When a Delaware company is no longer viable, there are two options available to the company owner in order to complete a business dissolution.
One approach is to 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.
An alternative route is to 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.
There are 2 comments left for Business Dissolution: Two Ways to Go About Itsk elmasry said: Sunday, October 30, 2016
If I cancel my LLC, is there any potential harm if I decide to open a new one in the future in Delaware or elsewhere. Also, is there an option to suspend company activities, rather than cancelling it? please advise.HBS Staff replied: Monday, October 31, 2016
Once the entity is cancelled or dissolved, it is no longer in existence and has no bearing on a new company formation. Feel free to call us for more information on canceling an LLC. 1-800-345-2677.Larry blackburn said: Wednesday, September 14, 2016
I wish to close my LLC as i do not foresee any future use for the company.HBS Staff replied: Friday, September 16, 2016
Thank you for inquiring about our LLC cancellation service. We are sorry to hear you wish to cancel your LLC, but appreciate the opportunity to serve as your Delaware Registered Agent. Formally canceling a Delaware LLC includes a $450 filing fee and $300 for the 2016 Franchise Tax. The total to formally cancel the LLC using our service is $750.00 After we receive payment, we will prepare a Certificate of Cancellation for your signature and forward it to you via fax or email. Once it is returned to us, the Certificate will be filed with the state of Delaware. As soon as the approved cancellation document is available, we will forward it to you for your records.
To proceed please call us at 800 345 2677 ext 6911.