Hi, I'm attorney Elizabeth Potts Weinstein. Today, we'll discuss how to close your California LLC or corporation, particularly if your business never launched or is no longer operational. Many business owners face the challenge of the $800 annual franchise fee in California and seek ways to avoid it for a non-existent business.

Understanding the $800 Annual Franchise Fee

In California, LLCs and corporations are required to pay an $800 minimum franchise tax annually. As of now, there is a waiver for the first year, but this may change soon, so it's important to understand your obligations and options.

Who This Applies To

1. Business Never Launched: You created an LLC or corporation but never started the business.
2. Business No Longer Operational: You launched the business, but it has since ceased operations.

Steps to Shut Down Your Business

Voluntary Administrative Dissolution/Cancellation

The process involves notifying the California Franchise Tax Board (FTB) that your business is not operational and requesting relief from future franchise taxes.

1. Eligibility Criteria:

   • The business must not be actively engaged in any transactions for financial gain.
   • The business must have no remaining assets.
   • The business must be registered for more than 12 months.

2. Required Forms:

   • You need to submit a written request for voluntary administrative dissolution/cancellation.
   • Forms for this process can be found on the FTB website.

3. Process:

   • Ensure all business activities have ceased.
   • Close any business bank accounts, dispose of inventory, and cancel any licenses.
   • Complete and submit the dissolution/cancellation forms to the FTB.
   • File a certificate of dissolution or cancellation with the California Secretary of State.

Detailed Steps

1. Complete Necessary Forms:

   • For corporations (including S corporations, C corporations, and professional corporations), fill out the appropriate dissolution form.
   • For LLCs, fill out the corresponding cancellation form.

2. Submit the Forms:

   • Faxing the forms can be quicker; use a service like FedEx Office if needed.
   • Alternatively, you can mail the forms.

3. Await Decision:

   • The FTB will review your submission and decide whether to waive any unpaid taxes, interest, or penalties.

Important Considerations

• Accuracy: Ensure all information is accurate and truthful to avoid penalties for perjury.
• Existing Obligations: If your business operated during any part of the tax year, you are still liable for taxes during that period.
• Suspended Businesses: If your business is suspended due to unpaid taxes, you must resolve these issues before dissolving the business.

Conclusion

Closing a non-operational LLC or corporation in California can relieve you from the burden of the annual franchise fee. Make sure to follow the steps correctly to ensure you meet all legal requirements.