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Closing A Business In California Requires More Than A “Closed” Sign

Closing down a business entity requires more than simply hanging an “out of business” or “closed” sign outside your office or storefront, turning off the lights and locking your doors. In California, a business dissolution is the formal and legal way to close a business in the state.

If you are trying to dissolve a sole proprietorship, corporation or LLC and want to know the legal processes required, consulting with a seasoned California business law attorney is crucial for obtaining detailed guidance. At the Law Offices of Jerry J. Goldstein, I have more than 45 years of experience guiding my clients in business dissolution-related matters.

I am Jerry Goldstein, a business law attorney who understands that your circumstances are unique. I can enlighten you about your legal requirements and options for winding up your business. You have many crucial decisions to make at this time, and I will walk you through the legal procedures involved in the California business dissolution process. Is your business incorporated in another state, such as Delaware or Nevada, for example? I have experience helping clients dissolve those types of businesses as well.

Reasons For Dissolving A Business

 Business dissolution can be described as the formal and legal closure of a business or corporate entity within the state. Here are some common reasons for dissolving a business:

  • Unfavorable economic conditions, including market saturation or excessive competition
  • Product liability exposure and other potential lawsuits
  • Failure to comply with legal mandates
  • Bankruptcy or excessive debts through loans
  • Experiencing fraud
  • Low cash flow
  • Poor business management; disagreements between members or business partners
  • Mismanagement of business operations
  • Negligent accounting practices
  • Failure of succession planning

Once a business has been legally dissolved, it is no longer responsible for future taxes, penalties, fines, fees or liability, with certain exceptions. An experienced attorney can evaluate your business structure and fully explain the legal process to dissolve the business.

Dissolving An LLC

 Here are the steps involved in dissolving a limited liability company (LLC) in California:

  1. Review the company’s formational documents: Look at the company’s formational documents, including the operating agreement and articles of organization, to know the rules guiding how to dissolve the company.
  2. Seek the vote of LLC members: Seek approval or vote from the members of the LLC to dissolve the company. A majority of LLC members must vote to approve the dissolution.
  3. File a Certificate of Dissolution: File the Certificate of Dissolution with the Secretary of State (SOS). The dissolution certificate must include the name of your LLC, the SOS file number, a return mailing address and authorized signatures.
  4. Notify and pay creditors: Notify all known creditors with a formal written notice. Pay creditors and claimants on the LLC’s record, including LLC members and managers who are creditors.
  5. Wind up: Wind up the company by taking care of some important matters. Winding up an LLC in California involves carrying out the following tasks:
    • Collecting accounts receivable and paying all known debts and liabilities
    • Collecting and dividing or selling the LLC’s assets
    • Ending all business transactions and operations
    • Informing your workers and customers that your business is winding up
    • Issuing your employees their final paychecks
    • Paying all taxes and business debts
    • Defending and prosecuting legal actions against the LLC
    • Distributing the remaining assets, including cash, to LLC members
  6. File a Certificate of Cancellation: File a Certificate of Cancellation with the SOS. The cancellation certificate must include your LLC’s name, SOS filing number and a statement that you have filed or you will file the right tax return with the Franchise Tax Board.
  7. Cancel licenses and permits: Also, ensure that you cancel all city, state, county and regional business licenses and permits and out-of-state registrations.

An experienced California business dissolution attorney can walk you through the legal procedures from start to finish and help you navigate important decisions.

Dissolving A Corporation

 In California, the dissolution of corporations is governed by the state’s General Corporation Law (GCL). Here are the steps involved in dissolving a corporation:

  1. The board of directors will submit a proposal to dissolve the company to the shareholders
  2. Call a shareholder’s meeting to vote on the business dissolution. The dissolution will be approved if the majority of shareholders vote in favor
  3. File a Certificate of Election to Wind Up and Dissolve with the Secretary of State (SOS)
  4. Wind up and settle the corporation’s affairs. Some tasks involved in winding up include notifying your employees, paying all known debts and liabilities including your employees’ final paychecks, canceling permits and licenses, distributing remaining assets and closing all corporate bank accounts
  5. Send a written notice to all creditors and claimants that the corporation is winding up
  6. File a Certificate of Dissolution with the SOS
  7. Affirm that you have filed or will file the right tax return for your corporation with the Franchise Tax Board
  8. Cancel all out-of-state registrations

A dedicated attorney can guide you through every phase of the corporation dissolution process and help you make crucial decisions.

What Legal Steps Are Required For Dissolving A Sole Proprietorship In California?

There are many types of business entities and each requires specific steps. To dissolve a sole proprietorship business in California, follow the steps below:

  • Inform all your workers and customers that your business is winding up
  • End all business transactions and operations
  • Issue your employees their final paychecks
  • Pay all taxes and business debts
  • Cancel business permits and licenses with state and local authorities
  • Cancel any professional or occupational licenses
  • Close tax accounts linked with the sole proprietorship business

How Can A Business Lawyer Assist In Ensuring A Smooth And Legal Business Dissolution?

Business dissolution is the formal and legal closure of a business or corporate entity. It is a complex process to ensure contracts and obligations have been met, property and asset appraisals are accurate and accounted for, creditors have been paid, other costs of winding up are met and a contingency fund has been created to cover outstanding taxes or financial liabilities arising after the dissolution.

When you engage a knowledgeable business law attorney to fully explain the necessary steps and walk you through the legal processes involved from start to finish, you are less likely to stumble into obstacles or missteps along the way.

What Legal Documents And Filings Are Necessary When Dissolving A Business?

The legal documents and filings necessary will depend on the type of business entity and the circumstances you are contending with. For example, if you are dissolving a corporation and you have a unanimous vote from your shareholders to dissolve, the Certificate of Dissolution will be form DISS STK. Not unanimous? File the Certificate of Election to Wind Up and Dissolve form ELEC STK. It is best to seek legal assistance to ensure all requisite documents and filings are complete.

How Can Legal Counsel Help Navigate Complex Issues Such As Debt Settlement And Asset Distribution During Business Dissolution?

Sometimes, emotions can run high during the process of debt settlement and asset distribution. Legal counsel helps to alleviate the stress by lining up “first things first.” For example, going back to the original documents on file with the Secretary of State would level the playing field. Interested parties may no longer want to conduct transparent discussions when it comes to checking into the original business plan. Where is the accurate inventory? Legal counsel can also keep everyone honest with reminders about their business commitments.

What Common Legal Challenges Arise During The Business Dissolution Process, And How Can A Lawyer Help Overcome Them?

Accurate records may not have been kept. Fraud may be at the root of the business dissolution. There are disputes regarding outstanding debts and liabilities. The business may have pending legal actions in court. No one can quite agree on the distribution of remaining assets. The list goes on. A knowledgeable lawyer will parse through the issues and help you understand your options and potential results for addressing each challenge as it arises during the process of dissolution.

Work With An Experienced Business Law Attorney

Dissolving a business in California involves several complicated procedures. When you are ready to dissolve your LLC, corporation or sole proprietorship business, contact me at the Law Offices of Jerry J. Goldstein today to schedule an initial consultation. I provide clients with straightforward guidance to walk through the complexities involved in winding up a business entity.

Send me an online inquiry using this form or telephone my office in Palm Desert at 760-359-2233. I serve clients across the Coachella Valley, including Palm Desert, California, as well as communities in and around San Bernardino, Imperial, Orange, Los Angeles, Riverside and San Diego counties, among others.