Running a corporation in California can be an exciting journey, but when the time comes to move on, it’s crucial to properly shut down your business — not just for peace of mind, but to avoid lingering tax obligations, penalties, and legal headaches.

Closing a California corporation isn’t as simple as locking the door and walking away. The process involves formal steps with both the California Secretary of State and the Franchise Tax Board (FTB). Messing up any step could result in hefty fines, lingering tax liabilities, and a permanent scar on your business record.

In this guide, we’ll walk you through exactly how to close your corporation in California without penalties, step-by-step.

1. Make the Decision Official: Board and Shareholder Approval

First things first — you can’t just decide in your head that you’re shutting down. Legally, you must follow a formal process.

Hold a Board of Directors Meeting
The Board of Directors must formally approve the dissolution of the corporation. This approval is documented through a resolution.

Get Shareholder Approval
After board approval, shareholders must vote to dissolve. California law usually requires at least 50% shareholder approval unless your bylaws say otherwise.

If all shareholders agree, the process is simpler. If not all agree, you’ll have to file extra forms like the Certificate of Election to Wind Up and Dissolve.

Important: Keep records of all meetings, votes, and resolutions. You’ll need them if anyone ever questions how the decision was made.

2. File the Correct Forms with the California Secretary of State

Once you’ve secured the necessary approvals, your next move is to notify the state.

Here’s how:

a) Certificate of Election to Wind Up and Dissolve (Form ELEC STK)
If your shareholders’ vote wasn’t unanimous, you must first file this form.

b) Certificate of Dissolution (Form DISS STK)
This is your official way of telling California you are shutting down. You file this after the election certificate (if needed) or directly if all shareholders unanimously agreed.

c) Short Form Dissolution (Form DSF STK)
If your corporation:

• Never issued shares

• Never conducted any business

• Has no debts or assets

You can use this easier, faster option.

Where to File:
You can submit the forms in person, by mail, or sometimes online, depending on California’s current processing rules.

Tip: Filing in person can speed up processing.

3. Pay Off Debts and Notify Creditors

California law requires you to wind up the corporation’s affairs properly. That means:

• Notify all known creditors

• Pay off all outstanding debts

• Settle all pending obligations

You’ll need to send a written notice to creditors informing them of your corporation’s dissolution and giving them a deadline to submit claims.

Skipping this step is risky — creditors could later sue you personally if debts aren’t properly handled.

4. File Your Final Tax Returns

One of the biggest mistakes business owners make is assuming that filing dissolution paperwork with the Secretary of State automatically ends tax obligations.

It doesn’t.

You must file a final corporate tax return with the California Franchise Tax Board (FTB) and with the IRS.

Key things to know:

• Check the “Final Return” box on your state and federal tax forms.

• Report all business income through the date you stopped doing business.

• Pay all outstanding corporate taxes, including the infamous $800 minimum franchise tax if applicable.

California’s Tax Filing Forms:

• FTB Form 100 (for C corporations)

• FTB Form 100S (for S corporations)

If you don’t properly file final returns, the FTB will assume you’re still operating — and they’ll keep charging you the $800 minimum franchise tax every year, with penalties and interest stacking up.

5. Cancel All Business Licenses, Permits, and Accounts

After the tax filings are complete, you need to wrap up all other loose ends:

• Cancel your city and county business licenses

• Cancel your seller’s permit if you had one

• Notify the Employment Development Department (EDD) if you had employees

• Close your corporate bank accounts

• Close any insurance policies

• Inform your registered agent you are dissolving

Neglecting these steps could leave open doors for fees, taxes, or lawsuits even after you’re “closed.”

6. Administrative Dissolution Option (For Some Corporations)

If your corporation has:

• Stopped doing business

• No assets

• No debts

• No pending lawsuits

You might be eligible for something called an Administrative Dissolution.

This newer process (made easier in 2019) allows corporations to voluntarily request the California Secretary of State to cancel the corporation without the need for paying back taxes and penalties. You still must be in good standing and properly file the request.

Administrative dissolution can be a massive help if your corporation accidentally ran up some penalties while dormant.

7. Notify the IRS and File a Final Federal Return

Don’t forget about the IRS. You’ll need to:

• File a final Form 1120 (C corporation) or Form 1120-S (S corporation)

• Mark the return as “Final”

• Close out your Employer Identification Number (EIN) by writing a letter to the IRS requesting it be closed after you file the final return

The IRS expects the same thoroughness California does — if you skip notifying them, they could still assume you’re operating and require federal filings.

8. Distribute Remaining Assets (If Any)

After paying all debts, whatever assets are left must be distributed among shareholders according to their ownership percentage.

Important:
Document everything carefully. Asset distributions must match corporate bylaws or articles of incorporation.

Unrecorded or improperly distributed assets can cause tax issues or shareholder disputes down the road.

Common Mistakes to Avoid

Even one small slip-up can cause a penalty — or years of unexpected tax bills. Here’s what not to do:

• Ignoring Final Tax Returns
  Many think filing dissolution papers is enough. It’s not. Always file final tax returns.

• Failing to Pay the $800 Minimum Franchise Tax
  Even if you don’t make money, you’re generally still responsible for this fee during your final tax year unless you qualify for a waiver.

• Leaving Business Licenses Open
  Open licenses can generate fees or give the appearance you’re still in business.

• Skipping Creditor Notifications
  Lawsuits and personal liability can happen if you skip creditor notice requirements.

• Assuming “No Activity” Means No Penalties
  Dormant corporations are still charged minimum taxes unless properly closed out.

Timeline for Closing a Corporation in California

On average, if all paperwork is handled promptly:

• 2–4 weeks for Secretary of State dissolution processing

• 2–6 weeks for final FTB processing (if there are no audits)

• 1–3 months total for full closure including banking and permits

Final Thoughts

Closing a corporation in California takes more than just a goodbye post on Instagram.

You need to legally, financially, and administratively untangle your business entity to avoid painful and expensive penalties later on.

The key steps include:

• Getting official board and shareholder approval

• Filing the right forms with the Secretary of State

• Paying off debts

• Filing final tax returns

• Canceling all licenses and accounts

• (If applicable) pursuing administrative dissolution

If you follow each step carefully, you’ll walk away clean — free from penalties, lingering taxes, and legal nightmares.

If you’re unsure, it’s often worth consulting a qualified CPA, attorney, or business dissolution service to ensure nothing gets missed. Compared to the cost of lingering penalties, a little professional help is a smart investment.