When a Delaware LLC is no longer needed or wanted, the LLC owners consider to dissolve it.
Thanks to my years-long experience in business formation I have learned how to dissolve an LLC in Delaware in a short and stress-free manner.
Together with my team of legal experts and attorneys, I have helped many business owners to do this smoothly and without additional charges.
To help you do the same, we have created this guide with a special focus on why business owners might choose to dissolve a Delaware limited liability company and what happens in both voluntary and involuntary dissolution cases.
Quick Summary
- To dissolve an LLC in Delaware, all members must accept a resolution to dissolve the business, deal with tax obligations, and file Certificate of Cancellation with Delaware Secretary of State.
- Some of the most common reasons on why some choose to dissolve their Delaware LLC include changing business needs, financial troubles, or ending operations.
- Once an LLC is officially dissolved, its legal existence will shut down in the state of Delaware.
Steps to Dissolving a Delaware LLC
The Delaware Secretary of State allows LLCs to dissolve after members have completed the required procedures with the Delaware Secretary of State [1].
However, your LLC operating agreement is critical for the dissolution process.
This document will detail the specific actions that must be completed to dissolve your LLC before submitting the official papers to the state. Delaware law will apply to dissolution if you don't have an operating agreement.
1. Consult Your LLC Operating Agreement
Delaware LLC dissolution starts by looking into specific provisions in your LLC agreement.
There are several reasons why an LLC might choose to dissolve, and the process for doing so will vary depending on those circumstances.
If your LLC is dissolving voluntarily, you'll need to follow the provisions in your operating agreement about how to wind up the company's affairs.
This might include selling off company assets, paying creditors, and distributing any remaining assets or LLC property among LLC members.
If you can't find specific instructions in your LLC agreement, you'll need to contact a Delaware lawyer for help.
The process will usually require that the LLC members vote to dissolve the company and then work with the state to terminate its existence properly.
2. Notify All Affected Parties
When dissolving a Delaware LLC, it's important to inform creditors, banks, clients, suppliers, and government agencies connected to the LLC's liabilities or potential future liabilities. This can be done by sending advance notices as required by the LLC agreement or fulfilling your duties as an LLC liquidation manager or member.
Some notices may be a courtesy, while others may need to be formal to notify parties affected by the company's dissolution.
3. Settle the Delaware Franchise Tax
Delaware Franchise Tax must be paid in order to dissolve a Delaware limited liability company. This is a flat fee that is not based on the company's income or business conducted. If the LLC has generated no income, it must pay a franchise tax.
Paying back taxes, penalties, and interest may also be necessary.
The annual franchise tax is payable to the Delaware Division of Corporations. The due date for the Delaware franchise tax is the last day of the month following the end of your LLC's fiscal year.
The easiest way to pay the Delaware franchise tax is online through the state's e-gov portal in their franchise tax section. You can also mail a check or money order payable to "The Delaware Secretary of State, Delaware Division of Corporations" [2].
If you have trouble calculating your franchise tax and filing fees, make sure to seek legal or tax advice from a professional.
4. Close Business Accounts and Settle Debts
Before dissolving a Delaware LLC, clear all debts and obligations, including accounts payable and loans.
Close all business accounts by contacting the bank or relevant revenue authorities. Inform the IRS and State Division of Revenue with a final return, stating the LLC's full name, employer identification number, address, effective dissolution date, and reasons.
Single-member LLCs report on Schedule C Form 1040, while multi-member LLCs file their tax return as the final return for tax purposes.
5. File Delaware Certificate of Cancellation
The last step in the dissolution process is filing the Certificate of Cancellation with the Delaware Corporation Division. This document certifies that the LLC has been dissolved and confirms all of the steps that were taken to complete the process. Cancellation filing can be done online or by mail.
The LLC Certificate of Cancellation must contain the following information:
- The LLC's name and state of formation
- A statement that the LLC has been dissolved
- The signatures of all of the LLC's members or managers (or the registered agent)
The Certificate of Cancellation can be downloaded from the Delaware Corporation Division website. There is a $200 filing fee for both online filing and mail submissions [3].
Once the Certificate of Cancellation is filed with the State, the dissolution process is complete. The LLC will no longer exist, and all of its assets and liabilities will be transferred to its members (or other entities).
Reasons to Dissolve a Delaware LLC
Reasons to dissolve a Delaware LLC might vary from financial losses, personal decision to close a business, to a change in ownership.
