How to Close an LLC in Delaware: Expert Advice and Key Steps for the best Exit Solution in 2023

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Table of Contents

Close an LLC in Delaware ?

Close an LLC in Delaware can seem like a daunting and complex process, but it doesn’t have to be. LLC stands for Limited Liability Company, which is a type of business structure in which the owners are not personally liable for the company’s debts and liabilities. Instead, the company itself is responsible for its financial obligations. LLCs are a popular form of business entity because they offer liability protection to their owners, while also allowing for flexibility in management and taxation. In this article, we explore the reasons for dissolving a company and provide a comprehensive guide on how to Close an LLC in Delaware, including the required steps, the distribution of assets, and payment of the Delaware franchise tax.  

close an LLC in Delaware

What Are The Reasons For Dissolving An LLC?

Close an LLC in Delaware can be done for various reasons. The most common reasons include: 

  • Business Decision 
  • Mergers and Acquisitions 
  • Bankruptcy and Insolvency 
  • Retirement of Members 
  • Expulsion of a Member 

Business Decision 

A business decision is one of the most common reasons for dissolving an LLC. It could be that the company is no longer profitable or has changed its strategic direction. If the owners of the LLC have decided that it is no longer feasible or desirable to continue operating, then they may choose to dissolve the company. In this case, it is important to ensure that all debts and obligations of the LLC are paid off before it is officially dissolved. 

Mergers and Acquisitions 

Another common reason for close an LLC in Delaware is due to a merger or acquisition. When a company merges with another, or is acquired by another, the existing LLC may no longer be necessary. In this case, the owners may choose to dissolve the LLC and start a new entity with the new company. 

Bankruptcy or Insolvency 

Bankruptcy or insolvency is a common reason for the dissolution of an LLC. If the LLC has debts that it is unable to pay or if it is declared insolvent, the owners may choose to dissolve the company. It is important to note that when a company is insolvent, the owners may be held personally liable for any remaining debts or obligations. 

Retirement of Members 

When a member of an LLC retires, it can also be a reason for dissolution. If the remaining members do not wish to continue operating the LLC, they may choose to dissolve it. In this case, it is important to ensure that all debts and obligations of the LLC are paid off before it is officially dissolved. 

Expulsion of a Member 

If a member of an LLC is expelled, it can also be a reason for dissolution. If the remaining members do not wish to continue operating the LLC without the expelled member, they may choose to dissolve it. In this case, it is important to review the LLC’s operating agreement to ensure that the proper procedures are followed for expelling a member and dissolving the company. 

Preparing For Dissolution

Before dissolving a Delaware LLC, it is important to properly prepare to ensure that all steps are taken in the correct order. The following are the necessary steps to prepare for dissolution: 

Review Operating Agreement 

The first step in preparing for dissolution is to review the LLC’s operating agreement. This document will outline the process for dissolving the company and should be followed to ensure that all procedures are followed properly. If the operating agreement does not include specific provisions for dissolution, the LLC must comply with Delaware state law regarding the dissolution of an LLC. 

Vote on Dissolution 

Once the operating agreement has been reviewed, the members of the LLC must vote on whether to dissolve the company. In most cases, a majority vote is required to approve the dissolution. 

Notify Creditors and Business Partners 

After the members have voted to dissolve the company, it is important to notify all creditors and business partners of the impending dissolution. This will give them time to make any necessary arrangements and to collect any outstanding debts. 

Distribution Of Assets

After the Delaware LLC has canceled all its licenses and permits, it must distribute its assets to its members and creditors. The following are the steps an LLC in Delaware must take to distribute its assets: 

Paying off Creditors 

The LLC must first pay off its outstanding debts and obligations to its creditors. It is important for the LLC to ensure that it has paid all of its debts in full, as failing to do so can result in legal action against the LLC and its members. The LLC must review its records and accounting statements to determine its outstanding debts and obligations, and it must ensure that all creditors receive their payment before distributing any remaining assets to the LLC’s members. 

