Dissolving an LLC starts the process of closing a business. It starts when an event triggers the need to dissolve or the need for the LLC to stop operating, according to the operating agreement. There are different reasons why an LLC may decide to dissolve.
Tax Considerations and Legal Definitions
For federal income tax purposes, the consequences will depend on whether you were the only owner or if there were other owners.
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. Dissolution and Cancellation are different; dissolution is the legal process of terminating an LLC, while cancellation occurs when a business license or permit issued by the state is revoked due to noncompliance with regulations or statutes.
Dissolution Procedures in California
Following the decision to dissolve, you’ll need to:
- Alert any relevant governmental bodies
- File your final tax returns
- Notify your creditors
After you close your LLC in California, the LLC will be canceled, and its powers, rights, and privileges will end upon the filing of the Certificate of Cancellation, meaning you can no longer conduct business using that LLC.
Steps for Dissolution in California
In California, there are three methods to dissolve an LLC:
- Short form cancellation, if certain criteria are met
- Certificate of Dissolution followed by a Certificate of Cancellation
- Judicial dissolution through the courts
The appropriate method depends on how long you’ve been in business and whether you have the consent of all LLC members.