In short
- An LLC cancels. A California corporation dissolves. Both mean closing the company for good.
- Closing involves two state offices: the Franchise Tax Board for taxes, and the Secretary of State for the company's official record.
- The Secretary of State lists no fee for its ordinary closing documents. They can be filed online.
- The Franchise Tax Board lists conditions that stop the yearly $800 tax. For an LLC, one of them is paying the $800 for the final year.
- A company that closes within 12 months of forming may be able to use a shorter form.
Dissolve, cancel or surrender: what the words mean
California uses a different word depending on the kind of company.
- A corporation formed in California dissolves.
- An LLC (limited liability company) cancels.
- A corporation formed in another state and registered in California surrenders its right to do business here.
Source: the Franchise Tax Board's guide to dissolving, surrendering or canceling a business (FTB Publication 1038).
The two questions people ask first
Is the $800 due for the final year?
For an LLC, the Franchise Tax Board says the yearly tax stops for later years if the LLC does all of the following:
- files a final tax return on time,
- pays the $800 annual tax for the tax year of that final return,
- does no business in California after the last day of that tax year, and
- files its cancellation with the Secretary of State within 12 months of filing the final return.
For a corporation, the Franchise Tax Board lists the same kind of conditions: a final return filed on time, no business in California after that tax year ends, and the closing documents filed with the Secretary of State within 12 months of filing the final return.
Sources: FTB Publication 3556 for LLCs and FTB Publication 1038 for corporations.
What is the 15-day rule?
It is a Franchise Tax Board rule for very short tax years. The Franchise Tax Board says an LLC is not subject to the annual tax and fee if both of these are true:
- it did not do any business in California during the tax year, and
- its tax year was 15 days or less.
The Franchise Tax Board's pages for C corporations and S corporations list a similar rule for the $800 minimum franchise tax. Whether a particular tax year fits the rule is a question for a tax professional.
Source: FTB Publication 3556.
These are the general rules the state publishes, not advice for your company. Check with a licensed professional before acting on them.
How closing works, step by step
These are the general steps, based on the state's published forms and guides. The details depend on the company.
-
The closing is approved
The closing forms ask how the closing was approved, for example by the directors, the shareholders or the members. A licensed California attorney can explain the approval rules for a specific company.
-
The company winds up its business
For a corporation, the Certificate of Dissolution (form DISS STK) asks the company to state that it has been completely wound up. A licensed California attorney can explain what winding up involves for a specific company.
-
Catch up and file the final tax return
Any past-due tax returns are filed and what is owed is paid, including penalties and interest. The last return is marked as final. The Franchise Tax Board's Publication 1038 covers the tax side in detail.
-
File the closing documents with the Secretary of State
These can be filed on bizfile Online, the Secretary of State's filing website. The Secretary of State says terminations "may be filed online through bizfile Online" and that "Basic/Full Access to your entity is required to file online." That is listed on both the corporation forms page and the LLC forms page.
-
Handle the federal side
The IRS (the Internal Revenue Service, the federal tax agency) has its own list of steps for closing a business, such as the final federal return. It is separate from California's process.
Every company's situation is different. A licensed attorney or tax professional can tell you what applies to yours.
Which documents the Secretary of State lists
The Secretary of State lists these closing documents. Some closings use more than one. The instructions on each form explain when it is used.
| Kind of company | Documents the state lists | Fee |
|---|---|---|
| Corporation formed in California (stock corporation) | Certificate of Election to Wind Up and Dissolve (form ELEC STK); Certificate of Dissolution (form DISS STK); Short Form Dissolution Certificate (form DSF STK) | No fee |
| LLC formed in California | Certificate of Dissolution (form LLC-3); Certificate of Cancellation (form LLC-4/7); Short Form Cancellation Certificate (form LLC-4/8) | No fee |
For LLCs, the Certificate of Cancellation form says a Certificate of Dissolution has to be filed before it or together with it. The Franchise Tax Board's Publication 3556 notes one exception: when the dissolution was approved by a vote of all the members.
Sources: the Secretary of State's corporation forms page and LLC forms page, the form LLC-4/7 instructions, and FTB Publication 3556.
The short form for new companies
A company that closes soon after forming may be able to use a short form. It has to be filed within 12 months after the company's Articles were filed, and other conditions apply.
