(a) In General. A domestic corporation,
including a tax-exempt domestic corporation, must obtain a tax clearance
certificate from the Franchise Tax Board before it can dissolve. A domestic
corporation, including a tax exempt domestic corporation, that is the
disappearing corporation in a merger with a foreign corporation not qualified
to transact intrastate business must obtain a tax clearance certificate before
the Secretary of State may file the merger agreement. A foreign corporation,
including a tax exempt foreign corporation, that is qualified to transact
intrastate business must obtain a tax clearance certificate before the
Secretary of State may file a certificate of surrender of the corporation's
right to transact intrastate business or before the Secretary of State may file
the merger agreement when the disappearing corporation is a foreign corporation
qualified to transact intrastate business.
(b) Tax Clearance Certificate Procedures.
(1) Within thirty days after the Franchise
Tax Board receives a request for a tax clearance certificate, the Franchise Tax
Board will either issue a tax clearance certificate or inform the requestor of
the conditions that must be satisfied before the Franchise Tax Board will issue
a tax clearance certificate.
(A) The
Franchise Tax Board may issue a tax clearance certificate on an expedited
basis. A corporation needing a tax clearance certificate on an expedited basis
must have a specific justification for requesting the expedited service, such
as legal or financial difficulties that will occur if the Franchise Tax Board
fails to issue a tax clearance within twenty-four hours of receipt.
(B) A corporation that is suspended or
becomes suspended during the tax clearance process cannot receive a tax
clearance certificate from the Franchise Tax Board. If a suspended corporation
requests a tax clearance certificate, the Franchise Tax Board will advise the
requestor of the requirements to revive the suspended corporation in response
to the request for a tax clearance certificate.
(2) Except in the case of a corporation that
is suspended (see subsection (b)(1)(B) above), the Franchise Tax Board will
issue a tax clearance certificate once all taxes have been paid or secured and
once the corporation has filed all required returns, if necessary.
(A) A tax clearance certificate may be issued
based upon any of the following:
1. Taxes
paid: If a corporation requests a tax clearance certificate on the basis that
the corporation paid or will pay all taxes due, the corporation must file a
final tax return and pay any outstanding tax liability before the Franchise Tax
Board will issue a tax clearance certificate. After the Franchise Tax Board
reviews the corporation's file, including a final return, and determines that
the corporation has paid all outstanding tax liability, the Franchise Tax Board
will issue the tax clearance certificate and forward a copy to the Secretary of
State.
2. Assumption of liability:
If a corporation requests a tax clearance based on assumption of tax liability,
the Franchise Tax Board will accept any individual or organization that can
verify the financial ability to satisfy the entire potential tax liability of
the corporation as an assumer for that corporation. As long as all relevant
information to request a tax clearance certificate is included, the assumption
of tax liability has a current date and original signatures, and the assumer
has the financial ability to satisfy the entire potential tax liability, the
Franchise Tax Board will issue a tax clearance certificate and forward a copy
to the Secretary of State. The assumption of tax liability will become
effective when the Secretary of State files the dissolution, merger, or
surrender documents and the corporation receives a tax clearance certificate
from the Franchise Tax Board.
3.
Surety bond: If a corporation requests a tax clearance based on a surety bond,
the Franchise Tax Board will inform the corporation of the required amount of
the surety bond, which will be no less than two thousand dollars ($2,000). Once
the corporation submits the requisite surety bond, the Franchise Tax Board will
issue the tax clearance certificate and forward a copy to the Secretary of
State. After the Franchise Tax Board audits the corporation's final return and
all outstanding tax liability is satisfied, the Franchise Tax Board will
release the surety bond.
4. Cash
deposit: If a corporation requests a tax clearance based on a cash deposit, the
Franchise Tax Board will inform the corporation of the required amount of the
cash deposit, which will be no less than two thousand dollars ($2,000). Once
the corporation submits the requisite cash deposit, the Franchise Tax Board
will issue the tax clearance certificate and forward a copy to the Secretary of
State. After the Franchise Tax Board audits the corporation's final return and
uses the deposit to offset any outstanding tax liability, the Franchise Tax
Board will release any remaining amount of cash deposit.
(B) Receiving a tax clearance certificate
does not relieve the corporation, or its transferees, of any tax liability
(including interest and penalties) that may be due or found to be due under
Part 11 of Division 2 of the Revenue and Taxation Code.
(C) If the corporation has not filed a final
return before the Franchise Tax Board issues a tax clearance certificate, the
corporation, or its transferees, is responsible for filing one within two
months and fifteen days after the close of the month in which the corporation
ceases to exist.
