How to Dissolve an LLC in Delaware? (2024 Updated Guide)
Most entrepreneurs embark on new ventures with optimism and a vision for success. However, the reality of entrepreneurship acknowledges the risks involved in the business world.
According to the U.S. Bureau of Labor Statistics, 20% of new businesses fail within their first two years, and only 50% survive to see their fifth year. This stark reality underscores the importance of not only planning for growth but also being prepared for the possibility of dissolution.
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.
- To dissolve an LLC in Delaware, all members must accept a resolution to dissolve the business, deal with tax obligations, and file a Certificate of Cancellation with the Delaware Secretary of State.
- It costs $200 to file the Certificate of Cancellation to dissolve a legal entity in Delaware by mail.
- According to the U.S. Bureau of Labor Statistics, 20% of new businesses fail within their first two years, and only 50% survive to see their fifth year.
- Once an LLC is officially dissolved, its legal existence will shut down in the state of Delaware.
6 Steps to Dissolving an LLC in Delaware
The Secretary of State allows LLCs to dissolve after members have completed the following required procedures .
Step 1: Vote to Dissolve the LLC
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.
In our case, our LLC was dissolving voluntarily hence we needed to follow the provisions in the 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.
Step 2: Notify Creditors About Your LLC's Dissolution
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.
Step 3: File Final Tax Returns and Obtain Tax Clearance
The next step is to file final business taxes including the Delaware Franchise Tax.
This tax must be paid 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.
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" .
If you have trouble calculating your franchise tax and filing fees, we recommend seeking legal or tax advice from a professional.
For our Delaware LLC, we also informed the IRS and State Division of Revenue of the dissolution 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.
"Dissolving an LLC requires adhering to legal procedures, communicating with stakeholders, and properly managing assets. Legal consultation is key to navigate these complexities and avoid potential risks."
- Jon Morgan, CEO, Co-Founder and Editor-in-Chief of Venture Smarter
Step 4: File Articles or Certificate of Dissolution
The next step in the dissolution process is filing the Certificate of Cancellation with the Delaware Corporation Division.
This document certifies that the Delaware 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 .
In our case, we submitted this document online and paid for a 24-hour expedited service processing.
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).
Step 5: Distribute Assets
Once all acknowledged claims are settled and necessary deadlines have passed, any remaining assets can be allocated to the LLC shareholders.
The distribution of our LLC's assets was done following the operating agreement terms.
Generally, per state laws asset distribution to shareholders is based on their shareholdings; for instance, a shareholder with 15% of the LLC assets would receive 15% of the remaining assets.
Step 6: Close All Accounts and Cancel Licenses and Permits
In the last step, you must ensure that all corporate bank accounts, credit lines, and financial services are closed. This step is crucial to prevent any future financial liabilities or unauthorized transactions.
During our dissolution, we terminated all service accounts that were in the corporation's name. Ensure all final bills are paid and services are formally discontinued.
Actively cancel any business licenses, permits, or registrations that the corporation held. This might include state or local business licenses, professional licenses, or any other permits specific to the corporation’s operations.
How Much Does It Cost to Dissolve an LLC in Delaware?
It costs $200 to dissolve an LLC in Delaware by filing for the Certificate of Cancellation form by mail and $204 if you decide to file online. Expedited same-day processing is also available for an additional $200 fee.
How Long Does It Take To Dissolve an LLC in Delaware?
It typically takes 2 to 3 weeks to dissolve an LLC in Delaware after filing the Certificate of Cancellation. Expediting options are available, but one-hour processing can cost up to $1000 extra.
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.