How to Dissolve an LLC in California
Photo Credit: SimplifyLLC

When you first began your business, you were probably enthusiastic about the potential for success and took care to follow all the legal requirements, from choosing to form a limited liability company to submitting the required paperwork to the state. When you decide to close your business, you might not be as eager to spend the necessary time wrapping everything up properly. The owner is responsible for filing yearly reports, paying yearly dues, and paying the necessary minimum taxes as long as the LLC is in operation. These requirements are satisfied when an LLC is formally dissolved. By formally ending your company, you can also notify your creditors that you are no longer able to incur new debt. Once you’ve decided to dissolve—or cancel—a California LLC, you’ll want to make sure that both your timing and your paperwork are perfect. 

How to Dissolve an LLC 

It is crucial to formally dissolve an LLC when it closes so that the owner is protected from further liability. The state, the Internal Revenue Service, and perhaps local taxing or licensing authorities received notice of the LLC’s formation and received the related documents. These documents served as notification to the authorities that the LLC was operational. They will presume that the business is open until they are informed otherwise. If you go through a formal dissolution process, your chances of in the future being served with a lawsuit for an unpaid debt or paying a fee or fine to a government agency are significantly decreased.

The first step in shutting down a company is to decide to dissolve. Following that, you’ll need to take a few actions to get things moving, including alerting any relevant governmental bodies, filing your final tax returns, and alerting your creditors.

Types of LLCs to Dissolve

LLCs can be divided into two main categories: single-member and multi-member.

#1. Single-Member LLCs

In a single-member LLC, there is just one member (or owner) of the business. To benefit from the limited liability that an LLC provides, single-member LLCs are typically created by sole proprietors. A single person only needs to file articles of organization with their state to create an LLC with themselves listed as the only member. 

#2. Multi-Member LLCs

An LLC with multiple owners is referred to as a multi-member LLC. There is no cap on how many owners can be in a multi-member LLC. A group of two or more individuals who want to establish a formal business will typically form one. Multi-member LLCs are a different legal structure from corporations and partnerships.

Steps to Dissolve an LLC 

You must also take other necessary actions to wind up your business, in addition to submitting the necessary paperwork for dissolution to the state. These steps entail notifying your creditors, clearing your debts, selling off your inventory and equipment, liquidating the remaining assets, and liquidating the remaining assets.

If you don’t properly dissolve your LLC, you and the other LLC owners could be held personally responsible for the debts of the company.

#1. Voting to Dissolve the LLC

An LLC cannot be dissolved without the approval of its members. You should adhere to the voting procedures outlined in your LLC operating agreement if one is present. If it doesn’t, you must follow the steps for dissolving an LLC outlined in your state’s LLC statutes.

A resolution should be written up after a vote to serve as a record of the outcome. The resolution should be kept with the official paperwork for your LLC. The majority of states let you do one of the following:

  • A majority vote cast during a meeting of the LLC members, or
  • LLC members’ unanimous written approval. 

Regardless of the specific rule, the vote to dissolve the LLC must be recorded in the meeting minutes as a resolution or via a written consent form.

#2. Notify Relevant Parties of the Dissolution

You should start notifying people who might be impacted by your business closing as soon as enough LLC members agree to end the business. Remember that you might be obligated by law to alert specific parties, including creditors, licensing organizations, and taxing authorities. You will probably need to inform your company’s creditors of its dissolution if it has any. This provides a window of opportunity for debtors to present any claims before they sell the LLC’s assets. 

Although some states do not require it, you should still notify your creditors. It’s a smart business move because it protects you from unforeseen debt in the future. 

#3. Get Tax Clearance and File Your Final Tax Returns

In some states, you may need to obtain one of the following documents from your state tax agency before you can formally dissolve your LLC:

  • Certificate of tax clearance
  • Approval of the dissolution, or
  • Certification of good standing.

If you haven’t filed your most recent tax return (by checking the “final tax return” box and writing FINAL at the top of your return), paid all outstanding business taxes, and filed your most recent tax return, the secretary of state or corporations division in these states won’t permit your LLC to dissolve.

The earliest possible time should be used to inform your state and local taxing authorities. Thus, before submitting your final tax returns, you can establish and validate the amount your company owes.

Finally, you must get in touch with any organizations from which you obtained licenses to cancel them and pay any outstanding fees.

Any remaining assets can be distributed to the LLC’s members after you have satisfied all of your LLC’s unpaid financial obligations.

#4. Filing Dissolution Papers

The same way you did to register your LLC, you must file articles of dissolution or a comparable document with the state. You should submit your final federal tax return to the IRS along with your state tax resolution. You should note that this is your company’s last return on both your federal and state filings.

When to seek the advice of a tax expert: If you have a lengthy list of assets and liabilities to disclose or you don’t have much experience handling your business’s taxes, you might want to speak with an accountant or other tax expert. 

#5. Payoff Remaining Debts

Before submitting articles of dissolution, your state might require you to notify creditors. Lenders, insurers, service providers, and suppliers are just a few examples of creditors. Some states also mandate that dissolving LLCs print a notice in their neighborhood paper. Your notice to creditors should include a deadline for submitting claims and a statement that any claims submitted after the deadline will be invalid. The laws in your state will determine the right time frame, but it is typically between 90 and 180 days.  

