Whether you have owned and operated your California INC for years or just formed it yesterday, if you want dissolve your INC’s charter with the state of California you'll have a few options to consider.
I will attempt to give you an overview of all your choices so that you can make the best decision when it comes to determining how to end the existence of your California INC. I'll also give you some considerations about state taxes and some other considerations outside of the state of California.
When dissolving (in California it’s called “Dissolution”) an INC, you are literally putting an end to its existence. Remember your INC is considered by law to be a legal person, so likewise you must plan what to do next: luckily a funeral is not required in this case.
Just as a new INC is created by filing articles of incorporation, dissolving a California Corp. requires the filing of Certificate of Dissolution. But I’m getting ahead of myself, first you must decide if you want to voluntarily or involuntarily dissolve your INC.
This is a simple way of saying “formal dissolution”. In other words, you are pro-actively deciding to dissolve your INC now rather than waiting for the state to do this involuntarily. To do this, you must file certificate of dissolution with the Secretary of State of California, the same agency that formed your LLC. You can find this form here.
The state does not charge for this filing and it is completed within a few days to a few weeks (depending on the time of year it is filed).
Are you Short or Tall?
No, we're not asking if you are of basketball height. However, when a Corporation opts to dissolve its charter, it must first determine whether it has to file for a short form or long form dissolution. HINT: For the most part, if the corporation is less than 12 months old, it would use the Short Form.
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If your California corporation does not file its statement of information or its franchise tax return (see here for your INC’s annual filing requirements), the state will eventually involuntarily terminate the charter. This method has also been referred to as “abandonment”, since you would be abandoning the charter and letting the state terminate on its own terms.
If the INC did not conduct any business (no income, expenses, etc.) this may be a viable option. However, if there are assets and income/expense activity, it may be better to formally cancel the INC.
Regardless of whether you go the voluntary or involuntary route, I would recommend that you consult your tax advisor. Last thing you want to do after you buried your INC, is to have it come back to life or find some other skeleton in the INC’s closet that wasn’t dealt with after the INC was cancelled.
California Franchise Tax Board charges taxes of at least $800 per year whether the LLC has existed 1 day or 365 days. So, it is likely better to make sure that you cancel your INC before the start of a new calendar year to avoid minimum taxation for a whole year.
Once a Certificate of Dissolution has been filed with the Secretary of State, you will still be required to file a final tax return with the FTB.
Even after your charter has been officially dissolved with the state, you are still not done. You must still notify others who are connected to your CA INC. See the “How to dissolve your INC” article below for these details.
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