What are the required steps to properly wind down and dissolve a California S-Corporation?

To properly dissolve a California S-Corporation, you must file dissolution documents with the Secretary of State, cease business operations, pay all debts and taxes, and distribute remaining assets to shareholders. The process requires careful attention to both corporate formalities and tax obligations. Here are the required steps to dissolve your S-Corporation: Step 1: Obtain Shareholder Approval You must first get approval from your shareholders to dissolve the corporation. This is typically done through a formal vote at a shareholder meeting. Document the vote and the resolution to dissolve in your corporate minutes. If all shareholders agree, you can use a written consent form instead of holding a meeting. Step 2: File Dissolution Forms with the Secretary of State File a Certificate of Dissolution (Form DISS STK) with the California Secretary of State. This form officially informs the state that your corporation is dissolving. You can submit this form online, by mail, or in person. Filing this document formally begins the "winding up" period. Step 3: Wind Up Business Affairs During the winding up period, you must stop all normal business activities. Your only tasks should be paying final bills and known debts, notifying creditors, collecting any money owed to the corporation, and liquidating all corporate assets into cash. Step 4: File Final Tax Returns and Pay Taxes You must file final federal and state tax returns. For the IRS, file your final Form 1120-S. For California, file a final Franchise Tax return (Form 100S). You must check the "Final Return" box on both forms. You must pay all outstanding taxes, including the minimum annual franchise tax, until you are formally dissolved and have received tax clearance from the Franchise Tax Board (FTB). Step 5: Distribute Remaining Assets After all debts, liabilities, and taxes have been paid, you can distribute any remaining assets to the shareholders. Distributions must be made according to the shareholders' respective ownership interests in the corporation. Important Considerations: You remain liable for the minimum $800 annual franchise tax to the FTB until you file your final tax return and complete the dissolution. You must continue to file tax returns for each year the corporation is in existence, even if it is inactive. Warnings and Limitations: Failure to properly notify creditors and pay all known debts can result in personal liability for the shareholders. Simply ceasing business operations is not enough; you must complete the legal dissolution process to protect yourself from future taxes and liabilities. This is general information and does not constitute legal advice. For complex situations, such as those involving significant debts or shareholder disputes, consult with a qualified California attorney.