according to the operating agreement. There are different reasons why an LLC may decide to dissolve.
Dissolution vs. Termination
- Dissolution: When you dissolve your LLC in a state, it’s known as dissolution. This is the first step in shutting down a company. It involves winding up the affairs of the entity in advance of the actual termination.
- Termination: Occurs when the LLC ceases to legally exist. In some states, this is also when the state cancels your company’s registration due to noncompliance.
Steps and Consequences in California
In California, there are three methods to dissolve an LLC. The necessary forms depend on the duration of business operations and the consent of all LLC members. After the dissolution in California, an LLC is canceled and its powers, rights, and privileges end upon the filing of the Certificate of Cancellation, meaning you can no longer conduct business using that LLC.
For federal income tax purposes, the consequences after dissolution will depend on whether there was a sole owner or multiple owners.