The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
Sometimes, despite meticulous strategies, our business plans don’t come to fruition, and we have to accept that the start-up we have worked so hard to establish is just not succeeding the way we hoped it would.
If, unfortunately, you find yourself in this position, here are nine things you should consider before closing your company:
Review your LLC Operating Agreement or corporation bylaws; both should specifically state how your Delaware company should be closed, including how to handle outstanding debts, how to liquidate assets and how to notify the appropriate parties involved.
Speak with your accountant to see if your company needs to file federal and/or state tax returns for one final time.
Contact the IRS in order to terminate your company’s EIN (Federal Tax ID Number).
Evaluate all unresolved contracts, loans and obligations your LLC or corporation may owe.
Meet with your bank representative in order to close your business bank accounts.
File a Certificate of Cancellation (for an LLC) or a Certificate of Dissolution (corporation) with the Delaware Secretary of State. Your Registered Agent can assist with this filing.
Consider closing the company before the end of the calendar year to avoid additional Franchise Tax Fees imposed by the state.
If your LLC or corporation filed for Foreign Qualification in another state, then typically a Certificate of Withdrawal will need to be filed with that state.
Remember that once a company is officially closed, it can be expensive to re-activate it, if it is even feasible to do so. Also, keep in mind that your original company name may no longer be available.
It is also wise to consult with an attorney to review your company’s specific details, as this list is not comprehensive and every business situation is different.
If you would like to operate your Delaware LLC in the state of New York, you can easily do so after you file for Foreign Qualification.
Foreign Qualification is the process in which the New York Department of State gives your Delaware LLC permission to legally operate in that state.
New York requires a foreign entity to file an Application for Authority as well as a Certificate of Good Standing that shows your Delaware LLC is in compliance as well as in good standing with the state of Delaware. In addition, you will have to pay the filing fee and abide by New York’s publication requirement.
Section 206 of the New York State Limited Liability Company Law requires that:
Within 120 days after the effectiveness of the initial articles of organization, a limited liability company (LLC) must publish in two newspapers a copy of the articles of organization or a notice related to the formation of the LLC. The newspapers must be designated by the county clerk of the county in which the office of the LLC is located, as stated in the articles of organization. After publication, the printer or publisher of each newspaper will provide you with an affidavit of publication. A Certificate of Publication, with the affidavits of publication of the newspapers attached, must be submitted to the New York Department of State, Division of Corporations, One Commerce Plaza, 99 Washington Avenue, Albany, NY 12231.
The fee for filing a New York’s Certificate of Publication is $50.
Keep in mind that not every state in the country mandates a publication requirement; however, New York does.
We are happy to assist you with both the Foreign Qualification process in New York as well as the publication requirement, as it is limited to certain publications with specific circulation and publishing frequency.
For more information about filing for Foreign Qualification in New York, please contact us in any of the following ways:
We work with ambitious entrepreneurs from all over the world to help form their Delaware companies for different kinds of business ventures.
When operating a Delaware LLC or corporation internationally, you may find that at some point you will be required to provide your incorporation documents affixed with an Apostille.
The Apostille de la Hague was put in place by the Hague Convention on October 5, 1961; it replaces the need for the legalization of foreign documents. In a nutshell, the Apostille is a means for documents to be recognized in all the countries that are currently a member of the Hague Convention.
We can obtain an Apostille document for any of your Delaware company’s documents on file with the Delaware Secretary of State, such as a Certificate of Good Standing, annual report or a variety of formation documents.
Our Apostille Service is fast and efficient, and we send you both a digital version via email and a hard copy via mail (expedited courier service is available in lieu of mail for an additional fee).
Delaware LLCs have been known to operate in all 50 states using a process called Foreign Qualification.
An LLC that is formed in Delaware is domestic to Delaware and foreign to every other state.
The Foreign Qualification process is the way in which another state gives a business owner the permission to operate in that state using the Delaware LLC.
If a business has a physical presence in another state other than its state of incorporation —via operating, banking, hiring employees or even holding an asset—the company owner must often foreign qualify the business in order for it to operate in that state.
Each state is different in its requirements to register a Delaware LLC as a foreign entity in the state.
Wisconsin, like many other states, has an application process and a state fee. Wisconsin, unlike many states, does not require a Certificate of Good Standing for a Delaware LLC to register there as a foreign entity.
