When a Delaware LLC is no longer needed or wanted, the LLC owners have to go through dissolving it.
This can be a daunting task, but you will have all the information you need to complete it successfully with this article.
We will walk you through each step of the process, from notifying LLC members and creditors to filing the dissolution paperwork with the state. We'll also explain why business owners might choose to dissolve a Delaware limited liability company and what happens in both voluntary and involuntary dissolution cases.
Steps to Dissolving a Delaware LLC
The Delaware Secretary of State allows LLCs to dissolve after members have completed the required procedures and submitted certain papers with the state's office.
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 with the state. Delaware law will apply to dissolution if you don't have an operating agreement.
Step 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's 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 All Affected Parties
Once you've made the decision to dissolve a Delaware LLC, it's important to notify any third-party organizations or individuals that might be affected. This includes creditors, banks, clients, suppliers, and government agencies connected with LLC's liabilities or any future liability that could arise if the procedure is not well planned.
Delaware LLC that plans on dissolving should send an advance notice to creditors and other interested parties. The terms might require this of your LLC agreement, but it's also possible that you'll need to send out a notice as part of fulfilling your duties as an LLC liquidation manager or LLC member.
In some cases, this will be a courtesy — for example, when notifying companies that provide services to the LLC. In other cases, you may need to send out a formal notice to creditors or other parties that the dissolution of your company could impact.
Step 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."
If you have trouble calculating your franchise tax and filing fees, make sure to seek legal or tax advice from a professional.
Step 4: Close Business Accounts and Settle Debts
Delaware LLCs must take care of all business debts and obligations before dissolving the company.
This means settling any accounts payable, paying off loans or credit card balances, and so on.
The final step in dissolving an LLC is to close every business account. Make sure to contact the bank or other revenue authorities where the LLC has its accounts and ask to have the accounts closed.
Your federal tax record can be closed by the IRS after taxes have been filed and the LLC has indicated to the IRS that the return is a final return.
The LLC should also send a final return to the State Division of Revenue authorities anywhere income taxes are due.
Make sure to include in your letter to the IRS the full business name of the LLC, employer identification number, mailing address, and the effective date of the dissolution, together with the reasons for the dissolution.
Single-member LLCs are not required to file tax returns but instead report on the Schedule C Form 1040. In that case, there is no need to submit the final tax return. If you own a multi-member LLC, you have to file your tax return as the final tax return for tax purposes.
Step 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
- The filing date the dissolution was effective
- 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.
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 Georgia LLC
Delaware LLC Act contains provisions about LLC dissolution.
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.
There are other provisions as well, so to make sure you understand when Delaware law might be applied to your LLC, make sure to read the document thoroughly.
Voluntary Dissolution of Delaware LLCs
According to Delaware's LLC Act, a limited liability company may be dissolved voluntarily by 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: (i) the terms and conditions of the proposed dissolution, (ii) the manner in which the assets and liabilities of the LLC will be disposed of, and (iii) how the interests of members will be satisfied.
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.
If you are considering voluntarily dissolving your Delaware LLC, it is important to speak with an attorney who can help you consider your options and draft a plan of dissolution that meets the requirements of the Delaware Division of Corporations.
The Administrative Dissolution of Delaware LLCs
Delaware requires that all LLCs formed in the state must maintain their good standing status. This means that the LLC must file an annual report 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 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.
How Much Does It Cost to Dissolve a Delaware LLC?
The cost to file the Certificate of Cancellation form is $200. The filing fee may be paid by credit card when you file online or check if you mail your application. You can use the expedited service at different fees depending on how fast you need the Certificate. Expedited processing for the same day is $200.
How Long Does It Take To Dissolve an LLC in Delaware?
From the moment you file the Certificate of Cancellation, you can expect it to take anywhere from two to three weeks.
You can speed up the process by paying an expediting fee but be aware that this comes at an additional fee that can go as high as $1000 if you want the Certificate of Cancellation to be processed within one hour.
Where Do I Send My Certificate of Dissolution in Delaware?
The Certificate of Cancellation is sent to the Secretary of State, Delaware Division of Corporations either in person, mail, or fax.
Do I Have to Include a Cover Letter in the Certificate of Cancellation?
Mail filings have to include the cover letter along with their Certificate of Cancellation. If you file online, you don't need to include it.
Can You Reinstate a Dissolved LLC in Delaware?
Yes. Former members of the LLC can reinstate the LLC by filing a Certificate of Revival.
A majority must have approved the members' Certificate, and it must be filed within five years after the date when the Certificate of Dissolution was accepted for filing with the Secretary of State.
What Happens if I Don’t Dissolve My LLC in Delaware?
The failure to officially dissolve an LLC in Delaware can result in a number of penalties, including the continuation of annual fees and taxes. The state may also take legal action to dissolve the company and liquidate its assets.
It is important to follow the proper dissolution procedures outlined by the Delaware Secretary of State to avoid these consequences.
Delaware LLC Dissolution: Conclusion
If you want to dissolve an LLC in Delaware, it is important to seek professional help.
A law firm can provide you with the necessary legal advice, and a tax professional can ensure that all of your tax obligations are met. By taking this step, you can be sure that the dissolution process goes as smoothly as possible.