Delaware Certificate of Dissolution: Everything You Need to Know
Formally dissolving a corporation is about resolving a business in an appropriate way that ends its responsibility to pay taxes and pertinent fees.9 min read
What Is a Delaware Certificate of Dissolution?
It’s only natural that some corporations close, and in Delaware you’ll need a certificate of dissolution. Formally dissolving a corporation is about resolving a business in an appropriate way that ends its responsibility to pay taxes and pertinent fees, with examples including franchise taxes and agent fees. Though the decision to close a company is a difficult one, once it is made there are several items that must be accomplished in order to make a closure official.
How to Dissolve a Corporation in Delaware
First, to dissolve a corporation based in Delaware, a certificate of dissolution must be filed with the offices of the Department of State. There are a several factors that impact the type of dissolution you pursue, including the sort of entity you’re dissolving, its scope, the amount of shares the corporation has been authorized, and your company’s current status. If your corporation is registered in Delaware and you’re seeking to protect the corporation from those claiming monetary assets or creditors seeking payment, you must first end its status as a business registered in the state.
First, file with Delaware at the state level by submitting the certificate of dissolution. This certificate outlines that the company isn’t responsible nor liable for any future franchise taxes nor related registered agent fees that might apply. Then, you must hold a meeting where the board of directors of a company come together and affirmatively pass a dissolution resolution. Even after a resolution to dissolve, the corporation must file a formal certificate at the state level. The expertise of a filing specialist is useful in coalescing all the necessary information to pay the final round of your Delaware franchise taxes, which must be paid to formally dissolve your company.
After the certificate is drafted, you must select an officer from your company who will sign it. No matter what kind of corporate dissolution you’re seeking, you must assemble annual reports and any outstanding franchise taxes, then pay those—even taxes related to the year you are dissolving. Should a corporation dissolved through a court order, or if a company’s charter is made void because of a failure to yield franchise taxes, you must adhere to the court decree. This article pertains specifically to dissolutions that are voluntary and those that involve shareholders and issued stocks. There are separate procedures for dissolving a business that did not issue stock, has yet to begin business, or if there are only a pair of stockholders who split the company 50/50.
There is a law in Delaware called the General Corporation Law (also known as “GCL”). This law outlines the rules for voluntarily dissolving a business through a vote held among stockholders in a formal meeting. Prior to voting on the matter, your company’s directors must have first passed a resolution regarding dissolution. Then, the resolution would be submitted to the company’s many stockholders, and then called and invited to vote on the issue of dissolution. There must be ten days’ notice given in advance before the meeting of stockholders regarding a vote on dissolution.
In order for the dissolution to be approved, a significant majority of the stockholders must have voted in the affirmative. Those who hold stock are entitled to vote and must approve the dissolution. Note that pursuing this method of dissolution requires proper documentation of the board of directors’ approved proposal to dissolve, along with recording of the stockholders’ affirmative votes for dissolution. Delaware’s law allows for a bypass of a meeting of stockholders and instead seek consent in writing from those who hold stock in the company.
Now, how does written consent of dissolution approval work?
First, note that if the stockholders are unanimous in their consent to dissolve, then there is no action necessary by the board of directors to begin these proceedings. Secondly, if a majority of stockholders approve the action to dissolve, and this does not conflict with the incorporation certificate of your business, then this vote is valid. However, if the consent of the stakeholders isn’t a unanimous decision, then notice of your intent to dissolve must be given promptly to those shareholders who did not vote in the affirmative. Whether consent among stockholders is unanimous or won by the majority, the required number must sign a consenting document that effectively dissolves the entity. This must be recorded officially in the company’s and the state of Delaware’s records.
Small businesses would likely benefit from a dissolution that only calls for consent in writing, as it is a much speedier process, particularly in small businesses where most of the stockholders are also directors of said business. Likely these scenarios generate near unanimous affirmative agreement among the voting parties, as long the initial incorporation certificate doesn’t prohibit this. Also, worth noting is that dissolving a business doesn’t nullify any pending lawsuits or proceedings initiated against your company, even three years following your formal dissolution.
There is a fee for dissolving your business in the state of Delaware that must be paid alongside the outstanding franchise tax—including interest or any penalties rendered from lateness, which must be paid before dissolution is made official. It’s typically that the corporation will close its bank account prior to filing any certificates of dissolution.
What to Know About the Certificate of Dissolution
Once your stockholders vote affirmatively to dissolve your company, the next step is to file a formal certificate of dissolution with Delaware’s DOS, or Department of State. If your corporation is voluntarily undergoing a dissolution (and had already given shares and conducting business), then the voluntary dissolution practices involve two differing certificates: a standard dissolution form and an alternative short form.
The short dissolution form is for corporations that have zero assets and aren’t conducting business. In fact, these short dissolutions require just the minimum in state franchise taxes for each year it was operating in the state. Once payment is received for all franchising taxes and associated fee (for the full year of dissolution), then the certificate undergoes filing. Fill-in templates for either the standard dissolution certificate or the short version of the form can be downloaded from department of state’s website.
