Question: I am a member of a California LLC. What are the legal requirements to dissolve the LLC?
Answer: California’s Revised Uniform Limited Liability Company Act (RULLCA) provides four ways to dissolve or terminate a California limited liability company. The four methods are:
- The LLC’s Articles of Organization contains a provision that says the LLC must dissolve on the occurrence of one or more events set forth in the Articles of Organization. Few California LLCs have Articles of Organization that contain this type of provision.
- The members signed an Operating Agreement that contains a provision that says the LLC must dissolve on the occurrence of one or more events set forth in the Operating Agreement. Many California LLCs have Operating Agreements that contain dissolution provisions. For example, if the Operating Agreement says that the LLC will dissolve on the sale of its real property and the LLC sells its real property then the LLC must dissolve. Cal. Corp. Code Section 17707.01(a).
- If the LLC ceases to have a member the LLC for 90 consecutive days it must dissolve. This happens frequently to California single member LLCs when the member is a person and that person dies. Cal. Corp. Code Section 17707.01(c). Automatic dissolution can create a nightmare for the heirs of the deceased. For example, if a single member California LLC owns valuable real estate and the member dies and no member replaces the deceased member within 90 days of the death, the LLC ceases to exist and there is no owner of the real estate. Solution: One of the reasons we recommend that people own their membership interests in California LLCs through a trust is to prevent the dissolution of the LLC if the single member dies.
- The last method to terminate a California LLC occurs if a majority of the LLC’s members vote to dissolve the LLC. Cal. Corp. Code Section 17707.01(b). If the Operating Agreement requires more than a majority vote of the members to approve a dissolution then that requirement must be met to dissolve the LLC.
How to Legally Dissolve the California Limited Liability Company
If the necessary number of members of a California LLC vote to dissolve the LLC the member(s) actually dissolve the company by doing the following:
- The LLC must file a final current year tax return with the California Franchise Tax Board. Check the applicable Final Return box on the first page of the return, and write “final” across the top. The LLC must not conduct business in California after its final taxable year. For more on this topic read the FTB Publication 1038, Guide to Dissolve, Surrender, or Cancel a Business Entity.
- After filing the final tax return with the FTB, the members must file the California Secretary of State form called Certificate of Dissolution (Form LLC-3) to dissolve (i.e., elect to wind up) a California LLC. To complete the cancellation process, the LLC members must also file a Certificate of Cancellation (Form LLC-4/7). Note: Form LLC-3 is not required when the vote to dissolve was made by all of the members and that fact is noted on a Certificate of Cancellation (Form LLC-4/7) filed by the members with the California Secretary of State. Note: If the vote to dissolve was not made by all of the members, a Certificate of Dissolution (Form LLC-3) must be filed prior to or together with Form LLC-4/7.