How to Close a Business in California

Closing a business isn't always easy. While it may seem like a simple process, you have to make sure that everything is in order. Plus, you have to put your emotions aside throughout the process, even if closing the business isn't something you want to do.

To close a business in California, you usually have to dissolve the business through the proper legal channels. For example, if you have an LLC, S corp, or LLP, California requires you to formally dissolve your business when you cease operations.

While the process can change based on the type of legal entity, the steps to close a business in California are similar for each legal structure. Read on to learn more about how to dissolve a business in California.

Contents

How Do I Permanently Close My Business? When to Dissolve, Surrender, or Cancel a Business Entity

According to the California Secretary of State, business entities that do business in California have to formally close a business to cease operations.

This applies to corporations, limited liability companies, and foreign corporations. LLCs have to cancel their business and business licenses, while corporations have to dissolve or surrender their business.

There are also exceptions and sole proprietorships and partnerships still have to go through the proper processes to shut down their operations in California.

What’s the Difference Between Dissolving, Surrendering, and Canceling a Business in California?

The difference between surrendering, dissolving, and canceling a business comes down to the type of business. In California, LLCs and partnerships have to cancel the business, corporations have to dissolve the business, and foreign corporations have to surrender the business.

How Do I Close a Company in California?

Closing a business in California isn’t complicated once you know the right steps. While they vary based on the structure of the business, it usually comes down to making sure everyone agrees that it’s time to close the business.

Additionally, you’ll want to get a Certificate of Dissolution California, or Certificate of Cancellation for your records. Learn more about how to permanently close each type of business in California below.

How Do I Cancel My LLC in California?

Closing an LLC in California isn’t challenging but you need to fill out the required paperwork. Additionally, you need to make sure all of the members of the LLC agree to dissolve the business. Unfortunately, this isn’t always easy, and you may have to buy people out of work on different agreements.

The biggest obstacle you need to overcome is having the members agree to dissolve the LLC. If you’re in a multi-member LLC, you can put it to a vote. As long as you have a majority vote you can usually dissolve the business by filling out Form 4/7.

If you have a single-member LLC, you don’t have to worry about getting consent from other members because the decision is ultimately yours.

It’s also important to note that if you formed your LLC less than 12 months ago, you can get through this process faster. This is because your business might be eligible to file the Short Form Certificate of Cancellation, which is Form LLC 4/8. You do have to meet the requirements for this form, which are outlined by the California Franchise Tax Board.

We also recommend timing this property to avoid having to pay the minimum franchise tax, which is $800.

To avoid paying this fee after you dissolve your LLC, file the final tax return for the previous year in a timely manner and cease doing business before the next taxable year. From there, make sure you file the necessary documents within 12 months of the LLC’s final tax return.

Following the steps we covered and providing the necessary information will help you permanently close an LLC in California.

How to Close a Corporation in California

Corporations are another common type of legal structure for a business in California, also known as an S corp. As for how to dissolve an S corp in California, you need to cease your operations, wind down your business, and make sure you pay any outstanding taxes.

You can start the process by reviewing your corporate contract, operating agreement, and bylaws. They should outline any agreements you have for the dissolution of the company, which can prevent disputes among board members. Once you know the steps you need to take you can move on to the next part of the process, which involves the shareholders.

Corporations are different from LLCs and other legal entities because they’re run by shareholders and board members. It might not be possible for you to close the business without support from the shareholders.

Typically, you have to have a majority of shareholders willing to close the corporation before you can go through with it. So, it’s important to make sure you have the support of your shareholders before getting started.

After your shareholders agree and it’s time to close the business, you can start to liquidate any assets, pay debts, and wind down business operations. Similarly to LLCs, you need to pay the minimum franchise tax and cease operations on the last day of the tax year to prevent having to pay an additional tax.

Once all that is settled, you can permanently close your corporation in California. This applies to most types of corporations.

How to Close a Sole Proprietorship Business in California

Closing a sole proprietorship is not like closing a corporation or even an LLC in California. This is because you don’t have to register your business if you’re a freelancer or solo entrepreneur. For this reason, you can simply stop doing business to close your sole proprietorship in California.

That said, this isn’t true for all sole proprietorships in California. For example, if you have any business licenses you will need to cancel them. You also have to pay your taxes, allocate assets, and clear any debts before you close your business. This can prevent you from having to pay fines or penalties later.

How to Close a Partnership in California

A formalized partnership is another type of legal structure you can have for a business in California. It’s less complex than a corporation or LLC, but that doesn’t mean closing one is as simple as stopping your operations.

To close a partnership in California the first thing you need to do is speak with your partner. Make sure you’re all on the same page and that you’re ready to move forward with the process. Check any agreements you may have and get ready to buy them out if they don’t want to close the business. You can also have them buy you out as well.

From there, you can notify outside parties, file the necessary paperwork, and go about closing the business. You also have to settle any debts, distribute assets, and file your final tax return.

How to Cancel a Business License in California

Canceling a business license is often done in conjunction with the dissolution, surrender, or cancelation of a business in California. The big difference here is that the process will vary based on the county where you opened your business and applied for the license.

For example, the method for canceling a business license in San Diego may differ from the process in San Francisco. So, you always need to check with your county before canceling a business license in California.

Once you know what county you need to work with, you can begin the process. While what you need varies based on the county, the steps for each jurisdiction tend to be similar. You have to file your gross receipts for the previous year, pay any outstanding taxes, and report your final date of business.

The last part of the process is ceasing operations.

How Much Does It Cost to Dissolve a Company in California?

You may be wondering – is there a cancellation fee for LLC in California? The price to close a business in California depends on several factors. For example, a certificate of dissolution will run you about $15 in Sacramento County because you have to pay a processing fee if you close the business in person.

Closing a business in California might also cost more if you have to settle any debts or taxes. You’ll have to come to agreements with anyone you owe money to before you close the business, so make sure you keep this in mind.

While it can cost money to close a business in California, it can also be profitable. If you sell your business, for example, you can make a lot of money depending on the value of your company. Make sure you keep this in mind when closing your business.

How to Close a Business in California FAQ

Have more questions about the dissolution, surrender, or cancelation process for your California-based business? We have answers below.

Can You Close a Business Online in California?

Yes, you can close a business online in California. If your business is in a county that has online resources, you should be able to cancel your business license and file for dissolution, surrender, or cancelation. This applies to all legal entities that can operate in California because the process is roughly the same for every type.

However, there may be some places where you can’t do everything online. Some counties may require you to file by mail, in person, or sometimes by email only. Make sure you check with your county to be sure about the process. From there, you can learn more about the specifics of how to close a business in California online.

How Long Does It Take to Close a Business in California?

The process for closing a business in California isn’t instant. Expect the process to take about eight weeks to fully complete.

You can expedite the process for a fee, which can be done within 24 hours. For this reason, it’s important to make sure you file everything properly the first time around to prevent any delays. Waiting too long can result in you having to pay the minimum franchise tax again along with other fees for the following year.

Close a Business in California Today

We know that closing a business can be hard. A business is something that people put a lot of time and money into, so it’s no surprise that shutting down can be an emotional rollercoaster, even without considering the financial aspects.

That said, you need to put any emotions aside and go about closing your business in California the right way. This can prevent you from having to pay later and ensure that the sale of your business (if you have one) goes through smoothly.

The good news is that as long as you follow the steps we covered in this article, you shouldn’t have any issues closing a business in California.