Closing a California business entity June 2020 Tax News
During this challenging time, business owners have been faced with many difficult and life changing decisions due to COVID-19. One of those decisions is whether or not to close or shut down your business. Here is some information and resources that can help you with how to do that in the proper way.
Business entities doing or transacting business in California or organized or registered with the California Secretary of State (SOS) can dissolve, surrender, or cancel when they cease operations in California and need to terminate their legal existence here.
- Domestic corporations (those originally incorporated in California) may legally dissolve
- Foreign corporations (those originally incorporated outside California) may legally surrender
- Limited liability companies (LLC) and partnerships (both domestic and foreign) may legally cancel
Steps to dissolve, surrender, or cancel a California business entity
Dissolving, surrendering, or canceling your California business entity is a multi-step, multi-state agency process that has requirements both FTB and SOS.
Requirements for FTB
- File any delinquent tax returns and pay all tax balances due, including any penalties, fees, and interest
- File a final/current year tax return. Check the applicable Final Return box on the first page of the return, and write “final” at the top of the first page. All tax returns remain subject to audit until the statute of limitations expires
- Must cease doing or transacting business in California after the final taxable year
Requirements for SOS
- File the appropriate dissolution, surrender, or cancellation SOS form(s) within 12 months of filing your final tax return.
- Currently, LLCs can submit termination forms online. Online submission for Corporation and Partnership dissolution/cancellation forms is not available at this time.
If your business entity is suspended or forfeited, it will need to first go through the revivor process and be in good standing before being allowed to dissolve, surrender, or cancel. To revive your suspended or forfeited business entity you must:
- File all delinquent tax returns
- Pay all delinquent tax balances, including penalties, fees, and interest
- File a revivor request form
There are some additional steps that you may need or want to take while closing your business entity. They include:
- Notifying all creditors, vendors, suppliers, clients, and employees of your intent to go out of business
- Closing out business checking account and credit cards
- Canceling any licenses, permits, and fictitious business names
- Consider publishing a statement in a local newspaper of general circulation near the principal place of business that it is no longer in business
If certain qualifications are met, a business entity may be able to voluntarily dissolve. Beginning January 1, 2019, a qualified domestic corporation or qualified domestic limited liability company can request voluntary administrative dissolution/cancellation.
With a written request, your business must certify it:
- Is not actively engaging in any transaction for the purpose of financial or monetary gain or profit
- Has stopped doing business or never did business
- Does not have any remaining assets
Once the SOS formally dissolves or cancels your business, we may abate:
- Unpaid qualified taxes
For more information, refer to our Voluntary administrative dissolution/cancellation webpage.
Here are some additional resources that are available for more information:
- Tax News Live Video “Close Business Entity in California”
- Guide to Dissolve, Surrender, or Cancel a California Business Entity (Publication 1038)
- Common Forms of Ownership (Publication 1123)
- Close a Business section on the California Business Portal Website.
- How do I terminate (dissolve, surrender or cancel) my business entity? (This question is answered in the FAQ section of SOS website.)