How to Dissolve a Business in Delaware | Essential Steps

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Dissolve Delaware LLC

Deciding to dissolve a Limited Liability Company can be difficult for business owners. Still, it is sometimes necessary due to changes in the business landscape, financial challenges, or personal reasons. Dissolving a business requires specific steps and regulations to complete the process correctly and legally. This comprehensive guide will teach you how to dissolve a business in Delaware.

Webinarcare Editorial Team will help you easily dissolve your business. You must be guided by all the factors gathered in this article.

How to Dissolve a Business in Delaware

If you are starting an LLC in Delaware, having an operating agreement is one of the key requirements in dissolving a business. Before starting the legal paperwork, there are a few things to remember. Initially, confirm that all LLC members agree with closing the business. Once everyone is ready, voting should be used to document everyone’s assent. They must vote in favor of the dissolution before the legal procedure may begin. The procedures for the dissolution are listed below.

How to Dissolve a Business in Delaware

Dissolving a business in Delaware requires following specific steps to ensure a smooth and legally compliant process. The process usually includes the following steps:

Step 1: Make the Decision

Before dissolving your business, ensure this decision is right for your Delaware business. Consider discussing the decision with your business partners, members, or legal counsel to weigh the pros and cons and determine if dissolving the business is best.

Step 2: Hold a Formal Vote

Once you’ve decided to dissolve your Delaware business, you’ll need to hold a formal vote among the members to approve the dissolution. This step is important because it ensures that all members know and agree to the decision to dissolve the business.

To hold a formal vote:

  • Review your Delaware Operating Agreement to determine the required voting procedures, such as the percentage of affirmative votes needed for approval.
  • Notify all Delaware members of the upcoming vote and give them sufficient time to review the matter and make an informed decision.
  • Conduct the vote according to the procedures outlined in your operating agreement.
  • Record the vote results in your business meeting minutes or a written resolution.

If most members approve the dissolution, you can proceed with the dissolution process.

Get a Professional Service

It’s important to get legal assistance when dissolving an LLC. With that, you must have a Registered Agent. Ensure that the Registered Agent you choose is qualified and legal since they will file the Article of Dissolution for your LLC. We reviewed the Best Registered Agent Services in Delaware for you to check out.

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Step 3: Settle the Outstanding Debts and Liabilities

You must settle all outstanding debts and liabilities before dissolving your Delaware business. This includes paying off loans, settling pending lawsuits, paying owed taxes, and fulfilling any remaining contractual obligations. You can inform your Delaware Business Attorney to ensure it is settled.

To settle your Delaware business’ debts and liabilities:

  • Review your business’ financial records to identify all outstanding debts and liabilities.
  • Contact creditors, lenders, and other parties to whom your business owes money or obligations, and arrange for payment or settlement.
  • If your business does not have sufficient funds or assets to cover all outstanding debts and liabilities, consult with legal counsel to determine the best course of action for settling these obligations.

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Step 4: Distribute the Remaining Assets to Members

Once all debts and liabilities have been settled, you can distribute any remaining assets to the business members. Your operating agreement should do this or, if no such agreement exists, in proportion to each member’s ownership interest in the business.

To distribute assets:

  • Determine the fair market value of the remaining assets, such as real estate, equipment, or inventory. 
  • Calculate each member’s ownership interest in the business based on the operating agreement or their initial capital contribution.
  • Distribute the assets to each member according to their ownership interest.
  • Keep detailed records of all asset distributions for tax and legal purposes.

Step 5: File the Articles of Dissolution

After settling debts and distributing assets, you’ll need to file the Articles of Dissolution with the Delaware Secretary of State to dissolve your Delaware business officially. This document provides the state with notice that your business is ceasing operations and will no longer conduct business.

To file the Articles of Dissolution:

  1. Obtain the appropriate form from the Delaware Secretary of State‘s website. Visit the Delaware Division of Corporations’ website for the required forms and instructions.
  2. Fill out the Articles of Dissolution Form with the required information, including your Delaware business name, the date of dissolution, and any other necessary details.
  3. Pay the filing fee of $200 in the Delaware Secretary of State’s office.
  4. Submit the completed form and payment to the Delaware Secretary of State’s office, either by mail or online, depending on your Delaware’s filing options.