Distributing Assets to Members 

Once the LLC has paid off all its debts and obligations, it can then distribute its remaining assets to its members. The LLC must review its operating agreement to determine how the assets will be distributed among the members. If the operating agreement does not specify how the assets will be distributed, the LLC must follow the default rules set out in Delaware law. Typically, assets are distributed to members in proportion to their ownership interest in the LLC. 

Required Records and Documentation 

The LLC must maintain proper records and documentation of its asset distribution. The LLC must prepare a final accounting statement, which shows how the assets were distributed among the members and how the debts and obligations were paid. The LLC must also maintain documentation of its distribution, including bank statements, canceled checks, and receipts. The LLC must retain these records for at least three years after the date of dissolution. 

It is important for the LLC to properly distribute its assets to its creditors and members to ensure that it has fulfilled all its obligations and has properly dissolved its business operations. By following these steps, the LLC can ensure that it has met all its legal requirements and has properly terminated its operations in Delaware. 

Pay The Delaware Franchise Tax

If you have an LLC in Delaware and you want to dissolve it, you will need to pay the Delaware Franchise Tax as part of the dissolution process. The Delaware franchise tax is a tax on the right to own an LLC in the state of Delaware. Even if you have not conducted business in the state, you will still need to pay the franchise tax if you have an LLC in Delaware. 

To dissolve your Delaware LLC, you must first pay any outstanding franchise tax and penalties owed to the state. The amount of the franchise tax depends on the type of LLC you have, the number of authorized shares, and the par value of those shares. You can calculate your franchise tax using the Delaware Division of Corporations‘ online calculator. 

Once you have calculated your franchise tax, you can pay it online using the Delaware Division of Corporations’ online payment system. You can also pay by mail by sending a check or money order to the Delaware Division of Corporations. 

It is important to note that if you do not pay your Delaware franchise tax, your LLC may be subject to penalties and interest charges, and you may not be able to dissolve your LLC until you have paid all outstanding taxes and penalties. Additionally, failing to pay the franchise tax can result in the state revoking your LLC’s certificate of incorporation. 

how to close an LLC

Filing Certificate Of Cancellation

In Delaware, a certificate of cancellation is a legal document that officially dissolves an LLC and terminates its existence. This is an important step in the process of closing a Delaware LLC and is necessary to avoid any future legal or tax liabilities. 

To obtain a certificate of cancellation, the LLC must complete the necessary paperwork and submit it to the Delaware Division of Corporations. The paperwork includes a cover letter, a completed Certificate of Cancellation form (to access the form, click here), and the appropriate filing fee. In Delaware, the fee to file a Certificate of Cancellation for a Limited Liability Company (LLC) is $200, as of the time of publication. 

The Certificate of Cancellation form requires basic information about the LLC, such as the name of the company, the date of formation, and the name and address of the registered agent. The form must also be signed by a member or authorized representative of the LLC. 

The Certificate of Cancellation for a Delaware LLC can be filed online or by mail. Online filing is generally faster and more convenient. The Delaware Division of Corporations offers an online filing system called “Delaware Business One Stop” that allows you to file your certificate of cancellation and pay the filing fee electronically. If you choose to file by mail, you can download the appropriate form from the Division of Corporations website, fill it out, and mail it to the address listed on the form along with a check or money order for the filing fee. 

After the paperwork is submitted, the Division of Corporations will review the documents and, if everything is in order, issue a certificate of cancellation. This certificate serves as proof that the LLC is officially dissolved and that its existence has been terminated. 

The processing time for a Certificate of Cancellation for an LLC in Delaware can vary based on a number of factors, including the completeness and accuracy of the submitted paperwork, the volume of requests being processed at the time, and the efficiency of the state agency responsible for processing the request. 

It’s important to note that obtaining a certificate of cancellation does not automatically release the LLC from any outstanding obligations or debts. The LLC must still settle any outstanding debts and obligations before it can be officially dissolved. Failure to do so can result in legal and financial consequences for the LLC and its members. 