Before you file for a certificate of dissolution, your company must pay any taxes due at the state level, along with any required yearly franchise taxes. For your certificate of dissolution to be considered legal and official, it must be given by Delaware. After contact has been made and payment submitted to the right state level entities, then the required paperwork will be assembled and then sent out for an official signature. Don’t forget that an instrumental step in this process is that the formal certificate be signed by a chosen officer of your business, then sent to the state either by U.S. mail, by email, or sent in a fax. Once received by the state, the certificate undergoes filing within a 24-hour period.
Another note on taxes associated with dissolution: Likely, the company in question has filed with the Internal Revenue Service before, and once the final return is sent, a copy of the certificate of dissolution should be included.
After that, the registered agent on file at your corporation will have to draft and submit a certificate of resignation, or else his or her status will be automatically nullified after 30 days following your dissolution. Alternatively, by ceasing to do business altogether and ignoring pertinent notices given by the IRS, you’ll simply gather more and more fees and interest levied onto your balance.
What’s Required to Complete a Standard Certificate of Dissolution for a Business?
There are several items required in order to consider a certificate of dissolution complete:
- Your corporation’s name.
- The specific date when the company’s dissolution was affirmed.
- The recorded documentation of the authorized dissolution pertaining to the board of directors and the majority shareholders (as outlined in Delaware’s GCL provision).
- The names and according addresses of your corporation’s officers, i.e., the directors of your corporation.
- The date you filed for a certificate of incorporation with the Department of State.
If you’re using the short form, you must also include the appropriate statements that your company no longer maintains any assets, is no longer doing business, and is paying only the smallest required amount of franchise taxes for every year it operated. You must also submit documentation that all required taxation and fees have been paid through the year that you are filing for your dissolution. If you decide to use the short form, you will likely face a smaller filing fee — its key benefit.
For fill-in templates of the regular certificate of dissolution, as well as the shortened form, visit the Department of State’s website. As for filing fees, the regular dissolution certificate requires payment of $204 if the document is just one page. Every page thereafter will require an additional $9. If you opt for the shortened form, the filing fee comes to $10. These documents are generally processed in about two to three weeks. You can pay for the expediting of these documents to the order of an hour, two, or even same day and 24-hour processing, though these require additional payment. The Department of State requires a cover letter, including the following information: name, your address, and an appropriate telephone or fax number by which to reach you. Once your corporation is dissolved, the name of your business can be used by other entities.
Tying Up Loose Ends Through the Process Called “Winding Up”
Your company will go on to handle its responsibilities after dissolution in a process called “winding up.” This means it exists just to handle these last loose threads, and you will likely need to name some kind of agent or officer to handle these engagements. These issues may pertain to lawsuits (either prosecution or defense), any legal issues that are civil, administratively based, or criminal, getting rid of any property owned by the corporation, dissolving issues of liability, and dispersing assets to the various stockholders.
Submitting a Notice to Any of Your Company’s Claimants
An important bullet point on the journey to dissolve is providing a notice of your company’s dissolution to anyone who might have a claim against your company. This is optional, but it’s important in limiting your company’s outstanding liability and makes it easier to distribute any last assets to the stockholders.
There are a few things that must be stated in this notice:
- Any claims have to be in writing and have to detail enough relevant information to give the company notice and knowledge of the claimant’s identity and the content of his or her claim.
- A mailing address must be included so that responses to the claim can be sent.
- There must be a date included in the notice that supplies 60 days of notice from the date to acknowledge receipt and/or pursue action.
- The notice must explicitly outline that claims won’t be honored if they aren’t submitted by the date discussed above.
- The corporation must set forth that distributions may be made to alternate with no further notice necessary.
- This notice has to detail the annual collective amount of the total distributions executed by the company on behalf of its stockholders, going on three years following dissolution.
The DOR, or the Delaware Division of Revenue, does not need to issue clearance in order for you to undergo dissolution of your company. Though you have to give notice to the DOR in conjunction with you last income tax filed corporately (you check a box called “Out of Business” and list your last day of operation), that will be the only notice necessary.
For the most part, dissolving a corporation with an S status is largely similar. An S corporation files elections with the Internal Revenue Service in order to enjoy business income, claim losses and deductions, and to ensure that credit passes through to the corporation’s stockholders for federal income tax reasons. The stockholders pay federal taxes on income from said business, while the corporation does not.
Registering From Out-of-State
In order to register for dissolution from an out-of-state statue, you have to file a separate form to eliminate your ability to operate and conduct a corporation in other states. This varies by state, but the form could be listed as a termination of registration, an application of withdrawal, a certificate of surrender of right to transact business, or even a certificate of termination of existence. If you fail to submit these additional forms for termination, you are still on the hook for liability when it comes to annual reporting fees and business-related taxation.
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