How to Dissolve an LLC in California

When you're ready to close up shop, you'll need to follow the appropriate procedure to dissolve your California limited liability company (LLC). This procedure, known as "dissolving" and "winding up" your LLC includes filing paperwork with the state, distributing your company's assets, and filing your final tax returns, among other tasks.

In California, dissolving an LLC is known as "legally canceling" the LLC. This article covers information specific to canceling (dissolving) and winding up your LLC in California. You can find key elements of the dissolution procedure in California's Revised Uniform Limited Liability Company Act: Cal. Corp. Code §§ 17707.01 and following (2024).

For general step-by-step guidance, check out our article on the steps to dissolve your LLC.

Dissolving and Winding Up Your LLC in California

Your LLC is registered with the State of California. If you want to end its existence and limit your liability to the state and creditors, you need to follow a formal process called "dissolution." While the state or a court can involuntarily dissolve an LLC, here we're concerned with voluntary dissolution by the LLC owners (called "members").

"Dissolving your business" refers to the process of voting to end your LLC and filing the appropriate paperwork with the California government. California is unique in its dissolution paperwork requirements. The state requires an LLC to file two certificates—a certificate of dissolution and a certificate of cancellation of articles of organization—with the California Secretary of State (SOS) to end the LLC's registration unless all LLC members approve the dissolution.

Following the vote to dissolve your LLC and filing the appropriate paperwork, your company continues to exist for the purpose of taking care of final matters that, collectively, are known as "winding up" the company. You'll probably designate one or more LLC members or managers to handle the winding up of your business.

Winding up your business generally refers to the process of:

• settling your business debts
• liquidating your business assets
• distributing remaining assets to LLC members, and
• ending your licenses, permits, registrations, and accounts.

These tasks are natural and important steps in closing your business. Avoiding any of them can put you and your business at risk—financially and legally.

Although California has special dissolution rules for LLCs that haven't conducted any business (generally just-formed LLCs), here we focus only on LLCs that have conducted business. Follow the steps below to dissolve your California LLC.

Review Your LLC Articles of Organization and Operating Agreement

To voluntarily dissolve your LLC, you first should look at the company's formational documents:

• the articles of organization, and
• the operating agreement.

Usually, one of those two documents will contain a section with rules for how to dissolve the company. Typically, you'll need the LLC members to vote on a resolution to dissolve the LLC. More specifically, you'll need a specific percentage of the members to vote in favor of dissolution for the resolution to pass. For example, your operating agreement might require two-thirds of the LLC members to vote to approve the dissolution for the vote to pass.

Make sure you follow any specific procedural requirements that might be part of the dissolution rules, such as setting a specific time to meet and vote and giving advance notice to all members regarding the meeting.

California's LLC laws. If your formation documents don't specify when and how the LLC can be dissolved, you'll need to apply California's default rules for LLCs. Under California law, you can dissolve your LLC by a vote of at least 50% of the voting interests of the LLC members. (Cal. Corp. Code § 17707.01 (2024).)

Recording your decision to dissolve. Make sure you keep a record of the vote to dissolve the LLC. You should create a resolution to dissolve the LLC and take note of the action to dissolve in the official minutes of the dissolution meeting. Keep these documents with the rest of your company's important paperwork. Although your business is ending, it's helpful to keep these documents stored safely somewhere in case issues arise later on.

Note that dissolving your LLC, alone, doesn't stop legal actions or proceedings your LLC is involved in. However, formally canceling your LLC's registration does generally limit your liabilities with the state.

File Certificate of Dissolution and/or Certificate of Cancellation With SOS

When you end your LLC's registration with the SOS, you'll need to file one or two documents with the SOS depending on how your LLC was dissolved. If the vote to dissolve wasn't unanimous, you'll need to file both a Certificate of Dissolution (Form LLC-3) and a Certificate of Cancellation (Form LLC-4/8). If all LLC members voted to dissolve the LLC, then you only need to file a Certificate of Cancellation. (Cal. Corp. Code § 17707.08 (2024).)

You can file these documents online through the SOS's bizfile Online. You can also mail the appropriate documents to the SOS. You can download a termination packet from the SOS website that includes both certificates. As of 2024, there's no fee to file either document.

Be aware that once the SOS officially cancels your LLC's registration, your business name will become available to anyone else to use.

Certificate of Dissolution of LLC

You must provide the following information in your certificate of dissolution:

• the name of your LLC
• your LLC's SOS file number, and
• the event that led to the LLC's dissolution (in the form of checking a box).

(Cal. Corp. Code § 17707.08 (2024).)

Certificate of Cancellation of Articles of Organization

You must provide the following information in your certificate of cancellation:

• your LLC's name and SOS file number
• whether the vote to dissolve was unanimous (indicate yes by checking a box)
• a statement that all final tax returns for the LLC have been or will be filed with the California Franchise Tax Board (FTB), and
• a cancellation statement (saying the LLC's registration is canceled and the LLC's powers, rights, and privileges will end in California when the cancellation becomes effective).

(Cal. Corp. Code § 17707.08 (2024).)

Notify Creditors of Your LLC's Dissolution

In California, you must mail written notice to all known creditors and claimants that you've begun winding up your LLC's affairs. California's LLC laws don't go into detail about what information you should include in your dissolution notice to creditors. (Cal. Corp. Code § 17707.04 (2024).)

You should also put a notice of your LLC's dissolution in a local newspaper. While not required, publishing a dissolution notice can help protect you from liability. For example, a creditor probably couldn't argue that you intentionally avoided paying a debt by secretly dissolving your business if you published notice of your dissolution in the newspaper.

You might want to contact a local business attorney for assistance with drafting the notices.

Settle Debts and Distribute Company Assets

Now that you've notified creditors of your LLC's dissolution, you should have a general idea of the debts your LLC is responsible for. California law requires you to settle your LLC's debts before distributing any assets to LLC members. You must pay or adequately provide for all known debts and liabilities of your LLC. It's particularly important that you pay all taxes owed.

After settling your company's debts, California law requires you to make distributions to LLC members in a particular order:

1. First, to pay members any interim distributions required under your operating agreement. Interim distributions generally are approved payments to members unrelated to the dissolution. Unless your operating agreement says otherwise, these distributions must generally be on the basis of the value of each member's contribution.
2. Second, to pay members for the return of their contributions.
3. Third, to pay members in the proportions that the members share in distributions.

(Cal. Corp. Code § 17707.05 (2024).)

For example, suppose the 88 MPH LLC is a California LLC with three members: Emmett, Marty, and Lorraine. Under the LLC's operating agreement, Emmett is entitled to a 40% share of the LLC's distributions, and Marty and Lorraine are each entitled to 30% of the LLC's distributions. They all vote to dissolve the business. After liquidating the LLC's assets, the company has $100,000 to distribute.

First, the LLC must pay off its creditors. So, the business pays the remaining $10,000 on a loan and $5,000 in taxes, leaving $85,000. The operating agreement is silent on interim distributions so no interim distributions need to be paid. Second, the company must pay Lorraine back for the $25,000 she contributed to the business when it first started out. Third, the LLC can distribute the remaining $60,000 to the members in the proportion in which they shared distributions prior to dissolution. Emmett is entitled to 40% of the distributions so he'll receive $24,000. Marty and Lorraine are each entitled to 30% of distributions so they'll each receive $18,000.

Cancel Out-of-State Registrations and Other Licenses and Permits

Is your LLC registered or qualified to do business in other states? If it is, you must file separate forms to terminate your right to conduct business in those states. Depending on the states involved, the form might be a:

• termination of registration
• certificate of termination of existence
• application of withdrawal, or
• certificate of surrender of right to transact business.

If you don't file the additional termination forms, you'll continue to be liable for annual report fees and minimum business taxes.

California doesn't require a general business license. But depending on your location and profession, you might be required to have different licenses and permits. You should cancel any licenses, permits, and registrations associated with your business. You could be able to sell or transfer some permits. For example, if you sold goods in the state, you might've obtained a seller's permit from the California Department of Tax and Fee Administration (CDTFA). In that case, you'll need to pay any final sales tax owed and close your sales tax account with the CDTFA.

If you've filed a fictitious business name (FBN) statement, you'll need to cancel the registration with your county clerk's office.

You'll also need to close your LLC's bank accounts. In addition, make sure to end or settle any contractual obligations. You might be able to assign your contract rights and obligations to someone else.

Additional Guidance on Dissolving Your LLC

Dissolving and winding up your LLC is just one piece of the process of closing your business. For more guidance on many of the other steps involved, see our checklist for closing your business and read about what you need to know about closing a business.

The FTB has a webpage on closing a California business entity. The webpage sets out the steps you must take with the FTB and SOS to formally close your LLC.

If you have further questions or need legal assistance, you should talk to a California business attorney. Many business owners can dissolve their LLCs on their own. But you might want to seek legal help if there are disagreements among members, complicated debt settlement negotiations, or ambiguous contract assignment terms.