Defining Dissolution and Termination
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 is the winding up of the affairs of the entity in advance of the termination of the entity. Termination occurs when the entity ceases to legally exist. While both steps are required, they are not the same thing.
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 because of noncompliance with regulations or statutes.
Steps and Consequences of LLC Closure in California
After you close your LLC in California, that LLC shall be canceled, and its powers, rights, and privileges shall end upon the filing of the Certificate of Cancellation. This means you can no longer conduct business using that LLC.
For federal income tax purposes, the consequences will depend on whether you were the only owner or if there were other owners.
How to Dissolve an LLC in California
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. Following that, you’ll need to take a few actions, including:
- Alerting any relevant governmental bodies
- Filing your final tax returns
- Alerting your creditors