(D)
Notwithstanding anything in this regulation, all returns, including the final
return, remain subject to audit until the expiration of the normal statute of
limitations.
(c) Domestic General Corporations Seeking
Dissolution.
(1) A domestic general
corporation seeking dissolution must submit to the Secretary of State all
documents required under the Corporations Code to effectuate dissolution and
submit either i) a tax clearance certificate, ii) a request for a tax clearance
certificate, or iii) the submitted Certificate of Dissolution must contain
language stating that the tax liability will be satisfied on a taxes paid basis
or that a person or organization assumes the tax liability, if any, of the
dissolving corporation as security for the issuance of a tax clearance
certificate from the Franchise Tax Board and is responsible for additional
corporate taxes, if any, that are assessed and that become due after the date
of the assumption of the tax liability, pursuant to Corporations Code section
1905,
subdivision (a), subpart (3).
(A) When the
corporation submits the required documents to the Secretary of State for filing
pursuant to Corporations Code section
1905,
the Secretary of State will file the Certificate of Dissolution. If a tax
clearance certificate does not accompany the filing, the corporation's
dissolution will be "conditional" pending the issuance of a valid tax clearance
certificate by the Franchise Tax Board, pursuant to Corporations Code section
1905,
subdivision (c).
(B) For tax
purposes the corporation's existence continues until the Franchise Tax Board
has issued, and the Secretary of State has received, a valid tax clearance
certificate. Therefore, if a corporation does not satisfy all of the conditions
necessary to receive a tax clearance certificate within a reasonable time, the
corporation may be suspended and must be revived before a tax clearance
certificate will be issued. Under Corporations Code section
1905,
subdivision (c), however, the corporate powers, rights, and privileges cease
when the Secretary of State files the Certificate of
Dissolution.
(2) In the
case where the corporation submits a request for a tax clearance certificate to
the Secretary of State, the Secretary of State will forward the request for a
tax clearance certificate to the Franchise Tax Board.
(3) A general corporation will not be liable
for the minimum franchise tax for the taxable year in which the Franchise Tax
Board issues the tax clearance certificate if:
(A) the Secretary of State filed the
corporation's Certificate of Dissolution before the beginning of that year and
the corporation did not do business in this state during that taxable year;
or
(B) the corporation's taxable
year is 15 days or less before the Secretary of State filed the corporation's
Certificate of Dissolution and the corporation did not do business in this
state during that taxable year.
(d) Domestic Nonprofit Corporations Seeking
Dissolution
(1) A domestic nonprofit
corporation must request and receive a valid and current tax clearance
certificate and submit all required documents to the Secretary of State before
the Secretary of State may file the Certificate of Dissolution, pursuant to
Corporations Code section
6615(public
benefit), Corporations Code section
8615(mutual
benefit) and Corporations Code section
9680(religious).
(2) When the domestic nonprofit corporation
receives a tax clearance certificate from the Franchise Tax Board, that
corporation must file a Certificate of Dissolution with the Secretary of State
on or before the expiration date shown on the tax clearance
certificate.
(3) If the domestic
nonprofit corporation does not have tax-exempt status, then the franchise tax,
including the minimum franchise tax, will continue to be imposed until the
domestic nonprofit corporation has ceased doing business in this state or the
Secretary of State has filed the Certificate of Dissolution, whichever is
later. If the nonprofit corporation's taxable year is 15 days or less before
the Secretary of State files the nonprofit corporation's Certificate of
Dissolution, however, the corporation will not be liable for the minimum
franchise tax as long as the corporation did not do business in this state
during that taxable year.
(e) Qualified Foreign Corporations Seeking
Surrender.
(1) A qualified foreign corporation
must request and receive a valid tax clearance certificate from the Franchise
Tax Board and submit all required documents to the Secretary of State before
the Secretary of State may file a Certificate of Surrender of Right to Transact
Intrastate Business.
(2) When the
qualified foreign corporation receives a tax clearance certificate from the
Franchise Tax Board, that corporation must file a Certificate of Surrender of
Right to Transact Intrastate Business with the Secretary of State, on or before
the expiration date shown on the tax clearance certificate. (See Corp. Code
§
2112.)
(3) If the qualified foreign corporation does
not have tax-exempt status, the franchise tax, including the minimum franchise
tax, will continue to be imposed until the qualified foreign corporation has
ceased doing business in this state or the Secretary of State has filed the
Certificate of Surrender of Right to Transact Intrastate Business, whichever is
later. If the corporation's taxable year is 15 days or less before the
Secretary of State files the corporation's Certificate of Surrender of Right to
Transact Intrastate Business, however, the corporation will not be liable for
the minimum franchise tax as long as the corporation did not do business in
this state during that taxable year.