For an LLC, the conditions are printed on the Short Form Cancellation Certificate (form LLC-4/8) itself. They include filing within 12 months after the Articles of Organization and having done no business.
The Franchise Tax Board says an LLC that cancels with this short form is not subject to the $800 annual tax for its first tax year.
For a corporation, the conditions are printed on the Short Form Dissolution Certificate itself. They include filing within 12 months after the Articles of Incorporation and having done no business.
Sources: FTB Publication 3556, the Franchise Tax Board's LLC page, and the Secretary of State's form LLC-4/8 and form DSF STK.
If the company is suspended
The Franchise Tax Board says a suspended business loses its rights, powers, and privileges to do business in California. The Franchise Tax Board says the Secretary of State cannot accept closing documents if the Franchise Tax Board suspended the company. Our suspension guide explains revival.
There is one other route. The Franchise Tax Board runs a program called voluntary administrative dissolution or cancellation. Only some companies qualify, and that page lists the conditions.
The request uses form FTB 3715 PC for a corporation or FTB 3716 PC for an LLC. Once the Secretary of State formally closes the company, the Franchise Tax Board may forgive certain unpaid taxes, interest, fees and penalties. It says it does not forgive taxes and penalties owed from before the company stopped doing business. It also says applying does not close the company by itself: the company still files its closing paperwork with the Secretary of State.
Sources: FTB Publication 1038 and the Franchise Tax Board's voluntary administrative dissolution page.
What closing can cost
| Item | Amount | Which office |
|---|---|---|
| Ordinary closing documents | No filing fee listed | Secretary of State |
| LLC annual tax for the tax year of the final return | $800, as listed in FTB Publication 3556 | Franchise Tax Board |
| Taxes, penalties and interest already owed | See the voluntary administrative dissolution program above for what the Franchise Tax Board may forgive. | Franchise Tax Board |
Common surprises
- Stopping work does not close the company. The Franchise Tax Board's closing steps include filing closing documents with the Secretary of State.
- Both offices matter. The final tax return goes to the Franchise Tax Board. The closing documents go to the Secretary of State. One does not replace the other.
- The 12-month window. The Franchise Tax Board's conditions include filing the closing documents within 12 months of filing the final return.
- Suspension affects closing. FTB Publication 1038 says the Secretary of State cannot accept termination documents if the Franchise Tax Board suspended or forfeited the company. The voluntary administrative dissolution program is another route for companies that qualify.
A reminder: this is general information. Before making a decision about your own company, talk to a licensed California attorney or tax professional.
Questions about closing
Do you have to pay the $800 California LLC fee the final year?
FTB Publication 3556 lists paying the $800 annual tax for the tax year of the final return as one of the steps that stops the tax for later years. The others are filing the final return on time, doing no business in California after that year, and filing the cancellation within 12 months of the final return.
What is the 15-day rule for LLCs in California?
The Franchise Tax Board says an LLC is not subject to the annual tax and fee if it did not do any business in California during the tax year and its tax year was 15 days or less.
How much does it cost to dissolve an LLC in California?
The Secretary of State lists no filing fee for its ordinary dissolution and cancellation documents. Taxes, penalties and interest owed to the Franchise Tax Board are separate.
Does a business close on its own if it stops operating?
Stopping work alone does not close it. The Franchise Tax Board's closing steps include a final tax return and closing documents filed with the Secretary of State.
What is the difference between dissolving and canceling?
They are the state's words for different kinds of companies. A California corporation dissolves. An LLC cancels. A corporation from another state surrenders its right to do business in California.
Can a suspended company be closed?
FTB Publication 1038 says the Secretary of State cannot accept termination documents if the Franchise Tax Board suspended or forfeited the company. The Franchise Tax Board's voluntary administrative dissolution or cancellation program is another route for companies that qualify.
Do I need to tell the IRS when a business closes?
The IRS has its own closing steps, separate from California's. Its closing a business page lists them, such as filing a final federal return.
Related guides
About this information
Corpgate, Inc. is not a law firm or a tax professional and does not give legal or tax advice. This page is general information about California business filings, drawn from official government sources, and it may not fit your situation. Reading it does not create an attorney-client relationship with anyone. Fees, deadlines and rules change; check the official source linked on this page before you act. For advice about your own corporation or LLC, talk to a licensed California attorney or tax professional. Corpgate, Inc. provides registered agent service and does not prepare legal documents.