Once your Articles of Dissolution have been processed and approved, your Delaware business will officially be dissolved.

Mail to: 
Delaware Secretary of State
Delaware Division of Corporations, 401 Federal Street, Suite 4 Dover, DE 19901

Filling Fee:
$200

Step 6: Notify the IRS and Government Agencies

After dissolving your business with the Delaware Secretary of State, you’ll need to notify the Internal Revenue Service (IRS) and other Delaware government agencies of the dissolution. This is important to ensure your business complies with tax laws and other regulations.

To notify the IRS of the dissolution:

  1. File your final federal tax return using Form 1065 and check the box indicating that it is the final return for your business.
  2. Cancel your Employer Identification Number (EIN) in Delaware by mailing a letter to the IRS at the address where you filed your tax return. Include your EIN, business name, and reason for cancellation in the letter.
  3. Update your Delaware business status with any other relevant government agencies, such as the Delaware Department of Revenue, Department of Labor, and local licensing and permitting offices.

Step 7: Cancel Licenses, Permits, and Insurance Policies

To fully dissolve your Delaware business, you’ll need to cancel any business licenses, permits, and insurance policies associated with your business. This may include Delaware Business Licenses, professional licenses, sales tax permits, and any other permits required for your industry.

You must contact the issuing agency to cancel your licenses and permits and follow their specific cancellation procedures. You should also contact your insurance provider to cancel any remaining business insurance policies. With the cancellation of the mentioned licenses, permits, and Business Insurances in Delaware, you also need to remove a Registered Agent since he won’t be able to continue filing documents for your business unless you are the Registered Agent of your business. 

Step 8: Maintain Records of the Dissolution Process

For legal and tax purposes, it’s important to maintain detailed records of the steps taken to dissolve your Delaware business. This includes documentation of the formal vote to dissolve the business, debt settlements, asset distribution records, and copies of filed state and federal tax returns.

Keep these records for at least seven years, as they may be needed in the event of an IRS audit or other legal issues arising from the dissolution.

Cost of Dissolving an LLC in Delaware

The cost of dissolving an LLC in Delaware can vary based upon various factors. The Delaware Articles of the Dissolution filing fee cost $200. Other costs include any outstanding taxes or debts the business owes and potential costs for settling business contracts or selling business assets.

It’s also important to factor in professional fees, such as if you hire an attorney or accountant to assist with the dissolution process. After the LLC is dissolved, the remaining company assets are divided among the members. The exact breakdown of these costs can often be complex and will depend on the specific circumstances of the LLC, so consulting with a legal or financial advisor can be helpful.

Reasons Why an LLC in Delaware Dissolves

There are numerous reasons why an LLC in Delaware dissolves, and these reasons could impact other LLCs. It is best to understand the why’s and how to deal with it rather than knowing that your LLC may dissolve sooner or later. Here is the list of possible reasons why an LLC dissolves.

  1. Expired Duration: In Delaware, an LLC will automatically dissolve if it reaches the end of its defined duration stated in the Articles of Organization.
  2. Member Vote: An LLC may dissolve in Delaware if the members vote for dissolution. Usually, the LLC Operating Agreement outlines the percentage of member votes required to dissolve the LLC.
  3. Judicial Dissolution: A court in Delaware may order the dissolution of an LLC if it is in the best interests of the members, especially in cases of fraud, illegal activities, or oppressive behavior.
  4. Bankruptcy: If the LLC becomes insolvent and cannot pay its debts, it may be forced into bankruptcy. This usually leads to the dissolution of the LLC.
  5. Non-compliance: If the LLC does not comply with state laws or fails to meet legal requirements, such as filing annual reports or paying taxes, the state may forcibly dissolve the LLC.
  6. Merger or Consolidation: If the LLC in Delaware merges or consolidates with another company and the LLC is not the surviving entity, it will be dissolved.
  7. Death or Withdrawal of a Member: Unless specified otherwise in the Operating Agreement, the death, withdrawal, bankruptcy, or incompetence of a member may cause the LLC to dissolve.

Please note that the process for dissolution typically includes settling all business debts, distributing any remaining assets among the members, and filing a formal notice of dissolution with the Delaware Secretary of State.

After the Delaware LLC Dissolution

Once your Delaware business has been dissolved, it typically cannot be reinstated or “taken back” after a few years. Instead, you would need to form a new LLC in Delaware if you wish to operate a business under a limited liability company structure again.

To create a new Delaware LLC, you would need to follow the standard formation process, which generally includes the following:

  • Choosing a Unique Business Name: Ensure that another business does not already use the name you choose in Delaware and complies with state-specific naming requirements.
  • Appointing a Registered Agent: Designate a Registered Agent who will be responsible for receiving legal correspondence on behalf of your LLC.
  • Filing Certificate of Formation: Submit the Certificate of Formation with the Delaware Secretary of State’s office, along with the required filing fee.
  • Creating an Operating Agreement: Draft an agreement outlining the rules and regulations governing your new LLC, including member roles, ownership percentages, and management structure.
  • Obtaining Necessary Licenses and Permits: Apply for any required business licenses, permits, and tax registrations with the appropriate state and local authorities.
  • Registering with the Internal Revenue Service (IRS): Obtain an Employer Identification Number (EIN) from the IRS, which will be necessary for tax purposes and other business activities.

Availability of the Business Name

When a business is in Delaware was dissolved, the business name becomes available for other business owners to use after a certain period. However, the specific rules and regulations regarding the availability of a dissolved business name can vary. Keep in mind that even if the name becomes available, other factors, such as trademarks or potential confusion with existing businesses, may still impact the ability of another business owner to use the name.

