For one reason or the other, you may want to dissolve a Delaware limited liability company (LLC) for good. However, dissolving an LLC involves several simple processes and steps, which all culminate in the Delaware Certificate of Cancellation. To avoid penalties and non-compliance, learn the proper steps on how to dissolve an LLC in Delaware in this guide.
How to Dissolve an LLC in Delaware
Dissolving LLCs in Delaware involves three broad stages, which are dissolution, winding up, and cancellation. The following procedures can be easily accomplished, especially when you want to dissolve your LLC voluntarily.
Review LLC Operating Agreement
Dissolution is when the LLC members give their consent to start the LLC dissolution process.
Most times, the LLC Operating Agreements contain guidelines on how to dissolve your LLC, such as the necessity of the LLC members to vote to close the LLC, and the percentage of members that must vote in favor of the dissolution.
It is crucial to ensure that you follow any rules or requirements stated in the Operating Agreement as it forms part of the dissolution rules.
Convene LLC Members to Vote for Cancellation
In case the Operating Agreement doesn’t mention any procedure for dissolving the Delaware LLC, the LLC Act of the state of Delaware specifies that an LLC may be canceled if members who own over two-thirds of the LLC give their consent in writing.
The Act requires the LLC to set a specific time for the meeting and inform all members in advance about the meeting to vote to cancel the business. Members must agree before the company can be dissolved. The company must also inform the public using the Articles of Dissolution.
Winding Up
This is the second stage in dissolving LLCs in the state of Delaware and involves several processes, which include the following.
Pay Delaware Franchise Tax and Other Taxes
Your cancellation filing will not be accepted by the state of Delaware unless you have paid the Delaware franchise tax open balance, the annual franchise tax for the current calendar year, federal tax, other taxes, penalties, and interest due to the Delaware Secretary of State.
The annual franchise taxes are not prorated and not influenced by the income or business conducted by the LLC. Hence, whether or not the business operated or generated income during the past year, it must pay the annual franchise tax for the year if it hasn’t been dissolved before the 1st of January.
Pay Creditors
The LLC has to settle any liabilities it may be facing, such as debts, creditors’ claims (current and foreseeable creditors), or loans before distributing residual funds to its members. It will be considered a voidable transfer [1] or fraudulent practice if the LLC’s owners are paid while creditors are not yet settled. Such an act can result in liability for the person who made the payment and the person who received the payment.
Distribute LLC Assets
Once all taxes and debts have been paid, the company should then distribute the remaining LLC’s assets to its members. This should be done according to the sharing proportion stated in the Operating Agreement. The LLC’s assets that can’t be distributed should be sold and the proceeds distributed.
Others
To roundup the “winding up” process, Delaware LLCs must settle and close all outstanding businesses, contracts, and payment due. The LLC must also close its bank account(s) and cancel its credit/debit cards. If the Delaware LLC is registered to operate in another state, it must file a final return in this state where it is registered to end its Foreign Qualification.
File Certificate of Cancellation
Filing a Certificate of Cancellation and the Corporate Certificate Cover Memo form is the final and most important step on how to close a Delaware LLC officially. The Certificate of Cancellation, as well as the Corporate Certificate Cover Memo form, is an important document that must be filed with the Delaware Division of Corporations only after the “wind up” process has been completed.
The Certificate of Cancellation contains the name of the company, the date of filing of the business’s certificate of formation, and the effective date of the cancellation filing.
Once you’ve filed for cancellation, you can’t conduct any business activity through the LLC anymore. However, if you had filed the Certificate of Cancellation mistakenly, you can undo this through the help of an attorney. The attorney will help you file a Certificate of Correction to undo the cancellation. Once this is done, your business would be restored in the state of Delaware.
Duration and Cost of LLC Cancellation
The cost of filing for cancellation in Delaware is $200. The cost of filing the cover letter is inclusive. However, if you’re hiring an attorney or online LLC company to help you file a Certificate of Cancellation, you’ll be charged a service fee in addition to the filing fee.
You can file for your LLC cancellation with the Delaware Division of Corporations via their website or by mail. It takes about two to three weeks to process and approve the cancellation but expedited service is available with additional payment.
FAQ
How do I close an LLC in Delaware?
To close a Delaware LLC, you first have to hold a meeting with all LLC’s owners to vote to close the business. Once the members have agreed on dissolution, the next step is “winding up.”
At this stage, the LLC must pay the outstanding Delaware franchise taxes and other taxes, pay debts and creditors, distribute the remaining assets to members, and close its bank account(s). After winding up, the final step is filing the Certificate of Cancellation, which ends the business perpetually.
Conclusion
Closing a Delaware LLC follows easy procedures. Simply follow all the steps explained in the “how to dissolve an LLC in Delaware” guide above to cancel the LLC. You can choose to hire an attorney or online LLC company to prepare and file the Certificate of Cancellation for you.
