Corporate Dissolution

Corporate Dissolution

Corporations may be involuntarily dissolved by court order, typically due to administrative non-compliance issues. However, a corporation’s shareholders may also decide to dissolve the business entity voluntarily by corporate dissolution. If you are seeking corporate dissolution, our experienced team can help you efficiently end your corporation’s existence in California.

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There are several steps to dissolving a corporation in California. Legally shutting down the business protects stakeholders from potential personal liability and ensures that the corporation is formally dissolved in the eyes of the state. Before beginning the process of corporate dissolution, look to the articles of incorporation and bylaws to make sure that the proper procedure is being followed.

Consent Requirements

Under California General Corporation Law (GCL), shareholders with at least 50 percent of the voting power may vote for voluntary dissolution. Typically, the shareholders will vote on a proposal to dissolve, which is presented by the board of directors at a formal meeting. If the vote for dissolution is unanimous, there is no need to file anything with the Secretary of State (SOS).

When the vote is not unanimous, prompt notice must be given to the dissenting shareholders and those seeking dissolution must file a Certificate of Election to Wind Up and Dissolve with the SOS. This certificate must be executed by a shareholder who was authorized to do so by the shareholders representing at least 50 percent of the voting power. It must also contain a statement of intention to wind up and dissolve, along with a statement of the number of shares, which represent at least 50 percent of the voting power, voting for the election to wind up and dissolve.

Wind Up and Dissolution

Once dissolution has been approved, the board may wind up the affairs of the company by paying, or making provisions for payment of, all debts and liabilities and distributing any remaining assets. Written notice of the wind up must be given to all known creditors, claimants, and shareholders who did not vote in favor of dissolution. Once the process of winding up is complete, a Certificate of Dissolution must be filed with the SOS. A business attorney will ensure that all necessary documents, including the Certificate of Election to Wind Up and Dissolve and the Certificate of Dissolution, are completed thoroughly and filed in a timely manner.

Short Form Certificate of Dissolution

SOS processing times vary; however, it typically takes at least eight weeks for a corporate dissolution to become final. California corporations may file a Short Form Dissolution Certificate in lieu of the Certificate of Dissolution if they meet the following requirements:

• Registered as a business in California within the last 12 months
• Has no debts or liabilities except tax liability, which will be satisfied or assumed
• Final tax returns have been, or will be, filed with the California Franchise Tax Board
• Conducted no business since the date of registration
• Issued no shares, and any payments from investors received have been returned
• Corporation is dissolved
• There are either no known assets, or all assets have been distributed

Voluntary Administrative Dissolution

California corporations and limited liability companies may request voluntary administrative dissolution or cancellation. One of the main benefits of filing for voluntary administrative dissolution is that corporations are not required to pay the annual franchise tax, interest, or penalties for years in which it did not do business. To qualify, a business must either:

• Have never done business in California, or
• Ceased doing business in California and filed all required income tax returns for the years in which it was doing business

Tax Liabilities

Unless voluntary administrative dissolution is granted, a corporation will not be formally dissolved until the final tax return has been filed with the California Franchise Tax Board. Although tax clearance is not required prior to filing for dissolution, filers must affirm on their Certificate of Dissolution that they have either filed or will file a final franchise tax return.

Los Angeles Business Attorneys at ACTS LAW, LLP Assist Individuals with Corporate Dissolution

If you have concerns about corporate dissolution, the Los Angeles business attorneys at ACTS LAW, LLP can help walk you through the process and answer any questions you may have. We represent clients throughout California from our offices in Los Angeles and San Diego. For a free consultation, complete our online contact form or call us today at 833-228-7529.

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