FAQs

How do you dissolve a Delaware LLC?
To dissolve a Delaware LLC, you need to file a Certificate of Dissolution with the Delaware Secretary of State.
How long does it take to dissolve a Delaware LLC?
The process of dissolving a Delaware LLC typically takes 10-15 business days.
What is the cost of dissolving a Delaware LLC?
The fee to file a Certificate of Dissolution in Delaware is $200.
Can I dissolve my Delaware LLC online?
Yes, you can file the Certificate of Dissolution online through the Delaware Division of Corporations website.
Am I required to give notice before dissolving my Delaware LLC?
As per the Delaware LLC Act, you are not required to give notice to creditors or members before dissolving your LLC.
What happens to the assets of my Delaware LLC after dissolution?
After winding up the business activities, remaining assets of Delaware LLC are distributed to its members.
Do I have to pay any taxes upon dissolving my DE LLC?
Generally, yes – there may be state or federal tax obligations for your Delaware LLC upon dissolving. For specifics, consult the DE Division of Revenue.
Can I dissolve my Delaware LLC if it is not in good standing with the state?
No, you must first bring your Delaware LLC into good standing with the state by filing annual reports and paying all fees and taxes, before you can dissolve it.
How long do I have to wind up the business affairs of my Delaware LLC after filing for dissolution?
Once you file the Certificate of Dissolution, you have 90 days to complete any outstanding business affairs.
What happens if I continue business operations after filing for Delaware LLC dissolution?
If an LLC continues to wind up affairs that extend beyond the 90-day period after filing dissolution, then the billing cycle for annual LLC franchise tax will be renewed.
Can anyone file a certificate of dissolution for a Delaware LLC?
Yes – if an interested party seeks the sale or acquisition of an energized business entity or move a company or entity outside of jurisdiction, then someone other than the owner(s) of the company may choose to file a Certificate of Dissolution in Delaware.
Is there any penalty for failing to file the Certificate of Dissolution?
ALLC must pay a penalty of $200, and can lose its good standing with state and friction-less promotions for employers.
Can creditors sue a Delaware LLC after it is dissolved?
Any legal claims must be paid before distribution of remaining assets, if any, to members upon dissolution of a Delaware LLC; after debtors are all paid, creditors lose their ability to file subsequent claims.
What is the deadline for a DE LLC to file taxes for its final year of operation?
The taxreturn of a dissolved LLC must be filed after business activities are concluded and is due by the 15th day of the fourth month following the later of (1) the last day of the tax year or (2) the date of the dissolution.
Does Delaware LLC law allow delayed action which an LLC may elect in the event of proposal of dissolution?
Yes, if allowed through the LLC’s member operating agreement,an LLC appointment some period after absent party member’s removal.
Does Delaware LLC law mandate any activities by LLC members during the liquidation process?
State law does not mandate participation by LLC members in the liquidation process but if existing creditors have a legal cause to seek associated formal liquidation proceedings it may be warranted.
Is a public notice required when dissolving Delaware LLC?
Investors or creditors may perform a UCC search, but it’s not mandated to notify publicly if dissolving a Delaware LLC.
Can I withdraw the file dissolution of a Delaware LLC if it is an error?
Yes, before Delaware approved the Certificate of Dissolution, it may be withdrawn in writing from applicants.
Is filing dissolution the only way to dissolve a Delaware LLC?
There are multiple steps that have to be taken before dissolving an LLC (liquidation) otherwise cannot afford & bear any debts.
Can the Delaware LLC continue existence without operation?
Yes – state law does not require Delaware LLC to formally dissolve merely because it’s ceased operations. Nonetheless, there will still be annual franchise tax obligations that may persist if an LLC maintains its status as a registered entity.
What happens after I dissolve my Delaware LLC?
After the business activities are concluded, remaining assets will be sold and proceeds distributed to members according to the dissolution/operating agreements.
Can I reinstate a dissolved Delaware LLC?
Reinstatement is possible upon payments of all incurred debts, penalties, interests, and submitting dissolution-order-form legal documents according to the process.
Can I dissolve a Delaware LLC by unanimous written consent of the members?
Yes– Before the filing request, members must agree to revoke via unanimous written consent and this alleviates only a portion of the beyond non-business legal requirements for dissolution.
Is dissolution or cancellation of an LLC the same?
These terms essentially mean the same as far as Delaware law is concerned.
Are studies published upon dissolution or winding up by members of the LLC?
There are indeed multiple government regulations and companies listed that function as authoritative legal sources who assist with LLC dissolution/ closure in Delaware.
Can I dissolve an LLC if someone has a court order or judgment against the LLC?
Yes, but paying any remaining debt arising from judgements against the LLC is a legal responsibility upon dissolution.
Can a dissolved Delaware LLC obtain a Certificate of Good standing?
No – a Delaware LLC that’s terminated operation cannot get a Certificate of Good standing issued by Delaware Division of Corporations State Government.
Where can I find help with navigating LLC dissolution process in Delaware?
Your Registered Agent (e.g., one registered at formation) or a certified accounting consultant can be useful for basic questions about Delaware’s authorized dissolution-regulations-details and facilities. Officials at the DE Secretary of State office can also answer questions and provide direction.
