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AB-1859 Limited liability companies: certificate of cancellation.(2003-2004)

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Assembly Bill No. 1859
CHAPTER 416

An act to add Section 17350.5 to the Corporations Code and to amend Sections 17941 and 17945 of the Revenue and Taxation Code, relating to limited liability companies.

[ Filed with Secretary of State  September 09, 2004. Approved by Governor  September 09, 2004. ]

LEGISLATIVE COUNSEL'S DIGEST


AB 1859, Nakano. Limited liability companies: certificate of cancellation.
The Beverly-Killea Limited Liability Company Act authorizes the creation of limited liability companies as a form of business organization. Existing law imposes a minimum franchise tax on certain corporations and exempts from the minimum franchise tax for their first taxable year, corporations that meet specified requirements, except that this exemption does not apply to certain types of corporations, including limited liability companies. Existing law prohibits the term of existence of a limited liability company being reduced or terminated by a decree of dissolution, withdrawal, or cancellation unless the company obtains from the Franchise Tax Board a tax clearance certificate.
This bill would, if a domestic limited liability company has not conducted any business, provide that a majority of the members, or if there are no members, the majority of the managers or, if none, the person or majority of the persons signing the articles of organization, could execute and acknowledge a certificate of cancellation of the articles of organization meeting specified criteria. The bill would require that the certificate of cancellation be filed with the Secretary of State within 12 months of the filing of the articles of organization. The bill would provide that, upon the filing of that certificate of cancellation, a limited liability company is cancelled and its powers, rights, and privileges cease. The bill would make the exemption from the minimum franchise tax applicable to a limited liability company that files a certificate of cancellation, but would not entitle the company to a reimbursement of any annual taxes or fees already paid. The bill would also exempt the limited liability company from the requirement to obtain a tax clearance certificate and would require the Secretary of State to notify the Franchise Tax Board of that cancellation.

The people of the State of California do enact as follows:


SECTION 1.

 Section 17350.5 is added to the Corporations Code, to read:

17350.5.
 (a) Notwithstanding any other provision of this division, if a domestic limited liability company has not conducted any business, only a majority of the members, or, if there are no members, the majority of the managers, if any, or if no members or managers, the person or a majority of the persons signing the articles of organization, may execute and acknowledge a certificate of cancellation of articles of organization, on a form prescribed by the Secretary of State, stating all of the following:
(1) The name of the domestic limited liability company and the Secretary of State’s file number.
(2) That the certificate of cancellation is being filed within 12 months from the date the articles of organization were filed.
(3) That the limited liability company does not have any debts or other liabilities, except as provided in paragraph (4).
(4) That the tax liability of the limited liability company will be satisfied on a taxes-paid basis or that a person, limited liability company, or other business entity assumes the tax liability, if any, of the dissolving limited liability company as security for the issuance of a tax clearance certificate from the Franchise Tax Board and is responsible for additional taxes or fees, if any, that are assessed under the Revenue and Taxation Code and become due after the date of the assumption of tax liability.
(5) That the final tax return has been filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
(6) That the known assets of the limited liability company remaining after payment of, or adequately providing for, known debts and liabilities have been distributed to the persons entitled thereto or that the limited liability company acquired no known assets, as the case may be.
(7) That the limited liability company has not conducted any business from the time of the filing of the articles of organization.
(8) That a majority of the managers or members voted, or, if no managers or members, the person or a majority of the persons signing the articles of organization, voted to dissolve the limited liability company.
(9) If the limited liability company has received payments for interests from investors, that those payments have been returned to those investors.
(b) A certificate of cancellation executed and acknowledged pursuant to subdivision (a) shall be filed with the Secretary of State within 12 months from the date that the articles of organization were filed. The Secretary of State shall file the certificate of cancellation without the tax clearance certificate specified in Section 17945 of the Revenue and Taxation Code, and shall notify the Franchise Tax Board of the cancellation.
(c) Upon filing a certificate of cancellation pursuant to subdivision (a), a limited liability company shall be cancelled and its powers, rights, and privileges shall cease.
(d) A domestic limited liability company that filed articles of organization on or after January 1, 2004, and that meets all of the conditions described in subdivision (a) may file a certificate of cancellation under this section.

