Question: My business partner and I are considering dissolving our California LLC by short form in less than 12 months to avoid the $800 annual franchise tax because our business is not producing any income yet. We have a bank account set up under the LLC. Can the assets remain in that account if we file a fictitious business name? Or does the account have to be closed?
Answer: As you are seeking to avoid paying the annual California franchise tax, I assume you are contemplating conversion to a general partnership, rather than a limited liability partnership or limited partnership, as both limited liability partnerships and limited partnerships are also subject to the annual franchise tax.
Risks Posed By General Partnerships
If you are contemplating conversion to a general partnership, I would strongly caution you to consider the consequences in doing so, as a general partnership does not afford you with the same personal liability limitation as an LLC, LLP, or LP, meaning, that you and your partner will be personally liable for the debts and lawsuits of the general partnership. I understand that payment of the annual franchise tax can be burdensome, particularly when you are not generating any income, however, the liability limitation afforded by an LLC is often worth payment of the franchise tax. I am not familiar with the specifics of your business, but please consider the potential liabilities that you could be personally liable for if you decide to make the conversion to a general partnership.
However, if you do decide to convert your LLC to a general partnership, you may do so by filing the appropriate conversion form with the California Secretary of State. To convert to a registered partnership, you would file a California Secretary of State Form GP-1A, which has a filing fee of $70, and to convert to an unregistered general partnership you would file a California Secretary of State Form CONV-1A, which has a filing fee of $30. I have included a link below which provides information from the State of California with respect to general partnerships and the filing process for your reference, but again, strongly caution you in doing so, particularly if you foresee growing this business and continuing in operation or if it has any sort of potential liabilities associated with it.
If you make the conversion to a general partnership by filing with the California Secretary of State, you should be able to keep the same bank account, and the assets will remain in the converted entity.
I would recommend contacting an attorney experienced in dealing with California business entities before making a conversion to a general partnership, as it shouldn’t be very expensive to get some advice specific to your situation. However, if you do not chose to do so, please do some research on California general partnerships, and make sure that you are sure that this is in the best interest of your company. Best of luck with your business!