Dissolving a Corporation in California
This is the second of two posts on "year end timing issues" for businesses in California. The post below this one dealt with timing issues when incorporating a new or existing business in California. This post is about timing issues when dissolving a corporation in California.
In days of yore (2 1/2 years ago) in order to dissolve a corporation and avoid incurring the ongoing minimum corporate franchise tax, you had to do two things before the end of your fiscal year: (1) File dissolution paperwork with the Secretary of State and (2) File your final tax return. Since both had to be done before the end of the year, I recommended that people start dissolving by about September.
But that was then, and this is now. Now, so long as your dissolution forms are filed on time with the Secretary of State, you can file your final Franchise Tax Board return after the year end. In fact, the there is even a 15 day grace period. So technically you can file your dissolution forms with the Secretary of State by January 15, 2009 (for calendar year filers) and still not incur an additional year's minimum tax for 2009.
So the "start three months early" rule is not longer in effect. However, the rule that the corporation must be in good standing (not suspended or forfeited) to be dissolved means that before you can dissolve a corporation in California, you must file all late or missing returns and pay the tax liabilities.
What this means is that if you just stopped doing business, stopping filing any paperwork, stopped filing returns and stopped paying the California minimum franchise tax, and you now want to formally dissolve, you first have to file all of those back returns even if it's a "no activity" return, and then you have to pay all of the back annual minimum franchise taxes plus penalties plus interest, and then you get reinstated into "good standing" and only then can you dissolve.
Fun, huh?
Now, some terminology:
• Domestic corporations (those originally incorporated in California) -- dissolve.
• Foreign corporations (those originally incorporated outside California) -- surrender.
• Limited liability companies and partnerships (both domestic and foreign) -- cancel.
Businesses can be suspended or forfeited for:
* Failure to file one or more tax returns.
* Failure to pay the business' balance due. This can include the penalty for failing to file the annual Statement of Information with the Secretary of State.
Just like marriage and divorce, dissolving a business can be more tricky than starting it was.