How do I dissolve my Delaware LLC?
The process to dissolve a Delaware LLC involves filing a Certificate of Dissolution with the state and notifying any creditors and business partners.
What is a Certificate of Dissolution?
A Certificate of Dissolution is a document filed with the Delaware Division of Corporations that officially dissolves an LLC.
How do I obtain a Certificate of Dissolution in Delaware?
You can obtain a Certificate of Dissolution by filing a form with the Delaware Division of Corporations and paying the applicable fee.
Do I need to notify creditors and business partners when dissolving a Delaware LLC?
Yes, it is necessary to notify any creditors and business partners when dissolving a Delaware LLC.
Can I dissolve a Delaware LLC without notifying creditors and business partners?
No, it is not recommended or legal to dissolve a Delaware LLC without notifying all creditors and business partners.
Is there a fee for dissolving a Delaware LLC?
Yes, there is a fee to dissolve a Delaware LLC, which can vary depending on the type of business entity and the method of filing.
Can I dissolve a Delaware LLC online?
Yes, it is possible to file for dissolution of a Delaware LLC online through the Division of Corporations website.
If I don’t dissolve my Delaware LLC, will I still be responsible for maintenance fees to the state?
Yes, if you do not officially dissolve your Delaware LLC you will still be responsible for paying maintenance fees to the state.
What happens if I do not pay maintenance fees for a Delaware LLC?
If you do not pay maintenance fees for a Delaware LLC, the state may revoke your business entity’s status and you may face legal consequences.
Is it easier to dissolve a Delaware LLC compared to other states?
In general, Delaware offers a simpler process for dissolving an LLC compared to other states due to the state’s business-friendly laws.
What does it mean to dissolve a Delaware LLC electively?
To dissolve a Delaware LLC electively means that the decision to dissolve the business is voluntary and not due to any legal or financial issues.
What is a statutory Delaware Certificate of Dissolution?
A statutory Delaware Certificate of Dissolution is a legal document that must be filed with the state of Delaware to officially dissolve a Delaware LLC.
How long does a Delaware LLC have to file for dissolution after being inactive?
Delaware LLCs should file for dissolution within two years of becoming inactive or face late fees and other penalties.
Can I dissolve my Delaware LLC if it has outstanding taxes or debts?
Yes, you can dissolve your Delaware LLC if it has outstanding taxes or debts, but it is important to resolve these issues beforehand to avoid legal complications.
How do taxes factor into dissolving a Delaware LLC?
If your Delaware LLC owes any taxes, you should pay them before or during the dissolution process.
Does the Articles of Dissolution need to be notarized in Delaware?
No, the Articles of Dissolution do not require notarization in Delaware, but they do need to be signed by all LLC members.
Can I dissolve a Delaware LLC on my own or do I need legal assistance?
It is possible to dissolve a Delaware LLC on your own, but it is recommended to seek legal assistance to ensure all requirements are met.
How do I close my business tax accounts with the state when dissolving a Delaware LLC?
You can close your business tax accounts with the state by contacting the Delaware Department of Revenue and submitting any required forms.
Can I still be held personally liable for any debts or obligations after dissolving a Delaware LLC?
In some cases, members of a Delaware LLC can be held personally liable for outstanding debts or obligations even after the company has been dissolved.
Will I receive confirmation from the state after I complete the dissolution process for my Delaware LLC?
Yes, you should receive a confirmation from the state of Delaware once your LLC has been officially dissolved.
Can I revive my dissolved Delaware LLC?
Yes, it is possible to revive a dissolved Delaware LLC, but it may require additional legal steps and fees.
Can I dissolve a Delaware LLC in anticipation of bankruptcy?
It is not recommended and may be considered fraudulent to dissolve a Delaware LLC in anticipation of bankruptcy.
Can I dissolve a Delaware LLC without the consent of all members?
No, all members of a Delaware LLC must consent to dissolve the business before the process can begin.
What do I do with my Delaware LLC’s registered agent when dissolving the business?
You should notify your Delaware LLC’s registered agent of the dissolution before terminating their services.
Can I continue to operate my business in another state after dissolving a Delaware LLC?
Yes, you can continue to operate the business in another state after dissolving the Delaware LLC as long as all necessary legal requirements are met.
Should I dissolve my Delaware LLC if it has no assets or liabilities?
Yes, it is recommended to dissolve your Delaware LLC even if it has no assets or liabilities to avoid any potential legal consequences in the future.
How can I be sure that my Delaware LLC is officially dissolved?
You can verify that your Delaware LLC is officially dissolved by checking with the state through their online division of corporations database.

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Conclusion

Dissolving Delaware business can be complex and time-consuming, but following the steps outlined in this guide will help ensure a smooth and successful dissolution. By conducting a formal vote, settling debts and liabilities, distributing assets, filing the Articles of Dissolution, notifying government agencies, and canceling business licenses and permits, you can legally dissolve your Delaware business and move forward with the next chapter of your professional life.

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