Not every limited liability company (LLC) lasts forever. In fact, many LLCs in Delaware are only intended to operate for a designated time period. Whatever your reasoning for closing up shop, the state of Delaware has a specific process that all LLCs must go through before they are considered to be officially dissolved.
Which steps are involved in the Delaware LLC dissolution process? Are there different processes for businesses based in Delaware and those expanded from other states? When do you need to dissolve your LLC? We’ll answer all of these questions and more in this article.
How Do You Dissolve a Delaware LLC?
When closing a business registered as an LLC in the state of Delaware, you’ll need to take care to dissolve your business exactly as the state outlines. The most important part of this process is filing the correct paperwork with the relevant legal entities, but this is far from the only vital step.
In addition to filing documentation of your Delaware LLC dissolution, you will need to liquidate the assets of your business, notify all individuals and business entities that have an interest in your company, and resolve any outstanding liabilities with vendors, suppliers, or clients.
There are potentially severe penalties for failing to comply with the Delaware LLC dissolution process, and you as a business owner could be personally responsible for your LLC’s liabilities and debts. Therefore, it’s extremely important that you complete each step outlined in this guide to ensure an effective and compliant dissolution.
As for the question of when you should dissolve your LLC, you should do this as soon as you’re certain you will no longer conduct business through this entity. This gives you an opportunity to close up shop with the knowledge that you’re not transacting any business after you start the dissolution process.
Dissolution for Domestic Delaware LLCs
Is your LLC based in Delaware, and registered as a domestic entity in this state? If so, you’ll start your dissolution process with a document known as the Certificate of Cancellation, which you can file on paper or online. This form will include some crucial information about your business, so you should fill it out carefully and accurately. However, this document is extremely simple, so it’s unlikely that you’ll struggle to complete it.
The only info you need to fill out this form is the name of your business, the date your original Certificate of Formation was filed with the state, your printed name and signature, and the date. You should also include a cover memo, which requires some more basic information about your business.
Once you’ve filled out these forms, you can submit them to the Delaware Secretary of State along with your $200 filing fee. It’s important to note that you may also need to file your final franchise taxes at this time, so contact the Delaware Franchise Tax Section for more information.
Typically, the state takes 10-15 business days to process each filing, but you can expedite your order if you need it faster than that. You can get 24-hour service for $100, same-day service for $200, two-hour service for $500, or one-hour service for $1,000.
But what does this process look like for a business that was formed outside the state and then expanded to Delaware?
Dissolution for Foreign LLCs in Delaware
If you operate a foreign LLC in the state of Delaware, the dissolution process looks slightly different than it does for domestic entities. In fact, it’s actually technically called a cancellation rather than a dissolution.
To dissolve a foreign LLC in this state, you’ll first complete the Certificate of Cancellation of Registration document, which can be completed on paper or online. Much of the information for this form is the same as the info provided for the domestic Certificate of Cancellation, but there are some differences for the foreign version.
This form requires the name you originally formed your LLC under, the name your LLC uses to transact business in Delaware (if different), the date your foreign registration took effect, the effective date of cancellation, contact information for future service of process deliveries, your printed name and signature, and the date. In addition, you will need to include a cover sheet for this filing.
The same $200 filing fee that applies to domestic dissolutions also applies here, and the turnaround times and expediting options are exactly the same as well.
Involuntary Dissolutions in Delaware
We should also discuss the potential for an LLC to be involuntarily dissolved by the state. There are several reasons this could happen, and most of them revolve around significant mistakes made by the LLC’s ownership group.
For instance, Delaware could involuntarily dissolve your LLC if you fail to file your annual franchise tax reports, if it is not “reasonably practicable” to continue operating the LLC in accordance with its operating agreement, or if the LLC has no active owners for at least 90 days.
It’s obviously never advisable to operate your LLC in a way that leads to the state dissolving it against your will. However, the penalties can be even steeper than you might realize. For example, the state will charge you interest at the rate of 1.5% for any unpaid taxes or penalties until you formally dissolve your LLC in a compliant fashion, and they will continue expecting annual franchise tax reports as well, which means you would be subject to a $125 late fee each year. If you want to revive your involuntarily dissolved LLC in Delaware, you’ll also need to pay an additional $200 fee.
In addition, if you keep operating your business after the state involuntarily dissolves it, you could open yourself up to all sorts of legal issues due to the continued operation of a non-compliant entity. In general, you should be as careful as possible when it comes to following the rules and regulations in this state.
It’s not that the process for dissolving or withdrawing your LLC in Delaware is terribly difficult. However, it is a process that you need to take great care to complete in a compliant fashion, or you could expose your business to a wide variety of potential legal complications and financial penalties. Trust us when we say it’s much smarter and easier to simply follow the directions with care to avoid any issues.
Do you need more information about operating an LLC in Delaware? Take a look at the following resources: