Closing your Delaware LLC involves various tasks, including filing a certificate of cancellation with the Delaware Secretary of State.
To cancel an LLC formed in Delaware, you must also complete the “winding-up” of your business activities.
This post covers the steps to dissolve and wind up your Delaware LLC.
Dissolution is the act of officially dissolving your Delaware LLC by filing a certificate of cancellation with the Delaware Secretary of State and winding up your business affairs.
Once dissolution is complete, it removes your LLC’s legal status, state and federal tax filing obligations, and future financial liabilities to its members.
There are 3 different dissolution types used to dissolve an LLC: voluntary, administrative, and judicial.
Each type of dissolution happens for different reasons, but all require completing a wind-up process.
Voluntary dissolution is when an LLC’s members vote to close their business.
Voluntary dissolution can result from internal disputes between LLC members, financial difficulties, or a dissolution trigger, such as the departure or death of an LLC member.
Dissolution triggers are pre-agreed reasons for closing an LLC written into the LLC operating agreement by its members upon forming the business.
The Delaware Secretary of State can impose administrative dissolution upon an LLC for failing to maintain good standing.
A certificate of good standing shows an LLC complies with all state laws and requirements, such as:
A Delaware state court can terminate an LLC by imposing judicial dissolution for reasons that include not complying with Delaware state LLC operating laws or not paying state taxes.
However, a multi-member LLC member can apply for judicial dissolution to the Delaware Court of Chancery if they believe the LLC is not running as per its operating agreement or if a fellow member breaches their fiduciary duty.
To dissolve your Delaware LLC, you must file a Certificate of Cancellation with the Delaware Secretary of State.
Once submitted, you must close all of your LLC affairs; this is called winding up your business and involves settling your LLC debts, closing business accounts, canceling licenses and permits, notifying creditors and vendors, and liquidating your assets.
LLC members who vote to dissolve their business must comply with their articles of organization or their LLC operating agreement.
A vote to dissolve an LLC often requires a majority, which can be the number of members voting or relative to their percentage share of the business.
For example, an operating agreement could require two-thirds of LLC members to vote for dissolution to pass.
Single-member LLCs must take the same steps as multi-member LLCs to dissolve their Delaware LLCs. The difference is that a single-member LLC doesn’t need a majority vote, as only one owner exists.
When creating your LLC operating agreement, you should also include rules for dissolution to avoid disagreements with fellow members.
Operating agreement dissolution rules often include:
Before implementing your LLC dissolution, ensure your reasons comply with your operating agreement rules and any vote complies with its terms and conditions.
LLC members (or single-member LLC owners) who do not create dissolution rules must comply with Delaware’s default rules for LLC dissolution.
Delaware law states that LLC owners can dissolve their business if members with a minimum of two-thirds ownership agree.
After the LLC members vote to dissolve their LLC, they can begin winding up the business affairs.
Wind-up measures include but are not limited to:
Delaware state doesn’t require LLC members to notify their creditors of dissolution.
However, you should inform your creditors of the dissolution before it is complete to avoid future problems after the LLC is dissolved.
For example, by providing notice to all creditors saying they should send any outstanding invoices or claims against your LLC to your registered agent’s office by a specific date, no one can say you closed your business to avoid paying your bills.
However, Delaware requires an LLC to pay its debts, settle any existing claims, and ensure it has enough financial provisions to cover its liabilities before dissolution can be completed.
Delaware doesn’t require an LLC to get tax clearance before dissolving the business.
However, Delaware requires an LLC to pay all its taxes (including the Delaware franchise tax) before filing its certificate of cancellation.
Even if you close your LLC on January 1, you must pay the entire calendar year before the state will approve your cancellation filing.
Once you complete all the wind-up steps and have distributed the LLC’s assets, you must cancel your LLC’s articles of organization by submitting your certificate of termination to the Delaware Division of Corporations (DOC).
The Delaware certificate of cancellation requires:
The certificate of cancellation fee is $220, and an authorized individual (an LLC member) must sign it.
You can download a certificate of cancellation form.
Dissolving your Delaware LLC takes time, and you must complete all the wind-up steps before the state approves your certificate of cancellation.
Fortunately, though, you can do most of it yourself or with the help of your accountant.
Always refer to your LLC rules for dissolution before taking any action; if there are internal disputes between members or financial issues, it’s best to speak with a Delaware dissolution lawyer.
LLCs dissolve for many reasons; some have a pre-determined dissolution trigger, such as a financial goal or closure date, written into their operating agreement.
Other reasons you would want to dissolve your Delaware LLC include:
Suppose you don't dissolve your Delaware LLC. In that case, the business will be liable to pay annual state fees like franchise tax, filing state and federal tax returns, and be open to identity theft.
The Delaware Secretary of State can cancel an LLC that fails to comply with the state LLC rules, which makes the LLC " void.”
It costs $220 to file a certificate of cancellation in Delaware state.
You can download a certificate of cancellation form online, but you must mail or deliver it in person to the Delaware Division of Corporations, 401 Federal Street—Suite 4, Dover, DE 19901, along with a cover letter with your name, address, and contact details.
It takes, on average, 3 weeks to dissolve your Delaware LLC.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness. It also does not indicate any affiliation between Tailor Brands and any other brands, services or logos.
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