LLCs: What’s the Difference Between Dissolution and Cancellation?

An initial statement: always be mindful of the fact that while the processes of terminating the existences of a corporation and an LLC are similar, different terms are used to describe those two processes. So just because you’re familiar with the terms regarding dissolving a corporation, please don’t assume that your familiarity applies equally to ending an LLC’s existence. For example, even though the word “dissolve” is used in both processes, they mean very different things.

If you’re done with your LLC (perhaps it only owned a piece of real property but that property was sold and applicable statutes of limitation have lapsed) and you want to be rid of it, what are the steps to terminate its existence? Of course, the answer is, “it depends.” If you’re lucky, you can merely “Cancel” it, which ends its existence (thus the legal term for ending its existence is “Cancellation”). But if your situation is more complicated then you’ll have to “Dissolve” it first, and then Cancel it.

Read the Operating Agreement First

First, read the LLC’s governing document, which is usually the Operating Agreement and which should spell out the steps for Cancelling the LLC (this is particularly important if you’re dealing with multiple Members). If there’s no Operating Agreement then see if the Articles of Organization speak to the process of cancellation. If neither of those two items provide guidance, then you have to fall back onto the requirements of the California Corporations Code.

Cancellation

First, if you have a California LLC and all the statements set forth in California Corporations Code § 17707.02 are true, you may avail yourself of a “short form” Cancellation and you can file the one-page Form LLC-4/8. Unfortunately, most LLCs cannot do so because not all the statements in § 17707.02 aren’t true for them. (The short form process is generally reserved for LLCs that didn’t do any business and were formed within 12 months prior to Cancellation.)

If all the statements aren’t true but 100% of the LLC’s members have voted in favor of the Cancellation, then you’re still in luck: you can just file a Form LLC-4/7 “Certificate of Cancellation” and check Box 3, which indicates that the vote was unanimous.

But if the statements aren’t true and the vote was less than unanimous, then you first have to go through the process of “Dissolution.”

Dissolution

If the above steps are inapplicable for you, you’ll still have to ultimately file a Form 4/7 Certificate of Cancellation but only after you complete and file a Form LLC-3 “Certificate of Dissolution.” Filing the LLC-3 Certificate of Dissolution puts the world on notice that the LLC has elected to wind up its affairs and is in the process of paying its liabilities and distributing its assets. What that means, exactly, is beyond the scope of this short blog post, but let me know if you want further information and I’d be happy to chat with you about it.

Once you’ve got your Dissolution steps out of the way, then you file the LLC-4/7, and the LLC will be Cancelled and you’re done with it.

Greg Borman is an attorney in San Diego, California, who advises and represents businesses of all sizes and stages, as well as their owners.  He can be reached at greg@bormanlaw.com or at (858) 232-7100.

Leave a Comment

Contact Us

We're not around right now. But you can send us an email and we'll get back to you, asap.

Not readable? Change text.