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Closing a San Diego LLC
Sometimes when you set up a new San Diego Limited Liability Company (“LLC”) with the expectation of going into business, something goes wrong. Maybe the deal falls through, or during due diligence, something is discovered that makes the deal unworkable or shows that the proposed business cannot succeed. If this happens, fortunately, the California Secretary of State offers a simple mechanism for canceling a San Diego LLC that was formed to conduct the business. This is important because this will save you the $800 minimum franchise tax charged by the California Franchise Tax Board. A skilled and experienced corporate lawyer can help. Here is a quick rundown.
San Diego Corporate Law: Conditions Allowing Short-Form Cancellation of an LLC
If your San Diego LLC meets the criteria, you may file Form LLC-4/8 with the California Secretary of State. This is the so-called Short-Form Cancellation mechanism. To qualify, your LLC must meet all of the following:
- Less than 12 months has passed since date your Articles of Organization were filed
- Your LLC has no debts or other liabilities (other than tax liability)
- Either no assets have been acquired or the assets have been properly distributed to the persons entitled thereto
- You have filed or will file your LLC’s tax return tax return with the Franchise Tax Board
- Your LLC has not conducted any business from the time of the filing of the Articles of Organization
- Either a majority of members voted to dissolve the LLC or, if there are no members yet, the person who signed the Articles of Organization is dissolving the LLC AND
- All payments from investors (if any) have been returned to those investors
If your LLC does not meet all of these requirements, then you cannot use the Short-Form cancellation procedures. Rather, to cancel your LLC, you have to file a Certificate of Dissolution — Form LLC-3 — and a Certificate of Cancellation — Form LLC-4/7. Having to use the longer cancellation mechanisms means that you will likely not save the annual franchise tax. See here for general information.
San Diego Corporate Law: Save Money and Paperwork by Canceling Your LLC
In theory, you can retain a dormant LLC for as long as you want. There is no requirement under California law that you conduct business with your LLC or do anything with it at all. However, each year you must pay the minimum franchise tax ($800) and you must keep the LLC in good standing by making the necessary periodic filings with the Secretary of State. Thus, canceling your LLC will save you money and the hassle of maintaining the LLC in good standing.
San Diego Corporate Law: Reasons to Maintain a Dormant LLC
Sometimes dormant LLCs or corporations are used as “holding” or “shell” companies. Such holding/shell LLCs/corporations are maintained to add a layer of confidentiality and asset protection. In general, instead of signing up as an individual as a member in San Diego Harbor LLC, the individual might create San Diego Holding LLC to become a member of San Diego Harbor LLC. Under this kind of circumstance, San Diego Holding LLC is not expected to conduct any business, will have to pay the annual franchise tax but provides a small extra layer of privacy and protection for the individual owning San Diego Holding LLC.
Contact San Diego Corporate Law
For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to help you form your San Diego LLC, can draft your operating agreement, can provide advice and guidance on how to cancel an LLC, and on shell/holding LLCs. Mr. Leonard can also assist with any other business-related legal matter. Contact Mr. Leonard by email or by calling (858) 483-9200.
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