Voluntary Dissolution of a Corporation in California

How to Dissolve a Corporation in California?

A corporation registered with the State of California can cease its corporate existence in two ways:

• Involuntary dissolution;
• Voluntary dissolution.

Each way of dissolution has its grounds and specific legal procedure. While a corporation may be involuntarily dissolved under a court decree, the voluntary dissolution is carried out by a corporation’s shareholders, as well as in special cases by the Board of Directors. This article will address voluntary dissolution, leaving involuntary dissolution for a separate discussion.

What are the Laws Covering the Issue of Voluntary Dissolution of a Corporation in California?

The Corporations Code of California, chapter 19, sections 1900-1907, covers the legal regulations pertaining to the procedure of voluntary dissolution. These rules help an interested person to comply with the requirements of the law in the process of voluntary dissolution.

Who is Entitled to Dissolve a Corporation?

In general, someone may initiate voluntary dissolution by:

1. The shareholders of the corporation;
2. The board of directors.

Shareholders may dissolve their corporation for a variety of reasons. In this regard, they are not accountable to anyone else. Shareholders holding shares representing 50% or more of the voting power should vote to wind up and dissolve the corporation, unless the articles of incorporation prescribe a higher threshold. Whereas, the board of directors may approve to wind up and dissolve a corporation which comes within one of the following descriptions:

• It has issued no shares;
• A court has adjudicated it bankrupt.
• It has disposed of all of its assets and has not conducted any business for a period of 5 years immediately preceding the adoption of the resolution electing to dissolve the corporation.

What are the Next Steps for Voluntary Dissolution?

Winding Up

Once the resolution on a voluntary dissolution is in place, the corporation steps into the stage known as “winding up”. This aims to finalize the debt-clearance process. It assumes paying outstanding debts and discharging pending liabilities. Afterwards, the corporation resolves the issue of distributing the remaining assets to the shareholders entitled thereto.

Notification

The corporation must notify its creditors about the commencement of dissolution, allowing them to submit their claims. Such notification shall include all the relevant information necessary for sending claims, for instance the mailing address, the deadlines for submission etc.

Certificate of Dissolution

Further, you need to file a certificate of dissolution with the Secretary of State (SOS). The certificate of dissolution shall include the following information:

• A statement that the corporation has elected to wind up and dissolve;
• A statement that shareholders representing at least 50% of the voting power made the resolution.
• An assurance that the corporation pays all debts in full with no deficiency and does not incur any liability.
• A statement that the corporation’s assets have been distributed properly;
• A statement affirming that a final franchise tax return for the corporation has been filed or will be filed

The official website of SOS provides the form of the certificate. You must submit the certificate via email or in person. Thereupon the corporate powers, rights, and privileges of the corporation ceases. The Secretary of State notifies the Franchise Tax Board of the dissolution.

Additional Legal Obligations Upon Voluntary Liquidation of a Corporation

However, in addition to the above actions, the corporation must consider a number of additional legal obligations. For example, the corporation must file a final tax return with the California Franchise Tax Board. Also, all applicable taxes must be paid before or at the time the Certificate of Dissolution is filed.

In addition, if the corporation had employees, all requirements under the California Labor Code must be met. These include:

• Timely payment of wages
• Paying withholding taxes
• Filing the appropriate forms with the taxing authorities

Failure to meet these obligations can result in civil liability and penalties. In addition, if the company holds any licenses or permits, they must be formally revoked or transferred. This is especially important for businesses in regulated industries. Such as:

• Health care
• Insurance

Corporations are advised to retain accounting and corporate records for at least three years after liquidation. This may be necessary in the event of an IRS audit or creditor lawsuit. Contact KAASS LAW for legal assistance in all stages of liquidation.

Get Help for Voluntary Dissolution for a California Corporation

If you need to initiate and finalize the process of a voluntary dissolution of your corporation, we invite you to contact an attorney at KAASS LAW at (310) 943-1171 and speak to our Glendale business attorney to assist with the process.