Running an LLC in Delaware is often brings the eventual prospect of dissolution. Making the decision to dissolve your LLC in Delaware is never easy but may become necessary for a variety of reasons.
Company cancellation can seem like a daunting prospect, but it is actually quite straightforward to dissolve a Delaware LLC. It is simply a case of filing the right papers with the Secretary of State while ensuring your tax obligations and general affairs are in order. Also, find out here if the process is similar to dissolving the LLC in Nevada, or dissolving your LLC in Missouri. Moreover, some states don't have a specific LLC Act, so learn here how to dissolve your LLC in Texas. Also some states accept only online submissions as you'll find out in our 'how to dissolve an LLC in Colorado' review. On the other hand, after learning how to dissolve an LLC in PA, you'll find out that Pennsylvania doesn't require you to notify creditors about the upcoming dissolution unlike other states.
At some point in the business’s lifecycle, you may find it necessary to dissolve an LLC - a process that culminates in the Delaware Certificate of Cancellation. There are a couple of ways to initiate the cancellation process. Learn how in this How to Dissolve an LLC guide. On the other hand, if you are just about to set up a business, everything you need to know about the best LLC forming services is here.
Dissolving vs Cancelling a Delaware LLC
The terms “cancellation” and “dissolution” are often used interchangeably in reference to closing down a corporation or LLC. However, there are important differences between the two that business owners need to know.
Each process technically results in the same outcome – closure of registered businesses and corporations in Delaware. According to state law or, an LLC must be “canceled” by filing a Certificate of Cancellation to the state department. By contrast, corporations need to be “dissolved” by filing a Certificate of Dissolution to the Delaware Division of Corporations.
Both of these processes are relatively straightforward, but you nonetheless must ensure you provide the right information to the right authority.
How to Cancel Your Delaware LLC
Before you file the certificate in either instance, you need to make sure that you are in an appropriate position to close your limited liability company. The same goes for when you want to dissolve your LLC in Georgia or dissolve your LLC in Kentucky. A certificate of cancellation can only be submitted after ensuring you have the legal right to dissolve your LLC (Limited Liability Company), by way of one of the following two options:
Option 1: Unanimous or Majority Vote
This is where the owners of the LLC vote either unanimously or by way of a majority to cancel the LLC. In most instances, legal advice and general LLC closure information will be sought by the owners of the company, in order to build an understanding of their obligations and entitlements. The LLC Operating Agreement formalized when your business was formed will usually include information on the cancellation process.
Option 2: Delaware Law
It is also a legal requirement in Delaware to organize a member vote on company closure, during which members of the LLC vote whether or not they support the proposed cancellation. This applies to LLC members who collectively own at least two-thirds of the company, who can legally vote to terminate the LLC in Delaware if they wish to do so.
Getting Your LLC’s Affairs in Order
State law is somewhat ambiguous in Delaware with regard to getting your LLC’s affairs in order before you file a certificate of cancellation. Delaware's LLC Act provides some information, but not all entries apply to every LLC. Find out if there are similar ambiguities in OH in our how to dissolve an LLC in Ohio review.
Nevertheless, you will need to make sure that at least the following have been covered, if you intend to cancel your business:
- Settling pending lawsuits
- Allocate assets
- Pay state franchise taxes and federal taxes and file your final return
- Settle and close any outstanding business of the LLC
- Sell or disseminate the LLC's property
- Settle any liabilities the LLC may be facing
- Terminate your foreign qualification to operate in other states
- Close your LLC’s bank accounts and lines of credit
Settling as many remaining debts and affairs as possible in advance will always make the final cancellation process easier. If you need help, legal advice from a business attorney may prove invaluable.
Filing Notice to Creditors
Though it is not a formal legal requirement, you must still provide creditors with information in advance that you are dissolving your business. This will help ensure that any remaining payment or debt obligations can be discussed and addressed at the right time, rather than at the last moment.
It is worth remembering that if you fail to provide this information of cancellation ahead of time, your LLC may bear the brunt of lawsuits subsequently filed against it.
Always give yourself plenty of time to settle your affairs with your creditors, consulting with a qualified business attorney if you need help.
File the Certificate of Cancellation
The next major step in the process is to file a certificate and tax declaration with the State of Delaware. Any outstanding franchise tax for the current tax year needs to be settled prior to the dissolution being authorized. These taxes are collected by the Delaware Division of Revenue.
You will receive a document as proof of Delaware franchise tax settlement, which should be submitted with the application for LLC cancellation. All state tax obligations must also be wrapped up, and a final tax return filed demonstrating that you have no outstanding tax liabilities.
Closing a Delaware LLC also means filing both your Cancellation Form and your Corporate Certificate Cover Memo with the Delaware Division of Corporations. Remember that you must ensure the cover memo includes full contact information for your company.
The mailing address will be printed on the forms and you will be required to pay a fee of $200 for processing. This is a fixed payment that applies in the case of all standard cancellations, though you can pay extra for expedited service if required. Also, find out if it is cheaper to dissolve your LLC in Wisconsin.
On average, processing times vary from 2 to 3 weeks, though can be significantly longer or shorter than this.
Send the cover memo, cancellation form, and proof of franchise tax payment to the address listed on the forms. A $200 filing fee is required. The cancellation is processed in about two to three weeks after receipt, but expedited service is available. The certificate of cancellation can then be downloaded.
Additional Information to Dissolve a Delaware LLC
It is not a legal requirement to settle outstanding Federal tax liabilities, in order to dissolve your Delaware LLC. Federal taxes will of course need to be settled in due course, but this is not taken into consideration for the purpose of LLC dissolution in Delaware.
Business owners should also be aware that the moment you dissolve the LLC, the name of the business can subsequently be used by anyone else wishing to do so. You will have no legal right to or ownership of the name of your business after you cancel the LLC and the request has been authorized.
Should I Appoint a Manager to Wind up the LLC’s Affairs?
Fulfilling the requirements for canceling or dissolving corporations and LLCs in Delaware is not excessively difficult. However, some business owners prefer to hire liquidation managers to oversee things like the distribution of assets, as part of the winding-up process.
While it is not strictly necessary to hire help when winding down your business, it can be helpful where the distribution of assets is more complex. Your LLC's Operating Agreement should contain details on asset distribution to members. If not, state law applies when you dissolve the LLC.
A liquidation manager will ensure all legal requirements are met by prioritizing the more urgent debts and ensuring current creditors are satisfied while setting aside adequate funds to cover all foreseeable creditors within the next 10 years.
Inappropriate distribution of assets when winding down an LLC can result in the transaction being declared fraudulent or voidable, bringing further complications and potential penalties into the mix.
Out of State Registrations or Qualifications
Lastly, it is essential to ensure that any out-of-state (foreign) registrations or qualifications are terminated accordingly. If your LLC was registered in a state outside Delaware, winding down and final closure procedures must take place in accordance with state-specific cancellation law. The same also applies in states in which your LLC was qualified to do business.
Different states have very different requirements when it comes to the documents, certificates, information, and evidence needed to terminate a company. You must therefore ensure you gather all the information you need at an appropriate time to ensure you cover all requirements in the jurisdiction in question.
Otherwise, you may be liable for ongoing tax payments and other expenses. If you have any questions or concerns, speak to a qualified business attorney before filing for closure.
Where possible, it's advisable to handle as much of the LLC Delaware closure protocol as possible online. Doing so will save you time and effort, though traditional channels are available if online is not the preferred option.
When sending any form or letter by mail, always use a tracked/registered service to reduce the risk of anything important going missing. Also, remember that almost all of the details needed to file for LLC closure will be on your original Certificate of Formation.