Dissolving an Entity
Does your client plan to dissolve, surrender, or cancel business operations in California? If so, your clients may be able to avoid the minimum franchise tax or annual tax.
To terminate their legal existence, business entities registered with the California Secretary of State (SOS) can dissolve, surrender, or cancel their businesses in California as follows:
- 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.
Entities may be able to avoid the minimum franchise tax or annual tax for current and subsequent years if all of the following requirements are met:
- The entity filed its final franchise or annual tax return timely, including extension, for the preceding taxable year.
- Conducted no business after the last day of the preceding year.
- Filed the appropriate documents with SOS within 12 months of the filing date of their final tax return.
Steps to dissolve, surrender, or cancel a business entity:
- File any delinquent tax returns.
- File the final/current year tax return. On this tax return's first page, write FINAL at the top of the page and check the box labeled "Final Return."
Exception for a nonprofit tax-exempt church or tax-exempt corporation - It does not have to file a final return if its three-year gross receipts average is under $25,000. But it must file a final return if it exceeds this average, if it's a private foundation, or if it has non-member or unrelated business income.
- Pay all tax balances, including any penalties, fees, and interest.
- File the appropriate dissolution, surrender, or cancellation forms with the SOS within 12 months of filing your business' final tax return. To get the correct forms, go to sos.ca.gov, or call the SOS at 916.657.5448.
- Suspended or forfeited business - You must revive your business before you file dissolution, surrender, or cancellation forms with the SOS.
- Public benefit and religious corporations, and mutual benefit corporations holding charitable assets - You must obtain a dissolution waiver from the Office of the Attorney General before filing dissolution forms with the SOS. For more information, go to ag.ca.gov/charities, or call the Office of the Attorney General at 916.445.2021.
If you need our assistance, call us:
Business entities 916.845.7057
Tax-exempt corporations 916.845.4171