(f) General Corporations Merging with Other
General Corporations. In the case of a statutory merger between two or more
general corporations:
(1) When the surviving
corporation is a foreign corporation not qualified to transact intrastate
business and the disappearing corporation is a domestic general corporation,
the merger becomes effective in accordance with the law of the surviving
corporation's jurisdiction, except as provided by Corporations Code section
1108,
subdivision (e). However, the disappearing domestic corporation must obtain a
tax clearance certificate from the Franchise Tax Board and submit the tax
clearance certificate along with the merger documents required by the
Corporations Code before the Secretary of State will file the merger documents
and terminate the existence of the domestic corporation. (See Corp. Code
§§
1108 and
1107.5.)
(2) When both the
surviving and disappearing corporations are domestic general corporations, the
merger becomes effective when the Secretary of State files the required merger
documents. The Secretary of State will file the merger documents without a tax
clearance certificate issued by the Franchise Tax Board and will notify the
Franchise Tax Board of the merger. (See Corp. Code §
1107.5.)
(3) When the surviving corporation is a
qualified foreign corporation and the disappearing corporation is a domestic
general corporation, the merger becomes effective in accordance with the law of
the surviving corporation's jurisdiction, except as provided by Corporations
Code section
1108, subdivision (e). However,
the surviving corporation must submit the required merger documents to the
Secretary of State for filing. The Secretary of State will file the merger
documents without requiring the domestic corporation to obtain a tax clearance
certificate from the Franchise Tax Board and will notify the Franchise Tax
Board of the merger. (See Corp. Code §§
1108 and
1107.5.)
(4) When the surviving corporation is a
domestic general corporation and the disappearing corporation is a qualified
foreign corporation, it is necessary to obtain a tax clearance certificate from
the Franchise Tax Board for the disappearing qualified foreign corporation. The
tax clearance certificate and the required merger documents must be submitted
to the Secretary of State for filing. Each disappearing qualified foreign
corporation, by virtue of filing the required merger documents, will
automatically surrender its right to transact intrastate business as of the
date of the filing by the Secretary of State. (See Corp. Code §
1108.)
(g) Other Organizations.
(1) Other Organizations Required to Obtain a
Tax Clearance Certificate.
(A) Domestic
limited liability companies seeking cancellation of their articles of
organization and foreign limited liability companies seeking cancellation of
their registration to transact intrastate business are required to obtain a tax
clearance certificate under Revenue and Taxation Code section
17941
et seq. (See Rev. and Tax. Code §
17945.)
(B) Domestic limited liability partnerships
seeking cancellation or cessation of their registration as a limited liability
partnership and foreign limited liability partnerships seeking cessation of
their registration either as a limited liability partnership, or to conduct
intrastate business are required to obtain a tax clearance certificate under
Revenue and Taxation Code section
17948
et seq. (See Rev. and Tax. Code §
17948.1.)
(2) Organizations Not Required to Obtain a
Tax Clearance Certificate.
(A) A tax clearance
certificate is not required for organizations not created under the laws of
California or qualified to transact intrastate business in California with the
Secretary of State.
(B) These
organizations, however, are still required to file a final return with the
Franchise Tax Board pursuant to the applicable provision of the Revenue and
Taxation Code.
(h) Examples.
EXAMPLE 1: Corporation B, a calendar year taxpayer that
is a general corporation incorporated in this state, ceases all business
activities on December 22, 2000. On December 29, 2000, B submits to the
Secretary of State dissolution documents conforming with the Corporations Code
and a request for a tax clearance certificate based on taxes already paid,
whereupon the Secretary of State files the Certificate of Dissolution and
grants B a dissolution conditioned on the Franchise Tax Board issuing a tax
clearance certificate. The Secretary of State forwards the request for a tax
clearance certificate to the Franchise Tax Board on January 3, 2001. On January
29, 2001, the Franchise Tax Board informs B that, as conditions precedent to
receiving a tax clearance certificate, B must file a final tax return and pay
the franchise tax for the 2000 taxable year. B files the final return and pays
the franchise tax on March 1, 2001. The Franchise Tax Board audits the returns
for all outstanding taxable years, including the final return, and then issues
the tax clearance certificate, sending a copy to the Secretary of State. The
dissolution will then become final as of December 29, 2000, the date the
documents were filed with the Secretary of State. Pursuant to Revenue and
Taxation Code section
23332,
B will not be subject to the minimum franchise tax for the 2001 taxable year
because B has met each of the requirements of that section by ceasing all
business activities and filing the dissolution papers before commencement of
the 2001 taxable year.
