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When a Delaware company is no longer viable, there are two options available to the company owner in order to complete a business dissolution:
1) File the proper cancellation (for an LLC) or dissolution (for a corporation) documents with the state of Delaware to formally close the company. Just as formation documents are filed with the Secretary of State’s office to create a Delaware company, official documents must also be filed to legally close the company.
2) Have the acting Registered Agent resign upon the entity. While this course of action is not the same as filing a formal certificate, it will put the company into a forfeit status. An entity in a forfeit status is considered an inactive company by the state of Delaware. However, the resignation process actually takes a couple of months to complete; it does not occur right away like a cancellation/dissolution.
These steps must be taken before the Registered Agent is formally resigned from the company:
At this point, the state of Delaware gives the entity another 30 days to rename the former Registered Agent as its current Registered Agent for the entity or to find a new Registered Agent to act on its behalf. Again, if no action is taken, then the entity will become officially forfeit and will lose its good standing status.
During the approximate 60-day waiting period, the entity can potentially still receive notices for payments due, such as the annual Franchise Tax Fee. Until the entity is actually resigned upon and in a forfeit status, the Franchise Tax notices will continue to be generated by the state of Delaware.
People often assume—incorrectly—that if their company is in the resignation phase they will not have to pay that company’s Franchise Tax Fee. The Franchise Tax Fee is automatically imposed on the entity by the state of Delaware at the beginning of each new year.
Regardless of whether the entity has conducted any business, it will generate a Franchise Tax Fee. If the entity is resigned upon and the Franchise Tax Fees are not paid, the assessment stays with the entity. Therefore, if the entity is restored at a later date, the outstanding Franchise Tax Fees must be paid at the time of a renewal filing. However, no new Franchise Tax fees are imposed on an entity that is in a forfeit status.
All possible options and subsequent consequences should be reviewed by the company’s responsible parties to determine the best course of action for the entity.
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.
There are 13 comments left for Business Dissolution: Two Ways to Go About ItAndy Z said: Tuesday, March 5, 2019
Once a C Corp is voided, and no longer conduction business with no taxes due, can I simply file a final IRS tax return and mark it as final return and is that ok? Is it better to have it forfeited?HBS Staff replied: Wednesday, March 6, 2019
Andy, for questions related to your company tax filings, we recommend speaking with a CPA to determine the best course of action.Wayne said: Thursday, January 10, 2019
Once the c-corp in forfeit status and I am not doing anything with the company, what happens after like a couple of years? Will it dissolved automatically? Am I still responsible for the outstanding tax?HBS Staff replied: Friday, January 11, 2019
Wayne - For a corporation, the state of Delaware will generally void the company for non-payment of the franchise taxes for two consecutive years. For an LLC, the state of Delaware will generally void the company for non-payment of the franchise tax fees for three years in a row.
The franchise tax fees will always remain with the company; therefore, if the company (INC or LLC) is renewed at a later date, the outstanding fees would need to be paid at the time of the revival filing.Jenny said: Saturday, July 21, 2018
Once a company is in forfeit, who can revive it? Anyone? Only the original owners?HBS Staff replied: Tuesday, July 24, 2018
A company that is in a forfeit status can be renewed by filing a Certificate of Revival and paying any outstanding Franchise Tax fees. The certificate must be signed by an Authorized Officer of the company, and cannot be signed by a Director.
We can assist with such filing and can provide a price quote once we have the name of your company and/or the state of Delaware file number.
Please let us know if there are any other questions.saniye gurer said: Wednesday, July 4, 2018
We had a company. We are not using anymore. Our agency had said it is already in forfeit status in May 2017 you do not need to do anything. Yesterday our agency, but some other person emailed us that we need to dissolve to close the company and wants money. He wants 2016,2017.2018 taxpays and extras. But we did not have any tax to pay at that time. He also wants a lot money to "revival of charter". What does this mean?HBS Staff replied: Friday, July 6, 2018
We would be happy to assist you over the phone. Feel free to call us at 800 345 2677, Ext 6911. A live person will be happy to answer your questionsAtanas Atanasov said: Friday, May 11, 2018
Hello, I want to seek the option to forfeit my company with the 60 day waiting period. My question is - If I never want to use the company again, what happens to the accumulated tax after 20 years? does it affect me in any way ? Thank You!HBS Staff replied: Monday, May 14, 2018
The state of Delaware does not assess Franchise Tax fees on a company once it is forfeit. Therefore, any outstanding Franchise Tax fees would only need to be paid if a revival is filed. But no new Franchise Tax fees are imposed once the company is forfeit.