Due to their adaptability and simplicity in terms of management and taxation, limited liability companies, or LLCs, are common business structures in California. For a variety of reasons, LLCs do, however, occasionally decide to dissolve their enterprises. An LLC can be dissolved, which results in the distribution of its assets to its members or creditors and the cessation of its operations. What transpires, though, if a California-based LLC that has been dissolved is sued?
A dissolved LLC may still be sued in California, but only for a short time. A disbanded LLC may be sued for up to five years following the date of its dissolution, per the California Corporations Code. However, the LLC had to adhere to the correct processes for dissolution and submit the required documents to the Secretary of State. The LLC may still be regarded as an operating business entity and subject to suit if it has not been duly dissolved.
An LLC can be dissolved to indicate that it is no longer in existence or conducting business. It is the procedure for formally dissolving the LLC as a commercial entity. Members of the LLC may choose to do this freely or pursuant to a court order. An LLC can be dissolved, but there are a number of procedures and documentation that must be finished in order for the assets of the LLC to be dispersed fairly.
A member who voluntarily withdraws from an LLC has made the decision to do so. You can do this for either personal or professional reasons. A member who wishes to leave an LLC must adhere to the operating agreement’s specific processes. The member must adhere to the processes established in the California Corporations Code if there is no operating agreement.
A member of an LLC must notify the other members in writing if they choose to leave the LLC. The member’s intention to withdraw, the withdrawal’s start date, and any other information needed by the LLC’s operating agreement or the California Corporations Code should all be included in the notice. The operating agreement specifies how to transmit the notice to the other members or the LLC’s registered agent.
LLCs must pay an annual franchise tax of $800 in California. Whether the LLC is active or not, this tax must be paid. The franchise tax can, however, be avoided or reduced in several circumstances. Dissolving the LLC prior to the start of the tax year is one option. Another option is to change the LLC into an other type of company, like a corporation or a partnership. It is advised that you consult with a tax expert to figure out the best course of action for your LLC.
In conclusion, it is crucial to follow the correct procedures for dissolution in order to prevent any legal repercussions, even if a dissolved LLC can still be sued in California. The operating agreement or California Corporations Code, as applicable, must be followed in order to voluntarily exit from an LLC. The $800 franchise tax can be decreased or avoided, but it is better to seek advice from a tax expert.
Because it contains both an annual charge and a franchise tax depending on the LLC’s net revenue, the California LLC fee is higher than those in other states. The franchise tax alone can cost an LLC up to 8.84% of its net income, with an annual minimum of $800. The higher fees are also a result of California’s high cost of living and conducting business.