#6. Distribute Assets

Following the payment of all taxes and debts, the LLC members can then distribute any remaining assets, including investments, profits, and tangible property. The state law, or both, if there is no operating agreement will govern this distribution of assets among the members.

#7. Perform Further Wind-Down Procedures

To properly close your business, you must let go of your employees (and settle any severance agreements, if any), pay your final payroll taxes, negotiate lease and contract terminations, revoke business licenses and permits, and inform customers of your closing date.

#8. Close All Accounts and Revoke All Authorizations

Your business bank accounts should be empty once you’ve settled all of your debts and given away any leftover funds. You should close your bank accounts right away. It is advisable to revoke any business licenses and permits you may have. After the procedure, you will close your business bank accounts, your Federal Employer Identification Number (FEIN), and, if applicable, your state tax identification number.

How to Dissolve an LLC in California 

It’s crucial to carefully follow all the instructions a business needs to properly dissolve—or cancel, as it’s known in California—your LLC. If it was formed as a California LLC, in which case it is subject to California LLC laws. No matter whether the LLC is operating actively or not, California law mandates that all LLCs pay an annual minimum franchise tax of $800. As a result, even if an LLC isn’t currently bringing in any money, the business must pay this tax. In addition, the LLC must submit an annual information return and a tax return to the California Franchise Tax Board yearly as part of other annual maintenance obligations.

Ways to Dissolve 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. Although the procedures for formally dissolving your business are fairly simple, handling them on your own can be challenging.

If you filed your articles of incorporation less than a year ago, you might be able to submit the Short Form Certificate of Cancellation (Form LLC-4/8).  

You must meet every eligibility requirement outlined by the California Franchise Tax Board to file for cancellation using the Short Form Certificate.

Upon receiving the unanimous approval of all LLC members:

If you’ve held a formal vote in compliance with the procedures and guidelines outlined in your LLC’s operating agreement or the articles of organization for dissolving the company, you may file for cancellation using the Certificate of Cancellation (Form LLC-4/7).

You must dissolve your California LLC using the Cancellation Form alone, and you must state on the form that all of the LLC’s members approved the dissolution.

If you have not received the complete and total approval of all LLC members:

If you meet the requirements to dissolve your LLC but are unable to secure the unanimous agreement of all of its members, you may file for cancellation by submitting the Certificate of Cancellation (Form LLC-4/7) along with a Certificate of Dissolution (Form LLC-3).

On the California Secretary of State’s website, you can download all required forms.

What Is the Difference Between Dissolving and Terminating an LLC? 

Sometimes, you can use the terms “terminating” and “dissolving” an LLC synonymously to describe the same procedure. If you want to formally dissolve your company with the state, you may need to file articles of termination rather than articles of dissolution. When a business dissolves an LLC completely and the company stops operating, then you can use the term “terminated” in other contexts.

What Happens to EIN When You Dissolve an LLC? 

Your EIN will continue to be in use and assigned to your company. The IRS does not change or cancel an entity’s EIN, even if the entity no longer requires it. Instead, after dissolving your LLC, you should write to the IRS and close your business account, stating the following:

  • The legal name of your LLC
  • Your EIN
  • The location of your company,
  • Reasons you want to terminate your account

What Defines Dissolve LLC? 

When you dissolve an LLC properly, it ceases to be a valid business entity and the government no longer requires you to pay fees, taxes, or submit any additional paperwork. Even though the company has ceased operations, members may still establish a new LLC and manage it in the same manner.

Is Dissolving a Company the Same as Closing? 

To formally and officially dissolve a company is to end its operations. The process of dissolving a business involves more than simply locking the front door, even though ceasing operations is a necessary step. Similar to how an executor settles all assets, debts, and legal matters after someone passes away, businesses must handle liabilities and obligations correctly. The owners must adhere to all legal requirements and make sure there are no pending claims against the company.

What Are the Cons of Dissolving an LLC? 

Creditors might challenge the dissolution, and then probably file a lawsuit as a result. This legal action may compel the company to settle its debts. When a business dissolves, the leases on any properties it owns do not end immediately. 

Can I Keep My Business Bank Account if I Close My Business? 

Following the dissolution of your company, you will need to close all of your business bank accounts, pay off all outstanding business debts, and distribute any leftover funds or assets. If your bank won’t permit a “conversion,” or change in status, of a business account into a personal account, you ought to close the associated account when you close the business. 


During the period necessary to wind up your business, your company’s bank account will continue to be open, and the money in it is available to cover any related expenses. Despite this, you won’t be able to use your account for any fresh business due to a variety of factors. You might have seen a decline in sales as a result of the economy or chosen to work for a big company for job security. It can be challenging to devote more of your limited resources, including time and money, to shutting down your business after all the hard work and sacrifice you’ve put into running it.

But it’s crucial to adhere to the right procedures when formally dissolving and winding up your limited liability company (LLC).

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