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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.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
There are 15 comments left for Business Dissolution: Two Ways to Go About ItCS said: Sunday, March 29, 2020
A former business partner of mine opened a C-Corp using his name to get an EIN and listed me as a shareholder, director, vice president, and secretary of the company. I don’t think he conducted any business with this C-Corp not 100% sure, but he did not pay the franchise taxes since he opened the company in Nov 2018 nor did he file any taxes. Will any of this fall onto me and/or affect me negatively even if the company eventually becomes void/dissolved?HBS Staff replied: Monday, March 30, 2020
The franchise tax fees are imposed on the company, not an individual person. If you would like to contact our payments team for assistance, we would just need to know the name of the company and/or state of Delaware file number to review further.Sam said: Thursday, February 27, 2020
Hello If my corp get the void status, will happen the same to forfeit status? in some date will be dissolve by the State?HBS Staff replied: Monday, March 2, 2020
The company cannot go void and forfeit. It can only be in one of these statuses. The company goes void if it does not pay the taxes for 2 years in a row (corporations) or 3 years in a row (LLCs). The company goes into forfeit status if it does not maintain a registered agent.Andy 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.