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When Can a Corporation Dissolve in California?

There comes a period in the life of some businesses when the owners and managers decide to shut down the operation on their own accord. Several things, including “dissolving & winding up” your business, must be done if your California corporation has reached this point. 

Organizational Dissolution 

To Dissolve a Corporation in California, professionals help to recognize your company as a legal entity. Dissolution is the legal process by which a firm is formally dissolved from its status as a government entity. It helps remove it from the purview of creditors and other claimants. This article only addresses the voluntary dissolution of a corporation by its shareholders, as opposed to the involuntary dissolution of a corporation by a court judgment. 

If shareholders own shares representing at least 50% of the electoral power vote for dissolution, a California corporation can voluntarily dissolve under the state’s General Corporation Law (“GCL”). When dissolving a corporation, California law is less stringent than many other jurisdictions regarding what the board of trustees must accomplish before shareholders vote. 

However, it is customary and suggested by other provisions of the GCL that your executive board must present to the stakeholders a motion to dissolve & request a meeting of the stakeholders to vote on liquidation. 

Business Dissolution Procedure – 

Articles of Incorporation are filed at the outset when a company is founded; similarly, Articles must be filed whenever a company is dissolved. The company owner will be responsible for taxation and other statements if the necessary paperwork is not filed. Thankfully, dissolving a firm requires little more than signing a few papers.

Document of Dissolution and Winding Up 

All of a company’s existing stock must approve dissolution before a Certificate of Voting to Wind Up & Dissolve can be filed with the Sec of State (“SOS”). However, if the dissolution vote falls short of unanimous support, the certificate must be filed with the SOS. This certificate must comply with the GCL by including the following details: 

  • The amount of shares voting 
  • The election was produced by shareholders representing at least 50% of the voting power; 
  • If the credential is implemented (signed) by a stockholder or shareowners, an assertion that the subscribing stockholder or shareowners were permitted to start executing the diploma by shareholders owning stock with at least 50% of the voting power. 
  • You can get a blank copy of the SOS site’s certification application (Form ELEC STK) and its accompanying instructions. 
  • The certificate can be submitted either through the mail or by phone. Certificates submitted via mail incur no cost. 
  • The documents handed personally to the SOS headquarters in California are subject to a $15 special processing fee. 
  • It may be expedient to submit the Certificate of Dissolution along with the Certificate of Vote to Wind Up & Dissolve. 

Wind Up & Dissolution

After the dissolution is officially approved, the firm will remain in existence solely to complete a series of tasks known as “winding up.” Your board has complete authority under the GCL to liquidate the business and close its books. Important steps in winding up a company include paying or adequately providing for payment of all liabilities and debts and distributing any leftover assets to those legally entitled to them. 

Dissolution Certificate 

The Certificate of Dissolution should be submitted to the SOS once all corporate business has been concluded. This is what the certificate must state: 

  • Confirmation that all business affairs of the company have been concluded 
  • A declaration that all of the corporation’s recognized obligations and obligations have already been paid in full or sufficiently provided for, 
  • Or that the company has expensed no recognized debts or liabilities, 
  • If there are any known liabilities or debts for a payout of which sufficient funds have been made, 
  • A declaration setting forward the address and name of the company, individual, or government entity from which the provision was made; 
  • A declaration that all of the company’s assets have been transferred to their rightful owners or that the company has no assets to distribute, and a declaration that the company has been dissolved. 

Conclusion

The SOS website offers a downloadable Certificate of Dissolution form (Form DISS STK), complete with instructions. You can rest assured that your corporation’s final franchising taxable income has been completed or will be submitted when you use the SOS form.

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