Business entities March 2022 Tax News
How to close a California business entity
In these challenging times it may be a good time to talk to your small business clients about how to close a California business entity the proper way. Business entities doing or transacting business in California 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 and partnerships (both domestic and foreign) may legally cancel.
Steps to dissolve, surrender, or cancel a California business entity
To Dissolve, surrender, or cancel your California Business Entity is a multi-step, multi-state agency process that has requirements with the Franchise Tax Board (FTB) and Secretary of State (SOS).
Requirements for FTB
- File all delinquent tax returns and pay all tax balances, including any penalties, fees, and interest.
- File the 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 form(s) with the SOS within 12 months of filing your final tax return.
If the business entity is suspended or forfeited, it will need to go through the revivor process and be in good standing before being allowed to dissolve, surrender, or cancel. To revive a suspended or forfeited business entity, the entity must:
- File all delinquent tax returns.
- Pay all delinquent tax balances, including penalties, fees, and interest.
- File the applicable revivor request form.
For more information on how to revive a suspended or forfeited business entity go to our revivor process webpage.
If certain qualifications are met, a business entity may be able to voluntarily dissolve. A qualified domestic corporation or qualified domestic limited liability company can request for voluntary administrative dissolution/cancellation. With a written request the business entity 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 the business entity we may abate:
- Unpaid qualified taxes
- Unpaid qualified Interest
- Unpaid qualified penalties
For more information, go to our voluntary administrative dissolution/cancellation webpage.
There are some additional steps that the business entity may need or want to take while closing your business entity. They include:
- Notify all creditors, vendors, suppliers, clients, and employees of the intent to go out of business.
- Close out business checking account and credit cards.
- Cancel 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 the limited liability company is no longer in business.
Here are some additional resources that are available for more information:
- Publication 1038, Guide to Dissolve, Surrender, or Cancel a California Business Entity
- Publication 1123, Common Forms of Ownership
- Business Help webpage, go to “Close a business” section
- Sell or Close Your Business webpage on the California Office of the Small Business Advocate Website
- How do I terminate (dissolve, surrender or cancel) my business entity? Question is answered in the FAQ section of SOS