SEC. 2.

 Section 17941 of the Revenue and Taxation Code is amended to read:

17941.
 (a) For each taxable year beginning on or after January 1, 1997, a limited liability company doing business in this state (as defined in Section 23101) shall pay annually to this state a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153 for the taxable year.
(b) (1) In addition to any limited liability company that is doing business in this state and is therefore subject to the tax imposed by subdivision (a), for each taxable year beginning on or after January 1, 1997, a limited liability company shall pay annually the tax prescribed in subdivision (a) if articles of organization have been accepted, or a certificate of registration has been issued, by the office of the Secretary of State. The tax shall be paid for each taxable year, or part thereof, until a certificate of cancellation of registration or of articles of organization is filed on behalf of the limited liability company with the office of the Secretary of State.
(2) If a taxpayer files a return with the Franchise Tax Board that is designated as its final return, the Franchise Tax Board shall notify the taxpayer that the annual tax shall continue to be due annually until a certificate of cancellation is filed with the Secretary of State pursuant to Section 17356 or 17455 of the Corporations Code.
(c) The tax assessed under this section shall be due and payable on or before the 15th day of the fourth month of the taxable year.
(d) For purposes of this section, “limited liability company” means an organization, other than a limited liability company that is exempt from the tax and fees imposed under this chapter pursuant to Section 23701h or Section 23701x, that is formed by one or more persons under the law of this state, any other country, or any other state, as a “limited liability company” and that is not taxable as a corporation for California tax purposes.
(e) Notwithstanding anything in this section to the contrary, if the office of the Secretary of State files a certificate of cancellation pursuant to Section 17350.5 of the Corporations Code for any limited liability company, then paragraph (1) of subdivision (f) of Section 23153 shall apply to that limited liability company as if the limited liability company were properly treated as a corporation for that limited purpose only, and paragraph (2) of subdivision (f) of Section 23153 shall not apply. Nothing in this subdivision entitles a limited liability company to receive a reimbursement for any annual taxes or fees already paid.

SEC. 3.

 Section 17945 of the Revenue and Taxation Code is amended to read:

17945.
 No decree of dissolution, withdrawal, or cancellation shall be made and entered by any court, nor shall the county clerk of any county or the Secretary of State file any decree of dissolution, withdrawal, or cancellation or any other document by which the term of existence of the limited liability company shall be reduced or terminated, except as provided in subdivision (b) of Section 17350.5 of the Corporations Code, nor shall the Secretary of State file any certificate of the surrender or cancellation by a foreign limited liability company of its rights to do intrastate business in this state unless the limited liability company obtains from the Franchise Tax Board and files with the court, county clerk, or Secretary of State, as the case may be, a tax clearance certificate indicating that the Franchise Tax Board is satisfied from the available evidence that all taxes and fees imposed by this chapter or all taxes imposed by Part 11 (commencing with Section 23001) have been paid or are secured by bond, deposit, or otherwise. Within 30 days after receiving a request for a certificate, the Franchise Tax Board shall either issue the certificate or notify the person requesting the certificate of the amount of tax or fees that must be paid or the amount of bond, deposit, or other security that must be furnished as a condition of issuing the certificate. The issuance of the certificate shall not relieve the taxpayer or any individual, bank, or corporation from liability for any taxes, fees, penalties, or interest imposed by this part or Part 11 (commencing with Section 23001). The Franchise Tax Board shall furnish a copy of the tax clearance certificate to the Secretary of State.

SEC. 4.

 The amendments to Section 17941 of the Revenue and Taxation Code made by this act shall apply to taxable years beginning on or after January 1, 2005.