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Jerry J. Goldstein

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Closing A Business In California Requires More Than A ‘Closed’ Sign

Closing down a business entity requires more than 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 must follow a legal process. Anything short of doing that could lead to legal headaches, ongoing tax liabilities and other penalties.

Those trying to dissolve a sole proprietorship, corporation or limited liability company (LLC) can count on my firm, the Law Offices of Jerry J. Goldstein. I have over 45 years of experience guiding my clients in business dissolution-related matters.

I am Jerry Goldstein, a business law attorney, located in Palm Desert, who understands your unique circumstances and needs. I can guide you through the entire process, minimizing stress and ensuring you follow all legal procedures involved in the California business dissolution process. Is your company incorporated in another state, such as Delaware or Nevada? I have experience helping clients dissolve out-of-state businesses as well.

Reasons For Dissolving A Business

 Business dissolution is 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 the owner legally dissolves the business, 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 in California:

  1. Review the company’s formational documents: The operating agreement and articles of organization should include the rules dissolving the company.
  2. Arrange an LLC members’ vote: Seek approval or a vote from the LLC members to dissolve the company. A majority of LLC members must vote to approve the dissolution.
  3. File a Certificate of Dissolution: This must be filed 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: Send a formal written notice to all known creditors and pay creditors and claimants on the LLC’s record, including LLC members and managers who are creditors.
  5. Wind up: Take care of the critical matters. Closing 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: This is another form that must be filed with the SOS. The cancellation certificate must include your LLC’s name, SOS filing number and a statement you have filed, or you will file the proper tax return with the Franchise Tax Board.
  7. Cancel licenses and permits: Also, 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 state’s General Corporation Law (GCL) governs the dissolution of corporations. 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. If the majority of shareholders vote in favor, the dissolution is approved.
  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 proper 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.

The Legal Steps 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

Other issues may arise during this process.

How A Business Lawyer Ensures 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 closing costs 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.

The Legal Documents And Filings Are Necessary For 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 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 Legal Counsel Helps Navigate Complex Issues Such As Debt Settlement And Asset Distribution During Business Dissolution

Sometimes, emotions can run high during debt settlement and asset distribution. Legal counsel helps to alleviate the stress by lining up “first things first.” For example, returning 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 regarding checking into the original business plan. Where is the accurate inventory? Legal counsel can also keep everyone honest by reminding them about their business commitments.

Other Common Legal Challenges That May Arise During The Business Dissolution Process

Owners may not have kept accurate records. Fraud may be at the root of the business dissolution. There are often 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 dissolution process.

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, and communities in and around San Bernardino, Imperial, Orange, Los Angeles, Riverside and San Diego counties, among others.