Dissolving a California S-Corp

Diamond Bar, CA: How to Properly Close an S-Corp
Dissolving a California S-Corp

Christopher Carmona, CPA CFE
http://carmonataxcpa.com

Dissolution officially ends the S-Corp’s existence thereby putting it out of reach from creditors.
Corporations can be involuntarily dissolved through a court decree or voluntarily dissolved by the shareholders as I explain below.

Note that there are special procedures for dissolving corporations that have not issued stock, are undergoing Chapter 7 bankruptcy, or have disposed of all assets and not conducted any business in the last 5 years. These are not covered here.

You should review your articles of inc., bylaws, or consult an attorney to make sure you are following the proper dissolution procedures for your corporation. California’s General Corporation Law “GCL” allows for dissolution with approval of at least 50% of the shareholders. If all shareholders vote to dissolve then you do not need to file a Certification of Election to Wind up and Dissolve with the Secretary of State.

Following approval of dissolution your corporation continues to exist for the purposes of winding up (paying all known debts and liabilities first and then distributing the remaining assets). Under GCL, you are required to mail written notice to all creditors that the corporation is winding up, consult an attorney for the specific language.

You must file a Certificate of Dissolution (Form DISS STK) with the Secretary of State, it must include:

• A statement that the corporation has been completely wound up
• A statement that the corporation’s known debts and liabilities have been paid, or settled to the best of the corporation’s ability, or that there are no known debts or liabilities.
• If there are provisions to settle debts or liabilities then a statement must be included regarding this and setting forth the name & address of the individual, entity, or agency that assumed the obligation and any other information necessary to enable the creditor to claim payment.
• A statement that the corporation’s known assets have been distributed to the persons entitled or that there are no known assets
• A statement the corporation is dissolved.
• A statement affirming that you have filed or will file a final franchise tax return. Be sure to mark the “final return” box on your 1120S & 100S returns.

You can submit Form DISS STK by mail (no charge) or in person ($15 fee). It can take the Secretary of State up to 8 weeks to process your filing. Your business name will become available for others to use after dissolution is final.

Note that if your corporation is registered to do business in other states then you must file separate forms to terminate your business in those states as well or you may be liable for annual fees and minimum business taxes.

The key take away is that there may be a lot of factors regarding the dissolution of your S-Corp. If you or someone you know is having an issue with properly closing a California S-Corp then feel free to reach out to me at:

Christopher Carmona, CPA CFE
323 707-6148
http://carmonataxcpa.com/about...