Dissolving a Corporation in California does not have to be a painful process. To dissolve a corporation, certain steps must be followed so that the Corporation is authorized to dissolve, and once those steps have been met, the Corporation is generally permitted to file the necessary forms with the California Secretary of State which processes the official dissolution paperwork. Before corporation is actually dissolved, additional steps are taken with taxing authorities to ensure that the Corporation’s tax liabilities are met before its corporate existence is considered over.
To follow the steps to dissolve a corporation in California, see the below:
Steps to Dissolve a California Corporation
#1 – Obtain Written Consent of the Board of Directors or Hold a Special Meeting of the Board
Generally, the Board of Directors of the Corporation have the authority to manage the corporation. As such, the recommendation to dissolve a corporation generally comes from the directors on the board. If all of the directors can agree that the solution is best for the Corporation, then the process goes a lot easier, as a written consent in lieu of a live meeting can accomplish the authorization necessary for the board to put the issue of dissolution to a vote of the shareholders. If, on the other hand one or more of the directors does not agree to dissolve the corporation, the process set forth in the corporation’s bylaws must take place so that a special meeting of the Board of Directors takes place. Generally, a notice of a special meeting must take place at least 10 but no later than 60 days from the actual date of the meeting. Written notice must be provided to all directors on the board. Once the written notice is provided, and the sufficient amount of time passes, meaning can be taken on which the issue of dissolution is put to the board. Assuming that a majority of the board members agreed to dissolution, and assuming that the bylaws of the organization permit a vote of dissolution to pass upon majority vote, and not supermajority or a different percentage, then the vote will be successful. From there, a vote of the shareholders to dissolve will be necessary.
#2 – Obtain Written Consent of the Board of Directors or Hold a Special Meeting of the Shareholders
Once the board has voted to dissolve the organization, the shareholders must also agree to the same. The reason is because the shareholders are the parties in interest that have the ownership of the organization. That is one of the unique features of Corporation – management lies in the Board of Directors while ownership of the corporation’s assets lies in the shareholders. Fall of the shareholders of the organization agreed to dissolve, then the matter can be handled through a written consent in lieu of physical meeting. If, on the other hand, the shareholders of the organization are not in agreement that the solution is necessary, then a special meeting of the shareholders must be held pursuant to the bylaws of the organization. Assuming that a majority of shareholders votes affirmative on the dissolution, then the dissolution will be effective, and the officers of the organization will be empowered to take necessary actions to accomplish the dissolution by preparing and filing the right paperwork.
#3 – Pay Liabilites, Debts, and Creditors, and Distribute Assets
Once the Corporation is authorized to proceed with dissolution, the officers of the Corporation must ensure the corporation pays all the debts, liabilities, creditors, and other expenses. if, after payment of all debts and liabilities, the corporation’s assets left over, the Corporation must then distribute these assets those entitled to them. This could be done in a number of ways, including a straight distribution to shareholders on the basis of their ownership in the company, or through other ways specified by the directors of the board and shareholders through the special meeting or consent process above. In complicated cases involving sizable assets, corporations can prepare plans of dissolution, which are voted upon by the directors and shareholders prior to the actual distribution of assets.
#4 – File Official Paperwork with Secretary of State
After all the assets of the corporation have been distributed, and the corporation has satisfied all of its expenses, debts, liabilities, and other creditors’s claims, the corporation is ready to notify the Secretary of State that it is ready to dissolve. This is generally accomplished through the filing of the official forms with the Secretary of State. Once the forms are prepared and mailed to the Secretary of State for processing, a period of time goes by while the forms are being processed, and once the clerk of the Secretary of State processes documents, the Corporation will be deemed dissolved.
#5 – Wrap up Tax Matters
Depending on the corporation’s activities, its duration, and what it has been doing, it may be necessary for the Corporation to pay tax liabilities to the California Franchise Tax Board or the IRS. The IRS specifically requires dissolving corporations to notify the IRS of dissolution by filing the appropriate paperwork. Accordingly, be sure to check with your CPA to ensure that the correct forms are filed with the necessary taxing authorities. Unlike most states, California does not require preclearance with the state tax office (California Franchise Board) in order to dissolve.
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