Some states make it harder to dissolve a corporation, while others make it easier. Delaware is one of the easiest, which has encouraged many corporations to incorporate there.
But you might be surprised at how easy it really is to dissolve a Delaware Corporation if it’s done right. And by “right,” I mean “by law.”
How To Dissolve A Delaware Corporation
- Hold a meeting to authorize dissolution: Corporations need to hold a meeting of directors or shareholders depending on how the bylaws are written and vote for dissolution. Directors (or owners) can usually dissolve their corporation by voting to do so at a board meeting. A quorum is needed, which means enough shares must be represented, but if the corporation has only one shareholder, they can pretty much make this call themselves.
- File Articles of Dissolution: After the resolution to dissolve is passed, it needs to be filed with the state where the company was incorporated. So in our case, it’s Delaware. This is done along with forms that list all officers & directors as well as their mailing address & phone number, plus any other info required by your state’s Corporation Division. Articles of Dissolution comes with a filing fee that’s due at the time of filing, which is around $50.
- Publish notice: The corporation must publish an address & phone number for anyone interested in attempting to contact the company after dissolution. This requirement varies from state to state but usually can be fulfilled by publishing a notice in a local newspaper, which will increase your total cost slightly.
- Notify creditors: There isn’t really any designated timeframe for notifying creditors, but Delaware has been known to go after delinquent companies who fail to notify their creditors if it does end up being dissolved or even struck down by court order or some other legal action within 5 years from when dissolution was first filed. So the moral of the story is, follow all procedures specified by your state to dissolve a corporation, distribute your remaining assets, or you could be facing legal consequences for years afterwards for not doing so.
- Pay all corporate taxes: The next step is making sure all corporate taxes are paid. If your corporation hasn’t filed any tax returns or paid any taxes, you’ll need to do that before the meeting. Be careful about this because failure to pay at minimum business taxes can result in fines and even criminal prosecution for officers of the corporation.
- Submit the certificate: Finally, submit the Certificate of Dissolution to the Secretary of State via fax or mail, and you’re done. Remember that until your corporation is actually dissolved (which may take a day or two), it is still liable for all tax obligations and penalties imposed by law.
What does it cost to dissolve a Delaware Corporation?
There are, however, some administrative costs associated with dissolution: $50 – Annual Report – due within 90 days of dissolution $90 – Articles of Dissolution – filed with Division 3511 of the Secretary of State’s office Once these are paid, an expedited Certificate of Dissolution can be submitted to the state for faster dissolution.
How long does it take the state to process the filing?
The state should process your filing within a few days, but you will not receive an official confirmation that it has been processed. A new corporation, identical to the one being dissolved, will be created as a direct result of this filing. In many cases, this is what’s desired and intended, so it’s just fine with most folks.
If you want the dissolution done more formally by a court decree, you can do so by filing a lawsuit in Delaware against your corporation demanding liquidation and dissolution. Again, I recommend using an attorney for this since liquidations can get messy and very expensive quickly if they aren’t handled correctly.
What is the penalty if you do not dissolve properly and just don’t file your annual reports?
The penalty for not filing the Annual Report is $300 per year per corporation. Suppose you don’t file at all (which does happen); the fine increases to $1000 per month, per corporation. So if you dissolve your company and do nothing else, it can cost you $600/year or $7200!
So just dissolve properly and save yourself thousands of dollars in penalties. The total cost of dissolution should be less than $100 – much better than losing your business over a silly oversight like this.
What Is a Delaware Certificate of Dissolution?
A Delaware Certificate of Dissolution is a document filed with the Delaware Secretary of State’s office by a corporation to indicate it is no longer in business and has been terminated. It dissolves the corporation completely and authorizes the state to cancel all filings related to that business entity as if it never existed.
The Certificate of Dissolution includes:
- the name of the business
- the address of its registered agent
- and most importantly, whether or not any taxes ( or a minimum franchise tax) are due. If no taxes are due, it will also include a reference to Division 3511 of Title 8, which is where you’d file your annual report if taxes were required
There are actually two types of certificates that can be issued:
- “Articles of Dissolution” for corporations that have never filed any taxes with Delaware
- “Annual Report & Articles of Termination” for those who have.
The Annual Report & Articles terminates all tax filing requirements so long as the corporation has no outstanding liabilities (e.g., unpaid taxes, debts to creditors, etc.).
What’s Required to Complete a Standard Certificate of Dissolution for a Business?
- You will need the name of the business, the address of its registered agent, and whether or not any tax filings are required: if no taxes are due, also provide reference to Division 3511 of Title 8, where your annual report can be filed instead.
- Write “certificate is for dissolution” on the first page along with your company’s legal name.
- Include a cover letter that lists which type you are filing (Articles of Dissolution or Annual Report & Articles of Termination)
There is no official expedited service, but you can send in all forms via email. The return fax number should be listed on either form, so you shouldn’t have any problems getting the forms back.
The email address for filing is [email protected]
Is there a fast-track option?
There is no official fast track, but you can send in all forms via email or fax – see above for contact information for both options. The return fax number should be listed on either form, so you shouldn’t have any problems getting the forms back.
Note, though, that if your company has just started, then it will not yet have obtained an employer identification number (EIN) from the IRS – this number must be included with each form filed in Delaware in order to move forward with processing until enough time has elapsed that a new one is automatically assigned by the IRS themselves when they receive your submission.
If you are incorporating out of state, then go to that company’s home state instead.
