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Dissolving a corporation in California

Starting a business, specifically a corporation can be exciting!  However, sometimes even the best laid plans do not pan out.  This article outlines the process and documents required to voluntarily dissolve and wind up a California for-profit corporation under the California Corporations Code (the “Code”) See, Cal. Corp. Code Chapter 19.

The Dissolution Process

Under the Code, directors or shareholders are not required to formally dissolve a corporation. A corporation can meet its end by simply allowing its expiration through inaction. However, this method may result in unpaid taxes and other ongoing liability.  Affirmatively taking steps to dissolve the corporation ensures that:

Unpaid taxes, fees, and penalties are not due and will not continue to accrue against the corporation. A corporation is subject to:

 

a $250 penalty for failure to file its annual statement of information (Cal. Rev. & Tax. Code § 19141); and

a minimum $800 annual franchise tax (Cal. Rev. & Tax. Code § 23153(d)(1)).
Shareholders are protected against personal liability for known and unknown liabilities.

Affirmatively dissolving the corporation may also prove to confirm a party’s diligence in honoring corporate governance rules.

 

Corporate directors should take care to follow applicable law and the terms of the corporate governance documents (articles of incorporation and bylaws).

Also, the corporation should consult with state and federal tax professionals before dissolving the corporation and winding up its affairs to assess final payments that may be due.

Voluntary Dissolution

The basic stages for a California corporation to dissolve its corporate existence voluntarily are generally:

1) Documenting approval to dissolve

 

Approving dissolution, which typically involves:

  • the directors proposing dissolution to shareholders;
  • the corporation providing notice of the meeting to shareholders; and
  • the shareholders approving dissolution.

See, Cal. Corp. Code § 1900 and 1903(a).

  • Filing a certificate of election to wind up and dissolve with the California Secretary of State (SOS).  See, Cal. Corp. Code § 1901.
  • Giving notice to shareholders and creditors on commencement of “winding up.”  See, Cal. Corp. Code § 1903(c).

2) Winding up the corporate affairs

 

“Winding up” is the period when the corporation:

  • finalizes its affairs;
  • collects and liquidates its assets;
  • discharges its liabilities and debts; and
  • distributes its remaining assets, if any, to the shareholders.

See, Cal. Corp. Code § 2001, 2004, and 2005.

3) Filing a Certificate of dissolution

 

Ready to get it done, we are here to help.  Contact the Leo Law Office to schedule a consultation.