Is it time to wind down and dissolve your Delaware Corporation? In other words, are you ready to put an end to your corporation's life?
After all, your Corp. is considered a separate legal person, usually with its own identification number (EIN). Because of this, it is important to make sure that when it is time, your INC is properly dissolved.
Did you know you have another option; one where you simply abandon your corporation? Dissolving a Corporation in Delaware is not free, so before you proceed, first consider all of your options.
Then, if you decide to formally dissolve your INC there are several steps you must take to make sure you follow Delaware’s rules for Dissolving your Corp.
I will outline your options and give you a detailed explanation of how you follow either action, including the internal governance requirements (the real boring stuff) which is a part of running your Corporation.
Decide what type of dissolution You may be thinking “Is there more than one type of dissolution?” In fact there are two approaches to killing your Corporation: abandon your INC or formally dissolve it.
Abandon If your corporation was formed, but no business (AKA: income & expenses) whatsoever has been conducted, those who have authority (i.e. Directors AND Shareholders) can simply abandon the Corp. In other words, you will not stand in the way of having the Delaware Division of Corporations dissolve the Corp. for not keeping up with its filings. This will take more than two (2) years before your first delinquency (of filing your annual report & taxes) occurs. Even after this, the INC can be reinstated by just paying the overdue fees and penalties and filing a reinstatement.
Keep in mind that the INC (not the parties who formed it) is still liable for any fees and filings until it is dissolved. Once the INC is dissolved, the INC will essentially cease to exist, although it is still possible to reinstate with revival by paying an additional $200 fee, along with overdue franchise taxes.
If you have conducted any business activity, you should follow the formal process of Voluntary Dissolution.
Voluntary Dissolution This is the formal process of bringing the Corporation’s existence to an end voluntarily, and along with it any future obligations by the Corp. It requires three steps to complete this process: elect dissolution internally, pay all franchise taxes & file dissolution with the state, & notify.
Step I – Elect Dissolution Internally
Once you’ve decided on voluntary dissolution, because your INC is a separate person, you need to follow the same formalities for dissolving your INC as you should have done during the whole life of your INC.
Formally Speaking With regular Corporations making a decision as large as dissolving the organization must be made by both the directors and then the shareholders and it must be documented in writing. This is very important with dissolution.
Special Directors Meeting
The elected directors of the Corporation must formally meet and decide to dissolve the organization. If the directors cannot wait for the annual meeting, they should hold a special directors meeting. Minutes of the meeting (AKA Corporate Resolution) are used to document the directors' decision. Don’t forget to deliver proper notice of the meeting as described in the corporate bylaws. In place of this, a Unanimous Consent can be signed by all directors.
Special Shareholders Meeting
The shareholders then need to hold a meeting to vote on the resolution approved by the directors in the special directors meeting. This too is documented in meeting minutes and requires proper notice. Likewise, a unanimous consent can be signed in place of the minutes and providing notice.
Once you have completed the formal process of deciding to dissolve, you can file your dissolution.
Step II – File with Secretary of State
Secretary of State does not have an electronic process for filing dissolution, so you will have do this by filing physical dissolution along with a current franchise tax report.
A Delaware corporation must have all annual reports filed, including the one through the current year in which you are filing your dissolution. Because your annual franchise taxes and report are sent to you in December and due in March for the previous year, you most likely will not have the current year report. In other words, if it were to try and dissolve today January 21st, 2014 and you already paid your 2013 taxes (due 3/1/14), you still must pay your 2014 taxes before or at the same time you file your dissolution. You will not be able to file this electronically, because it is not until 3/1/15. To do this, you must call the SOS Franchise Tax Dept. (302-739-3073 Ext #30) and ask them to email you a current franchise tax statement and annual report, along with any others if you are overdue.
Certificate of Dissolution
Once you receive your tax report, you can file a Certificate of Dissolution with the Delaware Division of Corporations at the Secretary of State. The cost for this is usually $10 if using the Short Form Dissolution form. To use the short form, the corporation must cease doing business, have no assets, and have paid minimum taxes.
Step III – Notify the World
Once you have filed your dissolution with the state and confirmed the filing, don’t forget to tell other governmental agencies, vendors, and customers that your LLC has formally wrapped up its operations. Here is a partial list of those you need to notify:
IRS – You usually do this through your filing a final tax return
Dept. of Revenue – This only applies if your INC actually operated in Delaware (had an office, retail center, etc.), then you should notify this agency.
Registered Agent - You must let your registered agent know that your entity, which they are responsible for, has been formally dissolved.
Bank - You should have already closed down the bank account(s), but if you have not, be sure to formally notify the bank to close your accounts.
Vendors - All vendors that have accounts, should be notified
Customers - This goes without saying, that any ongoing customers should receive some sort of notification.
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If you follow these few simple procedures, you should have no problem dissolving your Delaware INC with the state and making sure you are freed up to pursue other activities.
CEO & Founder of SmallBiZ.com, created over twenty years ago to help small business owners simplify the process of starting & managing their small businesses. SmallBiZ.com now serves over 10,000 businesses per year with various filing and subscription services; in addition to the 1000's of daily visitors to www.smallbiz.com, accessing free services, help pages, & educational videos & webinars.