Wisconsin will, like most states, require a Registered Agent in the state of Wisconsin in order to receive any correspondence directly from the state. It will be the Registered Agent’s job to forward any correspondence from the state of Wisconsin to the company contact person, including the annual reporting requirements.
Your Delaware Registered Agent will still be responsible for forwarding any correspondence from the Secretary of State of Delaware.
Once registered as a foreign entity in Wisconsin with your Delaware LLC, you will be responsible for Wisconsin’s annual report fees. Do not confuse these with the Delaware Franchise Taxes.
A Delaware LLC registered as a foreign entity in Wisconsin will be required to pay the Delaware Franchise Tax of $300 as well as the Wisconsin annual report fee of $80.
The Delaware Franchise Tax is due before June 1, and the Wisconsin annual report will be due before March 31 of each year. The Wisconsin annual report must be filed by a manager or a member of the Delaware LLC.
To initiate this process of foreign qualifying your Delaware LLC in Wisconsin, you can call us and we will be happy to assist you. We can take your information over the phone, prepare the documents and email them to you for signature.
We will then file the documents with Wisconsin. The turnaround time is typically about seven business days. If you require a Registered Agent in Wisconsin, we can assist with this as well.
For more information on registering your Delaware LLC in Wisconsin, or to get started, please call 1-800-345-2677 x6130 or email me.
Under Delaware law, a series LLC (limited liability company) may be composed of individual series of membership interests. This type of entity is referred to as a Delaware series LLC.
Each series is effectively treated as a separate entity, meaning the debts, liabilities, obligations and expenses of one series cannot be enforced against another series of the LLC, or against the LLC as a whole.
Each series can hold its own assets, have its own members, conduct its own operations and pursue different business objectives, but each series remains insulated from claims of members, creditors or litigants pursuing the assets of or asserting claims against another series.
The structure of the series LLC, which is often likened to a piece of honeycomb, is Delaware’s version of the "segregated portfolio companies" which are widely used (under various names) in the Cayman Islands, British Virgin Islands and other non-U.S. jurisdictions.
The Delaware series LLC reduces the fees incurred in creating and maintaining separate business entities for different ventures or investments. Only one filing fee is required to form a Delaware series LLC, regardless of the number of series it contains.
In addition, this type of LLC is treated as one entity for Franchise Tax and Registered Agent Fee and service purposes, meaning it is assigned one Registered Agent Fee and one $300 annual Franchise Tax, rather than the separate taxes and fees that would otherwise be applied, individually, to separate LLCs.
The Delaware series LLC Operating Agreement (which is not required to be publicly filed) may provide for any number of series. The Certificate of Formation for a Delaware series LLC must specifically note, however, that the LLC is divided into distinct series and the assets and obligations of a series are attributable only to that series.
Additional series can be added, or series can be terminated, at any time by an amendment of the series LLC Operating Agreement. In order to maintain the legal distinction among the series, a series LLC must maintain records documenting the assets and liabilities of each series; however, from a practical perspective, records should be kept as though each series is a separate entity.
Although series LLCs have become increasingly popular, there is a certain degree of uncertainty surrounding the Delaware series LLC. For example, the legal separation of the assets and liabilities of each series has not been tested in court.
Although Delaware law clearly provides for legal separation of each series, it is unclear whether courts in other states and/or jurisdictions would recognize a legal separation of assets and liabilities within what is, technically, a single entity.
Therefore, even if a Delaware series LLC were properly structured and operated, with distinct records relating to the assets and liabilities of each series, a court in another jurisdiction could decide not to recognize the legal separation afforded under Delaware law.
Additionally, the United States federal tax treatment afforded to individual series is not certain.
In January 2008, the Internal Revenue Service held that the distinct series within a Delaware series LLC will generally be taxed as separate entities for federal income tax purposes; however, many states have not provided concrete guidance on the effect of the series distinction for state tax purposes.
We have been creating Delaware series LLCs for the last 10 years, and possesses the experience to allow you to take advantage of this flexible and efficient business formation. If you think the Delaware series LLC may be right for you, please call 800-345-2677 or email us for more details.
We can also offer guidance if you need help creating a series LLC Operating Agreement. We also offer a series LLC Operating Agreement template.
For more information on the Delaware series LLC, please read these helpful articles: