Certificate of Cancellation Delaware LLC
A Certificate of Cancellation Delaware LLC is a required form that you need to file in order to properly dissolve your Delaware Limited Liability Company.3 min read
2. How to Dissolve Your Delaware LLC
A Certificate of Cancellation Delaware LLC is a required form that you need to file in order to properly dissolve your Delaware Limited Liability Company. Specifically, the Delaware LLC Act allows a Delaware LLC that is in good standing to dissolve its existence. The business will need to file a Certificate of Cancellation in order to do so. However, this document cannot be filed prior to paying creditors, stopping operations, and distributing funds to the members of the LLC.
Dissolving Your Delaware LLC: An Overview
As previously noted, you will need to take some steps before your LLC can be officially dissolved. Such steps include the following:
- Ensure that any pending lawsuits are settled and closed
- Allocate the assets of the business
- Pay all required state and federal taxes
- Sell the LLC’s property
- Settle any liabilities of the LLC, including payment to creditors and other business vendors, as well as repaying any loans or other contracts
- If your Delaware LLC is also registered in other states, then you will need to file additional forms in those states to terminate the foreign qualification that you were previously given to conduct business in those states.
How to Dissolve Your Delaware LLC
Keep in mind that there are a variety of ways as to why your Delaware LLC could be dissolved. In addition to a voluntary dissolution, your LLC might be involuntarily dissolved through a court decree, failure to pay taxes, or failure to file an annual report.
But if choosing to voluntarily dissolve your LLC, you will first need to look at your LLC Operating Agreement if you have one.
This agreement should specify how the dissolution must take place, and include specific procedures as to how it will be done, and what is required of the members prior to dissolving the business.
Generally, the LLC members must come to a vote on whether or not the LLC should in fact dissolve; there might even be additional requirements noted in the agreement that must be met before dissolving your LLC. Therefore, you should make sure that you follow the procedural guidelines outlined in your agreement.
If, however, you either don’t have an Operating Agreement or if the agreement doesn’t specify the process for dissolution, then the Delaware LLC Act rules will apply. These rules specify that the LLC can only be cancelled after all members holding more than two-thirds of ownership have provided written consent for dissolution.
The law also provides an alternative way in which to dissolve your LLC – an affirmative vote or written consent of all such above-mentioned members (holding at least two-thirds ownership in the company) or those members holding interest in the profits of the LLC. Therefore, even if a member doesn’t hold two-thirds ownership in the LLC, but has some sort of interest in the profits of the business, then he or she can vote whether or not the business should in fact dissolve.
After you’ve dissolved, the LLC will continue to exist only for the purpose of distributing the remaining assets, which is also referred to as the winding up stage. When beginning the dissolution process, most LLCs appoint a member to act as the liquidation manager, who will oversee the distribution of the LLC assets. When it comes to distributing the assets, it must be done in a particular order as follows:
- Creditors must be paid first, including any members who are creditors
- Next, you will pay all current and prior members any distributions that are due to them, i.e. The Operating Agreement might specify that members are to be distributed a certain amount of money upon dissolution, which is separate and distinct from the return of funds based on capital contributions.
- Last, you will distribute any remaining assets to all current and former members, dividing it up by the amount of capital contribution that each member gave throughout the life of the LLC. If there aren’t enough funds to pay each member the amount in which they initially contributed to the LLC, then the distribution will be given in portions, i.e. each member will be paid back 80% of what they initially contributed.
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