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As we all know in the business world, as much as you want your new business to succeed, not all new ventures will work out. Approximately 40% of new businesses will wind things down within the first few years. Whatever the situation may be, sometimes it's best to cut your losses and close your LLC or corporation.
When that happens, you need to take care of a few important steps.
When your company was originally filed, a Certificate of Formation/Certificate of Incorporation was submitted in order to create the new entity. When it is time to close a Delaware company, a document is filed with the Delaware Division of Corporations; this document is called a Certificate of Dissolution for corporations, and a Certificate of Cancellation for LLCs.
Sometimes, clients plan to close their company to coincide with the Delaware franchise tax deadline. The Delaware franchise tax is due on or before March 1 of each year for Delaware corporations and on or before June 1 of each year for Delaware LLCs. When you pay the franchise tax, you’re actually paying for the previous year—the franchise tax paid in any given year is for the preceding calendar year. Delaware franchise taxes are not pro-rated, so your entity will owe the franchise tax fees for the whole year, even if your company is only active for January 1st. By filing your cancellation or dissolution by Dec. 31st, you’ll avoid having to pay the next year's franchise tax.
While the process of closing a company is fairly straightforward, there are things that may need to be considered before you proceed.
We can make the process of closing your company as simple as possible. All you need to do is call us at 800-345-2677 or email us and we'll take it from there. We can prepare and file all the necessary documentation for you.
Before we can proceed with the filing of the documents, however, we'll have to make sure all your company's Franchise Taxes are paid, including the current year. We can prepare a Certificate of Dissolution or Certificate of Cancellation for your signature and forward it to you via fax or email.
It must be signed by the authorized person of the LLC or an appropriate officer of the corporation. Once signed, simply return it to us by fax or email, and we will file the certificate with the state of Delaware within 24 hours.
The state typically takes 3 to 5 business days to return the receipt of filing. As soon as the approved document is available, we will forward it to you for your records. We strongly suggest clients speak with their accountant/tax professional before proceeding with a dissolution or cancellation of a company. Once the filing is approved, it is difficult to undo.
If your company has a bank account, you should close the account before filing the Certificate of Dissolution/Cancellation. If you have filed taxes with the IRS, you will need to file a closing tax return after filing the Certificate of Dissolution/Cancellation, and attach a certified copy of the certificate to your final tax return.
To summarize, here are the steps:
Please contact us with any questions or to get started!
Photo Attribution: Pete Jelliffe
*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 3 comments left for How to Close Your Delaware CompanySyd m nasabzadeh said: Friday, December 25, 2020
I never used my erpmicroskills, llc for any business activity and also I had removed my website erpmicroskills.com so I am closing my company I had registered with harvardHBS Staff replied: Monday, December 28, 2020
Syd, please note that in order to formally close your company with the state of Delaware, a Certificate of Cancellation must be filed. If it is not filed, Delaware will still assess your annual Franchise Tax. Please contact our team at email@example.com for assistance formally closing your company.Jecks Engineering Services Inc. said: Thursday, December 3, 2020
Good day, Our company corporation was opened this year but the current covid-19 environment has made it impossible for us to commence business. We would like to know if we will pay state and federal tax on a company that has not commenced business operations and if so what will we be paying with amount . Kindly guide us as we are new and still hopeful. ThanksHBS Staff replied: Tuesday, December 8, 2020
If you did not have any income, you typically do not have to pay any income tax. However, we recommend consulting with a tax professional to make this determination. Every Delaware company is required to pay the annual Franchise Tax, regardless of income or business operations; however, this is due in the following calendar. If your company was created in 2020, you will have to make that payment in 2021 -- by March 1 for a corporation and by June 1 for an LLC.Michael Grillis said: Thursday, December 15, 2016
I would like to close my Grillis medical office building , LLC.Could you send me forms for this or let me know what I need to do?I would like to close by Dec. 31, 2016. ThanksHBS Staff replied: Tuesday, December 20, 2016
Mr. Grillis, your best bet, in terms of speed, would be to give us a call at 1-800-345-2677, Ext. 6911. We can help you properly close your LLC by the end of the year. You can also Live Chat with us via our homepage at www.delawareinc.com.