- It is only for Delaware corporations, not foreign (out of state) businesses.
- The cost ranges from less than $100 to $300, depending on whether or not taxes are due.
- No expedited process exists other than mailing via email or fax – this means it can take up to 3 weeks to receive affirmation that your forms were received and approved.
- This document will dissolve the company while authorizing the state to cancel all filings related to that business entity as if it never existed.
How Long Does a Certificate of Dissolution Last?
A certificate of dissolution expires five years after its filing date unless an extension request has been filed. An extension request must be made before the expiration of the current year and requires payment of filing fees.
As long as it takes for us to receive your forms and attachments by mail, fax, or email. If you include payment, then processing time will depend on how busy they are at the time.
They cannot provide exact turn-around times because each case is different. Instead, you can call the mainline (302-739-3073) or contact via email ([email protected]) to find out what the current wait time is for receiving items submitted by mail.
If you don’t make any special requests in your submissions, then it’s usually less than one week before the return fax number should be good to go if you need confirmation that your forms were received and approved.
Is a Certificate of Dissolution a Public Record?
Yes, all certificates of dissolution are public records once filed with the state. The document can be viewed online by going to http://corp.delaware.gov/ and clicking on the name of your business in the list that will appear in the right sidebar near the top of the page (note: this applies to dissolved businesses only – active corporations won’t show up).
You’ll then see an image similar to what you would find if searching for your company at http://corp.delaware.gov/CORPSearchResults.
Submitting a Notice to Any of Your Company’s Claimants
As part of the filing process, you can submit a request to be notified about any claims that might arise in the future. The state will then send out notices to any claimants on your company’s behalf if additional action is required.
- This is done for free at the time you file, but I recommend doing it anyway because this simple step could save you thousands if someone were to sue your dissolved corporation later on over some kind of debt.
- It takes anywhere from 1-3 days for the cancellation to take effect after filing, depending upon the state office processing your paperwork. At that point, all company records are destroyed, and anyone looking up information on your corporation would find nothing but this notice stating it no longer exists.
- You should keep an eye out for any outstanding liabilities that your former corporation might have left behind. Your state’s Secretary of State may file a document called an “Annual Report & Articles of Termination,” which terminates all tax filing requirements so long as the corporation has no outstanding liabilities (e.g., unpaid taxes, debts to creditors, etc.).
You can check this for free at any time by going on their website and searching the business name or EIN. If one shows up, you’ll definitely want legal help from a professional at that point!
Taxation Clearances&Annual Reports
You will want to file for whatever taxation clearances are necessary by filing “Form FR-500 Tax Clearance Application” with the Delaware Division of Revenue. You can get this form on their website or at any office location by simply asking for it.
Once your business is no longer active, you should not be paying taxes but only filing the proper reports (if required). If you were supposed to file an annual report while your business was in operation, I would recommend doing that ASAP to avoid problems.
The Division of Revenue is not involved in the dissolution process and only needs to know about your business if it has any outstanding taxes or tax liens (e.g., unpaid payroll taxes, withholding on business income). For more information, please visit their website at http://revenue.delaware.gov/.
If your company was formed as a Delaware franchise , then you may need to file a special form at the franchise tax section called an “Annual Franchise Tax Report” or “TFR-25” and pay a minimum state franchise tax. This is done in addition to the annual report mentioned above.
If your business was not formed as a Delaware franchise, it doesn’t matter; all that’s required is filing one of the reports described.
How long before someone can take your business name?
You may notice other businesses using the same name as yours if it’s relatively common. You should file a “UCC-1 Financing Statement” with the Division of Corporations to protect your business name in case someone else tries to take it.
This will also give you legal recourse should they attempt to do so, because Delaware law requires that any person or company intending to offer goods or services under an assumed or fictitious name must first file either a General Partnership Registration (for general partnerships) or Limited Liability Company Application (for limited liability companies).
What Occurs After Dissolution?
After filing your dissolution notice, some states automatically cancel all future filings related to your business. Others will keep those records as long as the company is still open and paying taxes.
- You will need to fill out some forms at the Division of Revenue called “Form FR-900 Tax Clearance” and “Form FR-901 Annual Report”. You can get these forms on their website or just by asking for them. Requirements vary depending upon whether or not you had any tax liabilities, but generally, it’s very easy and takes no more than a week or two to receive your final tax clearance and report. This is nothing to worry about since you’ll be closing down your old company anyways!
- Once the process is complete, your certificate of dissolution will become a public record. Keep this in mind because some people might try using a copy to commit fraud against another party in a lawsuit or creditors later on if they think that no one knows the company has been dissolved. I have never heard of anyone being victimized by this before but just be aware of it so you can protect yourself from any potential problems in the future.
You don’t need an EIN to dissolve a corporation. Since corporations are considered separate legal entities from their owners/stockholders, there shouldn’t be anything preventing you from simply closing up shop and walking away without filing for bankruptcy or becoming personally liable for any debts that your corporation might have built up over time.
Although this is a general overview, you can see how it could be pretty confusing and time-consuming to go through the process by yourself.
The Division of Corporations website has information on both corporations (S corporation or C corporation) and LLC’s, but it seems like they were made with different people in mind, and I couldn’t find any real descriptions of what happens after the corporate dissolution process takes place.
Hopefully, this has given you some idea about how it works because otherwise, there’s no way that you could easily do it yourself without spending hours reading everything online or looking for legal advice at the law firm!