checklistBusinesses dissolve for a variety of reasons. Sometimes, the business is about to be merged or consolidated with another entity. Other times, the owners of the business are moving on to other activities and maintaining the business on a going forward basis is no longer feasible.

If you are a California business owner who is seeking to dissolve your California Corporation pursuant to help California’s dissolution laws, below is a checklist to help you get started:

1) What Type of Dissolution Should You File? 

There are two  types of dissolutions in California. A short form dissolution, which is appropriate for young corporations under 12 months of age who meet specific requirements; and a traditional dissolution. Before you file anything with the CA Secretary of State, please take a moment to determine whether  your company qualifies to use the short form dissolution. To see if your company qualifies, check whether it meets the following requirements:

  1. The Short Form Certificate of Dissolution is being filed within 12 months from the date the Articles of Incorporation were filed;
  2. The corporation has no debts and liabilities (other than tax liability);
  3. The tax liability will be satisfied on a taxes paid basis or the tax liability will be assumed;
  4. The final tax return has been or will be filed with the Franchise Tax Board;
  5. The corporation has not conducted any business;
  6. The corporation has not issued shares, and if the corporation has received payments for shares from investors, those payments have been returned to those investors;
  7. The majority of the directors (or incorporators, if directors were not named and none have been elected) authorized the dissolution and elected to dissolve the corporation; and
  8. The assets have been distributed to the persons entitled thereto or no assets have been acquired.

 If you meet all of these requirements, you can use the Short Form Dissolution. Proceed with the stepus below.  If you do not meet these requirements, your Short Form Dissolution will be rejected and the dissolution will be ineffective.

2)  Is Your Dissolution Contested? 

The next step is to determine whether your dissolution will be contested. Do all of the directors and shareholders of the organization agree to the dissolution? If yes, you can proceed to dissolve the corporation using standard board resolutions through unanimous consent. Otherwise, you will be required to follow the notice and special meeting procedures of your Corporation’s bylaws to ensure that the vote taken on the dissolution is effective. Dissolutions when a minority shareholder or shareholders are opposed can be very risky, because if the assets are not distributed properly, the minority shareholders can assert legal claims alleging that they have not been treated fairly, that the majority in power have breached their fiduciary duties, and if engage in other unlawful conduct. We strongly recommend you obtain legal advice to assist you, if not everyone in your organization is agreeable to dissolving.

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3)  Pay Debts and Liabilities, and Distribute Assets

Once the Company has elected to dissolve, the Company must then pay all of its debts and liabilities, to the extent its assets permit, and then if all debts/liabilities are paid and assets left over, then the assets must be distributed to those entitled to receive them.

4) Certificates of Dissolution / Election to Wind Up and Dissolve

If your Corporation never issued shares, then you will only need to file the certificate of dissolution form with the state of California. On the other hand, if your Corporation did indeed issue shares, then you will need to prepare and sign the certificate of election to wind up and dissolve. Once you have done so, you can then prepare, sign, and file the certificate of dissolution.

5) Get Ready to File

Make sure all documents are signed and completed properly. Then, prepare to file the following documents with the Secretary of State:

  • Signed and Dated Cover Letter
  • Signed Certificate of Election to Dissolve (only if applicable)
  • Signed Certificate of Dissolution
  • Check for Filing Fee (made payable to “California Secretary of State”)

You do NOT file the Director/Shareholder resolutions with the Secretary of State. These are for the Corporation’s records only.

6) Calculate your Filing Fees

You will need to submit payment along with the documents you will be filing with the CA Secretary of State.  The fees will be:

  • Certificate of Dissolution Filing Fee – $0
  • Certified Copy – $6.00 for first page and $.50 per additional page

Special Handling fees apply if you are dropping the document off in person. See http://bpd.cdn.sos.ca.gov/corp/pdf/dissolutions/corp_stkdiss.pdf for more details.

7)  Mail Package to SOS

Using a cover letter, insert the correct amounts for the fees you are paying, include the documents in the step above, and mail everything to the CA Secretary of State.  They do not accept faxes or emails. It must be either mailed or presented to them at the counter by messenger/hand-delivery. (Please note there are additional fees if you deliver them your package by hand).

CA Secretary of State
Document Filing Support Unit
1500 11th Street, 3rd Floor
Sacramento, CA 95814

8) Wait for Processing

That’s it! Once you provide the documents to the CA Secretary of State, simply wait for them to be processed, and a receipt and a file-stamped or certified copy of your documents will be provided to you.  While you are waiting, think of the next great idea you will have to grow your business.

9) Keeping Records

Keep an assembled copy of the following documents for your company’s file:

  • Board Resolution
  • Shareholder’s Resolution
  • Notices of Special Meeting of Directors
  • Notices of Special Meeting of Shareholders
  • Minutes of  Special Meeting of Directors
  • Minutes of Special Meeting of Shareholders
  • File-Stamped Certified Copy of Certificate to Elect Wind-Up (if applicable).
  • File-Stamped Certified Copy of Dissolution

10) Tax Advice & Filings

Don’t forget to talk to your CPA about the right IRS forms you need to file. If you obtained an EIN, you will need to file forms with the IRS letting them know that your company is now dissolved. The IRS filing generally needs to be made within 30 days after the dissolution paperwork is filed with the CA Secretary of State. Check with your CPA to make sure you are in compliance with tax laws.

That’s it! Good luck on your next venture!

 

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