My wife created S corp in 2005 for the apt units she owns. But we never filed tax returns on the corp name but we did it on her personal tax returns. California state corp dept suspended our entity. How do we dissolve the corp now?
We really appreciate the feed back on this.
In California, dissolution of the corporation can be started by the shareholders making an “election” to dissolve the corporation. The election can be made by “written consent” of the shareholders. The election can also be made by a formal vote of the shareholders at a meeting of the shareholders.
The vote or written consent will need to be made by at least 50% of the outstanding shares of the corporation. If there were no shares issued, the board of directors could make the election. If there were no directors elected or named in the original Articles of Incorporation, this decision could be made by a majority of the incorporators of the corporation. The incorporator or incorporators will be named in the Articles of Incorporation.
After the formal election to dissolve the corporation has been made, the corporation is required to file documents with the Secretary of State. To dissolve, the corporation must file a Certificate of Election to Wind Up and Dissolve prior to or together with a Certificate of Dissolution. However, if the election to dissolve is made by the vote of all the outstanding shares, only the Certificate of Dissolution is required.
As soon as you have filed the Certificate of Dissolution, the Secretary of State will contact the California Franchise Tax Board to determine whether or not the corporation is current on its tax filings and payments. This is the part where it gets expensive for you.
If the corporation is current on tax filings and tax payments, the request for dissolution will be granted. If the corporation has not made all of the necessary tax filings and is not current with its tax payments, the certificate will be rejected by the Secretary of State. The corporation will be required to file all of the late tax returns and pay the minimum franchise tax fee for each year of outstanding tax returns, including any penalties and interest that have accrued, in order to complete the dissolution.
I hope this information give you some idea of the basic process you will need to go through to dissolve the corporation now.
I know that the other attorneys spent some time thinking about this problem for you and we would all appreciate it if you take the time to mark one of the responses as the “Best Answer".
First and foremost, talk to a tax attorney or accountant for tax advice. You won't get it from me. That being said, dissolving the Corporation doesn't absolve it from its tax liability in previous years. You will need to file those returns, even if you paid the tax personally. Your accountant should be able to file the returns with the appropriate designations and considering the tax paid individually.
Normally there are meetings of the Shareholders and Directors who adopt a resolution to "Wind up and dissolve" and a reslotution to dissolve. There are forms on the Secretary of State's website you then need to file. If you have been suspended, I see not benefit to dissolution since it may require you to pay your past due Franchise taxes. Check with your CPA and consider hiring an attorney for what is a very modest project. firstname.lastname@example.org
The attorneys that have responded have provided excellent advice. You will need to file:
1. The applicable dissolution documents with the Secr. of State.
2. Prepare all S corp. returns and file them and pay any taxes, penalties and interest.
If you need assistance, I am a CPA and Attorney with an office in LA
I assume the corporation owns the apartment units. If so, the purpose for holding it in the corporate form may still exist, i.e. to limit personal liability. You may want to simply file the returns and pay the franchise taxes ($800/year + penalties and interest) and keep the corporate form. Since it is an S corp. the taxes paid other than the franchise fee should be the same. Alternatively, you may want to have the corporation transfer the property to your wife and continue to file as an individual. The tax liens the state has are primarily against a corporation that ignored the corporate form and which, since suspension, has not enjoyed the protection of the franchise. The lien could follow the property and the franchise taxes still be imposed but it is more likely nothing will happen. Corporations are formed and die on the vine in the thousands every year without formal dissolutions. You should see an attorney to discuss potential liability and other issues that may depend on the full facts.
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