Dissolving a Business

Dissolving a business is much more complicated than simply telling your customers that you’re no longer open. This is especially true when there is more than one stakeholder, your business has a lot of assets or inventory, and you have taxes or debts to pay off. Unless your a sole proprietor, there will be some loose ends that need to be tied up before your business is officially dissolved. Below, we’ll discuss the process of dissolving a business and what you need to know before you proceed.

Dissolving a Business With Multiple Stakeholders

If your company is governed by a partnership agreement, is a limited liability corporation, or has an operating agreement, then the process of dissolving the business will be complicated. Typically, corporations or other companies with partners outline a process for dissolution in the governing documents. You may not be able to dissolve the business without a shareholder vote. In that case, you need only divest your interest in the business to walk away.


If there are no governing documents or those governing documents do not address dissolution, California law will provide the framework for the dissolution process.

Who Needs to Know I’m Dissolving My Business?

Once the decision to dissolve your business has been made, the next step is to notify the right parties. This will include creditors and the State of California which will require that you file dissolution paperwork. You will obviously have to notify lenders, suppliers, and others with whom you do business. 


For creditors, there is a legal element to this. They must be notified to give them enough time to file a claim against your business if you owe them money. In some cases, you will need to post a generalized notice in newspapers so that potential claims know that there is a deadline.

Dissolving Corporations and LLCs

If you’re doing business as an LLC or any form of corporation or partnership, there is an official process for dissolving your business. If you don’t, you may still be liable for business taxes. 


In California, a corporation must submit their “certificate of dissolution” and a “certificate of election to wind up and dissolve” to the California Secretary of State’s office. These forms include information on your business’s debts and liabilities as well as the distribution of the business’s assets. You will need to indicate how you and your partners elected to dissolve your business. LLCs will have to file similar documents alternatively called “articles of dissolution”.


Business Liquidation

Once creditors and the state have been notified, and any claims against your business have been resolved, you can begin the process liquidating and distributing your assets. These are generally distributed as a percentage of ownership interest to each party with a stake. 

Paying Your Taxes

Uncle Sam always gets his cut. Your last order of business will be to pay off any leftover taxes and file the correct closure forms with the IRS. Mistakes here are not advisable. If a business forgets to pay off the remainder of its payroll or other taxes, you can be assured that the IRS will take notice. This can create legal problems for the stakeholders.