Cancellation Of Business Licenses And Permits

In addition to filing a Certificate of Dissolution with the Delaware Division of Corporations, an LLC must also cancel its business licenses and permits before it can officially dissolve. The following are the steps an LLC in Delaware must take to cancel its business licenses and permits: 

Tax Clearance Certificates 

Before an LLC can cancel its business licenses and permits, it must first obtain a Tax Clearance Certificate from the Delaware Division of Revenue. The Certificate confirms that the LLC has paid all its taxes and filed all required tax returns. The LLC must submit an application to the Division of Revenue to request the Certificate, and if approved, the Certificate will be issued to the LLC. 

Canceling Business Licenses 

Once the LLC has obtained the Tax Clearance Certificate, it can then cancel its business licenses. To cancel a license, the LLC must contact the appropriate licensing agency and request a cancellation. The LLC may need to provide documentation, such as the Tax Clearance Certificate, to prove that it is eligible for cancellation. If the LLC holds multiple licenses, it must cancel each license separately. 

Canceling Permits 

Similarly, the LLC must also cancel any permits it holds. To cancel a permit, the LLC must contact the agency that issued the permit and request a cancellation. The LLC may need to provide documentation, such as the Tax Clearance Certificate, to prove that it is eligible for cancellation. 

It is important to note that canceling business licenses and permits is a critical step in the process of dissolving an LLC. If an LLC fails to cancel its licenses and permits, it may continue to receive renewal notices and may be subject to penalties for failure to renew or maintain them. Additionally, the LLC may be liable for any fees or taxes associated with the licenses and permits that were not properly canceled. 

Close Your Business Account With The IRS

Closing your business account with the Internal Revenue Service (IRS) is an essential step to take when dissolving a Delaware LLC. You need to inform the IRS that you are closing your business account and that you will no longer be responsible for paying taxes. This process is known as “closing your account,” and it involves several steps that must be completed correctly to avoid any legal issues. 

The first step in closing your business account with the IRS is to file your final tax return. This return will show your income and expenses for the period that you were in business, and it will determine how much tax you owe. You must pay all outstanding taxes and any penalties or interest owed to the IRS before filing your final return. Once you have filed your final return, you can then start the process of closing your business account. 

To close your business account, you need to file Form 966, Corporate Dissolution or Liquidation, with the IRS. This form notifies the IRS that your LLC is no longer in business and that you are canceling your employer identification number (EIN). You must also provide a copy of the Certificate of Cancellation to show that your LLC has been officially dissolved. 

Once the IRS has received your Form 966 and Certificate of Cancellation, they will close your business account and cancel your EIN. You will receive a letter from the IRS confirming that your account has been closed, and you should keep this letter for your records. 

It is essential to close your business account with the IRS to avoid any future tax liabilities or legal issues. Failure to properly close your account could result in fines or penalties, and the IRS may continue to send you tax notices and demand payments. By following the correct steps and properly notifying the IRS that you are dissolving your Delaware LLC, you can ensure a smooth and hassle-free process. 

Conclusion

In conclusion, properly dissolving an LLC is a crucial step in closing a business and ensuring that all legal and financial obligations are met. Failing to dissolve an LLC can result in unwanted legal and financial consequences, such as continuing to be responsible for taxes and liabilities. 

To dissolve an LLC, the following steps should be taken: review the LLC’s operating agreement and state law, hold a meeting to vote on dissolution, file the appropriate paperwork with the state, settle any outstanding debts and obligations, and inform the IRS that you are dissolving your company. 

It is important to take the time and effort to properly dissolve an LLC, even if it may seem like a minor detail at the time. This can save significant headaches and costs down the road. 

With this in mind, we recommend seeking the advice of a legal or financial professional to ensure that all steps are taken correctly and to avoid any potential legal or financial issues. Dissolving an LLC can be a complex process, but with the proper guidance and attention, it can be completed smoothly and efficiently. 

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