Legal Question in Business Law in California

Re: Terminating of LLC

There are a number of issues that you raise that cannot be answered in one email inquiry alone. The place to start is your Operating Agreement, which is required for an LLC to exist. It should have provisions for termination of the business. Beyond that, you should consult with a business attorney to untangle the many issues you and your other members may have created.

Feel free to contact me if you wish to pursue this with professional help.

Sincerely,

Sergio Benavides

www.benavideslawfirm.com

Re: Terminating of LLC

In general, wind it down correctly and completely, or risk liability and problems. If the 'partners' don't cooperate in doing so, you might have to file legal action. Contact me if interested in doing it right.

Re: Terminating of LLC

Yes, an LLC must pay an annual franchise tax, basically an income tax except that there is a minimum, usualy $800 a year. LLCs also pay a small tax based on gross receipts in addition to an income tax.

If an LLC fails to pay its taxes or do certain other things such as filing periodic statements of who manages it, the Sec. of State may suspend its powers. Many people who start corporations or LLCs prematurely for a business concept, or where the business fails, simply walk away from it, leaving the taxes unpaid and the entity un-dissolved. While no lawyer would openly recommend this to a client, the truth is that it happens all the time and I've never heard of the state government pursuing the promoters for back taxes or anything.

If you go to the Secretary of State web site at www.ss.ca.gov and go to the business portal, you can search the LLC records and find out whether there is any official record of your supposed LLC ever being formed, and also whether it is active or suspended or maybe even already dissolved.

You can also look at and even fill in on line one or another of the S/S forms for dissolving an LLC - look at the Form LLC-3 (certificate of dissolution) and the LLC-4/7 and 4/8 forms as well (cert. of cancellation) to find one that applies to you. It may be necessary to pay back taxes to cancel or dissolve the LLC officially.

Perhaps more important that closing the LLC on the official records is winding up its business affairs with the public. Although the owners' liability to the public is theoretically limited (that's what "LLC" really means, of course), the owners can be liable on a fraud or breach of fiduciary duty theory if they close down the business and pay themselves, or grab the remaining assets, without first paying the creditors of the business.

In addition to considering the legal relationship of the LLC to the SS and the FTB, and the relationship of the LLC to the public (creditors, employees, customers, its landlord, etc.)you have to consider the legal relationships between the investors, promoters, managers and members of the LLC. Most of these are determined by contract, chiefly the Operating Agreement (don't think you don't have one -- if it isn't in writing, it may be oral; if there wasn't even an express oral agreement, a court would infer an agreement from the conduct of the parties). The Operating Agreement will lead to legal conclusions about who is at fault, and who owes how much to whom under the circumstances of the break-down here.

Re: Terminating of LLC

If you can have them execute a new operating agreement and relinquish all interest in the llc, you don't have to do anything else. Just continue using the llc as the sole member of it. Also, no minutes or meetings are required for LLCs. If you want to terminate it, you need to have them sign the termination form as well as pay all of the taxes owed to the state and the federal government. More at http://www.stassinos.com