Dissolving a C-Corporation in California is a legal process that officially ends your business’s existence. Whether your company has completed its purpose, is no longer profitable, or you simply wish to move on to new opportunities, it’s important to follow the correct steps to avoid future liabilities with the state and federal government.
Below is a clear, step-by-step guide to help you understand how to properly dissolve a California C-Corporation.
1. Decide to Dissolve the Corporation
The first step is making the official decision to dissolve. This typically requires:
- Board of Directors approval: The board must adopt a resolution to dissolve the corporation.
- Shareholder vote: California law usually requires a majority vote of the shareholders to approve dissolution, unless your bylaws specify otherwise.
Once approved, the decision should be recorded in the corporate meeting minutes.
2. File Final Tax Returns
Before dissolution is complete, the corporation must settle its tax responsibilities:
- Federal Taxes: File the corporation’s final IRS Form 1120 (U.S. Corporate Income Tax Return). Make sure to check the “Final Return” box.
- California Taxes: File the final California Franchise Tax Board (FTB) return, also marking it as “Final.”
- Outstanding Taxes: Pay any remaining state or federal tax obligations.
3. File Dissolution Documents with the California Secretary of State
California requires specific forms depending on your corporation’s situation:
- Form DISS STK (Certificate of Dissolution) – Used when all shareholders vote for dissolution.
- Form ELEC STK (Election to Wind Up and Dissolve) – Used if the decision is not unanimous.
- Form DISS NP (Nonprofit corporations) – Not applicable for C-Corps but important to note.
You can file these forms online, by mail, or in person with the Secretary of State.
4. Wind Up Corporate Affairs
Before your corporation ceases to exist, you must “wind up” its operations. This may include:
- Notifying creditors and settling debts.
- Liquidating company assets and distributing proceeds to shareholders.
- Canceling business permits, licenses, and registrations.
- Closing business bank accounts.
5. Notify Relevant Agencies
Beyond the Secretary of State, be sure to notify:
- California Franchise Tax Board (FTB) – To confirm final taxes are filed.
- Employment Development Department (EDD) – If you had employees.
- IRS – To close your Employer Identification Number (EIN).
6. Keep Records for Future Reference
Even after dissolution, it’s wise to maintain corporate records for several years. Tax audits, shareholder inquiries, or legal issues may arise. Keep:
- Final tax returns.
- Dissolution documents.
- Financial records and meeting minutes.
Conclusion
Dissolving a California C-Corporation involves more than simply stopping business operations. By following the proper legal steps—shareholder approval, tax filings, Secretary of State paperwork, and winding up affairs—you can ensure a smooth and liability-free closure.
If you’re unsure about any part of the process, consulting with a qualified attorney or tax professional can save time and prevent costly mistakes.