Entity Cleanup: Moves to Make Before Year-End

As year-end approaches, many real estate organizations turn their attention to tax planning and operational priorities for the coming year. One critical, but often overlooked, step is dissolving inactive or unnecessary legal entities.

Taking time for this simple cleanup can save thousands in recurring annual fees, reduce compliance risk, and streamline your structure heading into the new year.

Consider this scenario:

A real estate asset management firm with 75 entities discovers that 10 LLCs were created for single-asset deals that closed years ago. Each entity costs $800 annually in California franchise tax, plus registered agent fees and compliance monitoring.

By dissolving those 10 entities before year-end, the firm can save $8,000 in state fees alone, not counting administrative time and tax preparation costs. If filing fees are due across multiple states, the savings can be even more substantial.

Why it matters

Dormant entities may seem harmless, but they often carry ongoing obligations that create cost and risk, including: 

• Annual state fees and franchise taxes (often $800+ per entity in states like California and Texas) 
• Administrative burden from filings, registered agent fees, compliance tracking, unnecessary Schedule K-1s, and bank account maintenance 
• Risk of noncompliance if entities fall out of good standing, which can delay ownership transfers, refinancing, or final tax filings

A leaner structure means fewer filings, fewer fees, and fewer surprises.

Which entities to target

Year-end is the ideal time to review your entity roster and identify candidates for dissolution, such as: 

• Entities that held assets already sold or transferred 
• Special purpose vehicles created for deals that never closed 
• Investment vehicles that have run their course 
• Entities inactive for 12+ months or duplicative of others 
• Structures that no longer serve an operational, tax, or liability-protection purpose

Funds and syndications should also confirm whether completed investment vehicles should be formally closed once assets are liquidated and distributions made.

Key steps before year-end

Closing an entity isn’t just paperwork; it requires coordination across legal, tax, and accounting functions. To avoid January fees and compliance issues, start now:

1. Clear assets and liabilities — Close bank accounts, finalize distributions, and resolve any intercompany balances.
2. Consult with legal counsel — Confirm compliance with all statutory requirements and address any unique circumstances related to your entities.
3. File final federal and state returns — Mark returns as “final” and meet all state-level filing obligations.
4. Cancel registrations in all states — If your entity is registered in multiple states, remember each has its own cancellation process.
5. File Articles of Dissolution or Certificates of Cancellation — This officially terminates the entity in its formation state.
6. Retain records — Keep operating agreements, tax returns, and dissolution filings for at least seven years.

How CLA can help with entity cleanup

When it comes to closing out entities, and getting it done right the first time, we can help make the process simple and stress-free. We’ll start by reviewing your entity list together and pinpointing which ones no longer serve a purpose. From there, we can handle the heavy lifting — final filings, multi-state cancellations, and making sure assets are cleared and liabilities resolved so nothing falls through the cracks.

We also take care of details like closing out financial records accurately and keeping documentation organized for future audits or investor questions. The goal? Reduce risk and administrative headaches — and set you up with a leaner, more efficient structure for the year ahead.