EXAMPLE 2: Assume the same facts as in EXAMPLE 1, except
that B does not file the final return and pay the franchise tax for 2000 on
March 1, 2001. On January 3, 2002, the Franchise Tax Board suspends B pursuant
to Revenue and Taxation Code section
23301.
On February 13, 2002, B files a final return but the Franchise Tax Board is
unable to issue a final tax clearance certificate because B is
suspended.
EXAMPLE 3: Corporation C, a domestic general corporation,
is in the process of merging with Corporation D, another domestic general
corporation, where D will be the surviving corporation. C and D have agreed to
the terms of the merger and file merger documents with the Secretary of State.
The Secretary of State will file the merger documents without receiving a tax
clearance certificate for C from the Franchise Tax Board. The Secretary of
State will inform the Franchise Tax Board of the merger and termination of C's
existence.
EXAMPLE 4: Assume the same facts as in EXAMPLE 3, except
Corporation D, the surviving corporation, is a foreign general corporation not
qualified to transact intrastate business. To effectuate the merger D is
required to follow the laws of the jurisdiction under which it is incorporated.
However, D is required to submit the required merger documents to the Secretary
of State and C must obtain a tax clearance certificate from the Franchise Tax
Board before the Secretary of State will file the merger
documents.
(i) Definitions.
For purposes of this regulation, the following terms mean:
(1) "Domestic" means any corporation formed
under the laws of the State of California.
(2) "Corporation" means any entity recognized
as a corporation for purposes of the Corporations Code and Chapter 2 of Part
11, Division 2 of the Revenue and Taxation Code, including both general
corporations and nonprofit corporations.
(3) "Corporations Code" means the California
Corporations Code.
(4) "Foreign"
means any corporation formed under the laws of any jurisdiction other than the
State of California.
(5) "General
corporation" means a corporation that is organized under Division 1 of Title 1
or the Corporations Code, section
100 et
seq., commonly referred to as stock corporation or business
corporation.
(6) "Nonprofit" means
a corporation organized under Division 2 of Title 1 of the Corporations Code
section
5000 et
seq., commonly referred to as non-stock corporations.
(7) "Organization" includes a corporation, a
limited liability company, or a limited liability partnership, limited
partnership, partnership, trust, or any other entity.
(8) "Qualified" means the foreign corporation
has received a certificate of qualification from the Secretary of State for the
right to transact intrastate business.
(9) "Secretary of State" means the State of
California, Office of Secretary of State.
(j) Cross-References. All references to
provisions of the Corporations Code, discussion of the corporate law
consequences of various transactions, and discussion of the Secretary of
State's procedures are intended to be illustrative only and are not intended to
have substantive effect. For information regarding the Corporations Code
provisions used in this regulation, the corporate law consequences of the
various transactions, and the Secretary of State's procedures relating to
dissolution, surrender, or merger please contact the Secretary of State. The
following cross-references are relevant for purposes of this regulation:
(1) For rules describing the corporate law
procedures for effectuating dissolution of a general corporation, see
Corporations Code section
1900 et
seq.
(2) For rules describing the
corporate law procedures for effectuating dissolution of a nonprofit
corporation, see Corporations Code section
6610 et
seq. (public benefit), Corporations Code section
8610 et
seq. (mutual benefit) and Corporations Code section
9680(religious).
(3) For rules describing the corporate law
procedures effectuating surrender of the right to conduct intrastate business
for a foreign corporation, see Corporations Code section
2112.
(4) For rules describing the corporate law
procedures for effectuating a merger of general corporations, see Corporations
Code section
1100 et
seq.
(5) For rules describing the
corporate law procedures for effectuating a merger of nonprofit corporations,
see Corporations Code section
6010 et
seq. (public benefit), Corporations Code section
8010 et
seq. (mutual benefit) and Corporations Code section
9640(religious).
(6) For rules describing the corporate law
procedures for effectuating interspecies mergers see Corporation Code section
1113.
(7) For rules describing the suspension and
revivor process, see Revenue and Taxation Code sections
23282
and
23301
et seq.
(8) For rules describing
the imposition of the franchise tax for the last taxable year of domestic
corporations, see Revenue and Taxation Code sections
23114
and
23332.
(9) For rules describing the use of a final
return as a request for a tax clearance certificate, see Revenue and Taxation
Code section
23335.
(10) For rules describing audit procedures,
including statute of limitations for issuing a notice of proposed assessment,
see Revenue and Taxation Code section
19031
et seq.