eMinutes Magazine

Can Your California LLC Avoid the Annual $800 Franchise Tax?

Imagine a state that forgives tax! Would it surprise you to learn that California has done just that? In very limited circumstances, newly formed California LLCs that plan to dissolve can avoid the $800 Franchise Tax.  Normally, when a domestic LLC ceases to do business in California, the Managers of the company will file a Certificate of Dissolution (LLC-3) and a Certificate of Cancellation (LLC-4/7) with the Secretary of State to officially end the existence of the company. The LLC will still be required to file a final tax return, pay the annual $800 Franchise Tax, and any amount owed for the Gross Receipts Fee imposed by the Franchise Tax Board (see, http://www.eminutesonline.com/what-is-the-annual-cost-of-maintaining-a-llc/ for more information on the California Gross Receipts Fee).

When a newly formed LLC elects to dissolve, on the other hand, the process is far simpler and the LLC does not need to pay the $800 annual Franchise Tax if certain requirements are met. A newly formed LLC can file a Certificate of Cancellation Short Form (LLC-4/8) and the $800 Franchise Tax will be waived if the following requirements are met:

  1. The Certificate of Cancellation is being filed within 12 months from the date the Articles of Organization were filed with the Secretary of State;
  2. The LLC has no debts or liabilities (other than tax liabilities);
  3. The assets of the LLC have been distributed to the person entitled thereto, or no assets have been acquired; 
  4. The final tax return or a final annual tax return has been or will be filed with the Franchise Tax Board; 
  5. The domestic LLC has not conducted any business from the time of filing the Articles of Organization (including opening of a bank account and depositing any funds into such bank account); 
  6. A Majority of the Managers or Members voted to dissolve the entity; and
  7. Any investments received from investors have been returned to those investors.

Written by Jeffrey Unger · Filed Under Articles, LLCs 

Comments

2 Responses to “Can Your California LLC Avoid the Annual $800 Franchise Tax?”

  1. Jeffrey Unger on February 26th, 2010 10:50 am

    The Franchise Tax will be assessed annually until the company is formally dissolved with the Secretary of State. The company will need to file a Certificate of Cancellation and in some circumstances, a Certificate of Dissolution with the Secretary of State to formally dissolve the Company. Until such time, the company will continue to incur the annual franchise tax, even if the it has previously marked it has already filed its final tax return with the Franchise Tax Board.

  2. Daniel on February 23rd, 2010 5:27 pm

    Jeff –

    “The final tax return or a final annual tax return has been or will be filed with the Franchise Tax Board”

    How do I do this and ensure that I do not pay the $800? We did no business at all, what forms would I use?

    Thanks! I really appreciate it.

    Daniel

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