Delaware LLC Act states that an LLC will be terminated and dissolved only if it:
- Has an expiration date in the articles of the organization
- Fulfills any provision from the operating agreement that may lead to the dissolution
- The vote or agreement of members who own more than two-thirds of the company, the current percentage, or other ownership interest in the limited liability company is obtained. There has to be a written consent form from those members in the records [4].
There are other provisions as well, so make sure you understand when Delaware law might be applied to your LLC.
Voluntary Dissolution of Delaware LLCs
Voluntary dissolution of Delaware LLCs may occur with the unanimous consent of all members.
A Delaware LLC may also be voluntarily dissolved pursuant to a plan of dissolution approved in advance by the Delaware Division of Corporations.
The plan must set forth:
- Terms and conditions of proposed dissolution are not specified
- The manner of asset and liability disposal is not mentioned
- How members' interests will be satisfied is unspecified
All of these provisions should be outlined in the LLC agreement.
The reasons why LLC members decide to dissolve their company voluntarily can vary.
Some reasons might include:
- The company is no longer profitable, or it is not in a position to generate future income
- The members are unable to agree on key decisions affecting the company's operations
- There is a deadlock among the members, and they are unable to move forward with the business
- The members want to liquidate the company's assets and distribute the proceeds among themselves.
Before voluntarily dissolving your Delaware LLC, consult an attorney to ensure compliance with the Division of Corporations' requirements. Plan accordingly.
The Administrative Dissolution of Delaware LLCs
The administrative dissolution of Delaware LLCs occurs when an LLC fails to comply with certain legal requirements.
Delaware requires that all LLCs formed in the state must maintain their good standing status. This means that the LLC must file an LLC annual report in Delaware with the Secretary of State and pay any applicable fees. If the LLC fails to do so, it may be administratively dissolved by the state.
Administrative dissolution is a process through which the Secretary of State can involuntarily dissolve an LLC for failure to maintain its good standing status.
Other reasons for the involuntary dissolution of a Delaware LLC include:
- The company's articles of organization or LLC agreement were amended in a way that is not in compliance with the state law
- The company failed to pay its annual franchise tax
- The company was convicted of a felony
If your Delaware LLC is involuntarily dissolved, all of its assets will be liquidated, and the proceeds will be distributed to its creditors. The remaining assets will be distributed to the company's members in proportion to their ownership interests. If no assets remain, the members will not receive any distribution.
If you would like to prevent your Delaware LLC from being administratively dissolved, make sure to file your annual report and pay all applicable fees on time.
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FAQs
How Much Does It Cost to Dissolve a Delaware LLC?
Dissolving a Delaware LLC costs $200 for filing the Certificate of Cancellation form. Expedited same-day processing is also available for an additional $200 fee.
How Long Does It Take To Dissolve an LLC in Delaware?
Dissolving an LLC in Delaware typically takes 2 to 3 weeks after filing the Certificate of Cancellation. Expediting options are available, but one-hour processing can cost up to $1000 extra.
Where Do I Send My Certificate of Dissolution in Delaware?
You can send the Certificate of Cancellation to the Secretary of State, Delaware Division of Corporations, through in-person submission, mail, or fax.
Do I Have to Include a Cover Letter in the Certificate of Cancellation?
You have to include a cover letter in the Certificate of Cancellation. However, if you file online, there's no need to include a cover letter.
Can You Reinstate a Dissolved LLC in Delaware?
You can reinstate a dissolved LLC in Delaware through the filing of a Certificate of Revival.
The majority of members' approval is required, and it must be filed within five years after the acceptance of the Certificate of Dissolution.
What Happens if I Don’t Dissolve My LLC in Delaware?
If you don't dissolve your LLC in Delaware you might be facing penalties, such as ongoing fees and taxes.
The state may initiate legal action to dissolve the company and liquidate its assets. It's crucial to follow proper dissolution procedures to avoid these consequences.
Delaware LLC Dissolution
If you want to dissolve an LLC in Delaware, it is important to have legal experts on your side. From our experience using company that already has experience with business dissolving will keep processes short and effective.
To dissolve your LLC fast and on all legal terms we recommend a company like IncFile that can provide you with the right support through every step.
This guarantees a seamless dissolution process.
Our #1 Recommendation
References:
- https://corp.delaware.gov/disso09/
- https://corp.delaware.gov/
- https://corpfiles.delaware.gov/webllc-can09.pdf
- https://delcode.delaware.gov/title6/c018/sc08/index.html
