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A Guide to Formally Terminate a Business Entity’s Legal Existence

In general, a business legal existence in California occurs with the filing of specific formation documents with California’s Secretary of State (SOS). This could be documents filed to form a California business entity (domestic) or to acknowledge the business entity’s legal existence that previously forms (foreign) either in another state or country. Once the appropriate documents have been filed, the business entity is afforded specific rights, including the right to transact business in California, along with specific responsibilities, including the requirement to file and pay taxes.

In last month’s article on Big Business, we discussed how a business entity (including one that is suspended/forfeited) continues to accrue tax, along with penalties and interest until the business entity formally terminates their legal existence.

Filing a final return itself will not terminate a business entity. The following information should help you to assist your clients to terminate the business entity’s legal existence in California.

To cancel an LLC (foreign and domestic)

To cancel the Application for Registration of a foreign (out of state or country) LLC, the foreign LLC must file SOS’s Form LLC-4/7, Certificate of Cancellation.

To cancel the Articles of Organization of a domestic LLC, the domestic LLC must file a Form LLC-3, Certificate of Dissolution and Form LLC-4/8, Short Form Certificate of Cancellation. However, if all the members vote to dissolve, only Form LLC-4/7 is required.

Domestic LLCs organized in California on or after January 1, 2004, have the option to file a Form LLC-4/8, Short Form Certificate of Cancellation if specific requirements are met.

To dissolve a California formed (domestic) corporation

To dissolve, the corporation must file a Form ELEC STK, Certificate of Election to Wind Up and Dissolve and a Form DISS STK, Certificate of Dissolution. However, if the election to dissolve is made by the vote of all the outstanding shares, only the Certificate of Dissolution is required.

Domestic stock corporations have the option to file a Form DSF STK, Short Form Certificate of Dissolution if specific requirements are met.

Upon SOS accepting the filing of the Certificate of Dissolution or Short Form Certificate of Dissolution, the corporation will be completely dissolved and its corporate existence will cease.

To surrender an out of state formed (foreign) corporation

A qualified foreign corporation, which previously qualified to do business in California with the SOS, must surrender its right to transact intrastate business in the State of California. The foreign corporation does this by filing a Certificate of Surrender of Right to Transact Intrastate Business that meets the requirements of California.

Upon SOS accepting the filing of the Certificate of Surrender, the foreign corporation will be completely surrendered and the corporate rights, powers, and privileges of the corporation will cease in California.

Mergers

A corporate merger is a combining of corporations in which one of two or more corporations survives. There are several types of mergers with a variety of filing requirements, based not only on the number of corporations merging and the type of merger, but also the domicile of the corporations merging and whether or not any foreign (out-of-state) corporations are qualified to transact business in California. Regardless of the type of merger, be sure the corporations involved file the proper documents with SOS so the corporate existence of the corporation(s) that was merged ceases in California.

As with all forms required to dissolve, surrender, cancel, or merge a business entity, the SOS cannot file (process) documents filed on behalf of suspended/forfeited corporations/LLCs. (California Revenue and Taxation Code Sections 23301, 23301.5 and 23775.) If you are unsure the status of the corporation or LLC, you can check its status online using SOS's Business Search tool at kepler.sos.ca.gov.

Get FTB Publication 1038, Guide to Dissolve, Surrender, or Cancel a California Business Entity, for more information.

Back to August 2012 Tax News