Choices for entities that were never properly closed in California
- Viktoriya Barsukova, EA, MBA
- Jan 11
- 3 min read
It’s not uncommon for clients to just close up shop when a business fails without going through the proper steps to formally dissolve the entity with the California Secretary of State. When this happens, the owners will receive a bill from the FTB for the annual $800 minimum tax plus penalties and interest. This can quickly add up if the business hasn’t operated for years.
Here are some options to help your clients in these situations.
California corporations or LLCs that registered with the Secretary of State but either never commenced business or ceased operations but never formally dissolved with the Secretary of State can apply to the FTB for voluntary administrative dissolution. This applies to entities that were not doing business at any time after they were formed in California or ceased doing business and have filed all required returns for the tax years prior to their cessation of doing business.
In these situations, the entity has to have been compliant in filing and paying taxes during the years that business was conducted. Only entities that have no assets are eligible for administrative dissolution.
To apply, taxpayers that have been registered more than 12 months with the California Secretary of State’s office can submit either a Form 3715-PC, Domestic Corporation Request for Administrative Dissolution, or Form 3716-PC, Domestic Limited Liability Company Request for Administrative Dissolution.
Before they’re approved, the entity also is required to submit all tax returns filed up to the date the entity ceased conducting business in California and pay all taxes, penalties, and interest up to the date the entity ceased doing business in California.
Once the taxpayer receives an approval letter from the FTB, it’s required to formally dissolve with the Secretary of State within 12 months. If the entity fails to dissolve after receiving FTB approval, the $800 minimum or annual tax will continue to accrue and the taxpayer will have to restart the whole process.
If the application for administrative dissolution is approved, the FTB will abate all outstanding liabilities for the $800 minimum or annual tax and related penalties and interest for the periods that the entity was not conducting business. The related penalties and fees that will be abated include the demand penalty, estimated tax penalty, late filing and late payment penalties, and filing enforcement fee if the demand penalty is abated.
The FTB may also initiate an involuntary administrative dissolution process for those California entities that have been suspended for a period of at least 60 continuous months. Prior to administratively dissolving an entity, the FTB is required to mail a written notice to the entity’s last known address and transmit to the Secretary of State the entity’s name and corporation file number.
Although a dissolved entity is relieved of any minimum franchise tax owed, the administrative dissolution does not discharge the entity’s liability to any other creditors or relieve the entity’s directors, shareholders, treasuries, or other related persons from their liabilities. Nor does the dissolution impact the Attorney General’s ability to enforce any other liabilities.
Contacts:
Franchise Tax Board (FTB)
Voluntary Administrative Dissolution / Cancellation
Phone: 916-845-7700
Hours: Monday–Friday, 8:00 a.m.–5:00 p.m.
Franchise Tax Board (FTB)
Exempt Organizations (nonprofit pre-dissolution abatement)
Phone: 916-845-4171
Hours: Monday–Friday
California Secretary of State (SOS)
bizfile Online System (online filings and entity termination)
Choices for entities that were never properly closed in California - To listen to this podcast, go to: https://traffic.libsyn.com/secure/spidellpublishing/SCM_01-11-26.mp3
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