Thinking of closing your business? Whether your LLC has run its course, you’re relocating, or pivoting to something new, shutting down your California LLC involves more than just stopping operations.
To avoid legal issues, taxes, and penalties, it’s critical to follow the formal dissolution process set by the state of California and the IRS.
This step-by-step guide explains how to dissolve an LLC in California correctly—and how Dimov Tax can help you wrap things up smoothly.
Why You Need to Officially Dissolve Your LLC
Simply walking away from a business doesn’t make it go away in the eyes of the law. If you don’t file the proper dissolution paperwork, your LLC may continue to accrue taxes, fees, and penalties—even if you’re no longer operating.
Here’s why formal dissolution matters:
- Stops future state fees and tax obligations
- Prevents unnecessary business taxes from the IRS or CA Franchise Tax Board
- Protects your personal assets from unresolved liabilities
- Allows final tax returns to be processed correctly
- Closes your business’s legal footprint
Skipping these steps could lead to unexpected bills or even damage your credit if the state tries to collect overdue taxes.
Step 1: Vote to Dissolve the LLC
The first step is internal: LLC members (or yourself, if you’re a single-member LLC) must agree to dissolve the business.
In California:
- LLCs with multiple members must follow the dissolution rules in their operating agreement. If there’s no agreement, California law requires a majority vote.
- Single-member LLCs can move forward with a written resolution stating intent to dissolve.
Document this decision and keep it in your records—it may be needed if the IRS or state asks for proof later.
Step 2: File the Correct Dissolution Form
Next, you’ll need to file Articles of Dissolution.
Here are the forms most businesses use:
- Form LLC-3: For LLCs that have already filed a Certificate of Cancellation
- Form LLC-4/7: For LLCs that have not yet filed the certificate
- Form LLC-4/8: For short-form dissolution (only available if the LLC hasn’t conducted any business and meets specific requirements)
You can file online or by mail. There’s no filing fee for most forms, but expedited services cost extra.
Make sure your LLC is in good standing—if it’s been suspended for nonpayment of taxes or fees, you may need to resolve that before dissolution is accepted.
Step 3: Settle All Outstanding Taxes
Before your LLC can officially dissolve, it must be current on all federal, state, and local taxes.
Here’s how to stay on the right side of tax compliance:
- File your final tax return with the IRS and check the box indicating it’s a final return
- Pay the $800 minimum annual California Franchise Tax, if owed for the current year
- Submit final payroll and sales tax forms, if applicable
- Clear any outstanding business licenses or city tax bills
The California Franchise Tax Board (FTB) will continue to assess the $800 annual minimum tax unless the LLC is officially canceled with both the Secretary of State and the FTB.
Step 4: File a Final Return with the IRS and California FTB
The IRS and the California FTB both need to be informed that your LLC is shutting down. This step is often missed—and it can lead to notices, audits, or fines down the road.
Here’s how to notify them:
- IRS Final Return:
- File your final Form 1065 (for multi-member LLCs) or Schedule C (for single-member LLCs)
- Mark the box that indicates it’s your final return
- Include all income, deductions, and details up to the dissolution date
- CA FTB Final Return:
- File Form 568 and check the final return box
- Include payment for any owed taxes or fees
If your LLC had employees or contractors, you’ll also need to submit final Form W-2s, 1099s, and payroll tax returns.
Pro Tip: Many business owners forget to file one of these returns. Working with a tax advisor ensures nothing slips through the cracks.
Step 5: Cancel Permits, Licenses, and Close Accounts
Don’t forget the final cleanup. Shutting down an LLC also means winding down any business-related accounts and registrations.
Here’s what you should do:
- Cancel your EIN with the IRS by sending a formal letter
- Close your business bank accounts to prevent future tax reporting issues
- Cancel business licenses and permits with your city or county
- Notify vendors and creditors that your business is closing
- Resolve remaining debts or liabilities before distributing leftover assets
Keeping these accounts open can trigger unnecessary reporting, late fees, or even fraud risk. It’s best to close everything out in an organized way.
Step 6: Keep Copies of All Final Documents
Once everything is filed and paid, keep copies of:
- Articles of Dissolution
- Final tax returns (IRS and California)
- Proof of canceled licenses or EIN
- Any dissolution vote or written resolution
You may need them for future reference, especially if the IRS audits a previous year.
Dimov Tax recommends storing these records for at least seven years after dissolution.
Common Mistakes to Avoid When Closing an LLC
Closing a business is emotional—but don’t let it lead to costly errors. These are the most common mistakes we see:
- Failing to file the final tax return—this keeps you on the hook indefinitely
- Not paying the $800 CA franchise tax before canceling the LLC
- Assuming you can dissolve while suspended or delinquent
- Skipping the EIN cancellation process with the IRS
- Forgetting about local taxes or business licenses
These mistakes can haunt you well after your business stops operating. The best way to avoid them? Work with a qualified advisor who’s closed hundreds of LLCs before.
How Dimov Tax Helps Dissolve Your California LLC
Dimov Tax works with small business owners across California to help them exit cleanly and confidently. Whether you’re downsizing, relocating, or moving on to something new, we’ll ensure your LLC is shut down properly.
Here’s how we help:
- File dissolution forms with the Secretary of State
- Prepare and file your IRS and California FTB final returns
- Calculate and settle any outstanding tax liabilities
- Guide you through canceling licenses, permits, and EINs
- Answer questions about distributing assets or closing out books
No confusion. No red tape. Just a clear exit.
How to Dissolve an LLC in California the Right Way
Dissolving an LLC isn’t as simple as stopping operations. But when you follow the correct legal and tax steps, you can walk away clean—with no lingering surprises.
Dimov Tax has helped thousands of business owners move on with peace of mind. If you’re ready to dissolve your LLC in California, let us handle the paperwork while you focus on your next chapter.
Contact Dimov Tax today to close your business with confidence.