Key Takeaways

  • Delaware LLC dissolution involves two stages: member approval and state cancellation filing.
  • The process is governed by the Delaware Limited Liability Company Act, with flexibility based on the LLC’s operating agreement.
  • LLCs must settle debts, notify creditors, and distribute remaining assets before filing the Certificate of Cancellation.
  • Courts in Delaware may grant judicial dissolution in cases of deadlock, misconduct, or when the business purpose becomes impractical.
  • Failing to file proper dissolution paperwork may result in continued franchise tax liability and penalties.
  • Certain alternative methods exist—like registered agent resignation—though these do not legally terminate the LLC.

Dissolving an LLC in Delaware—or “cancellation,” as it is officially referred to in that state—is the act of officially bringing an end to your limited liability company in the state of Delaware. Doing so in Delaware will involve several tasks, the two main ones being dissolving your business and winding it up.

How to Dissolve a Delaware LLC

In order to dissolve your Delaware LLC, the first thing you should do is consult your LLC operating agreement. If it has been drawn up correctly, it should have a section that deals with how to dissolve your LLC. In most cases, the LLC members will be required to vote for dissolution with a majority in favor for it to pass. When calling such a vote, you should be careful to adhere to any stated requirements regarding it, such as where and when the vote will occur and what advance notice is necessary.

Additionally, unless otherwise stated by your LLC operating agreement, Delaware’s LLC Act provides for an alternative dissolution method in the form of a vote or written consent of two-thirds of the LLC members in favor of dissolution. Regardless of the method of dissolution you pursue, the results that they yield should be recorded, either in the minutes of the meeting for dissolution or in a written consent form.

Once dissolution has been agreed upon, you must file a Certificate of Cancellation of a Limited Liability Company with the Secretary of State in person, by fax, or by mail. However, this should not be done until creditors have been paid, operations have ceased, and all other affairs related to the LLC have been taken care of, the collective term for which is winding up.

Alternative Grounds for Delaware LLC Dissolution

While most Delaware LLC dissolutions occur voluntarily through member approval, there are situations where dissolution can be ordered judicially by the Delaware Court of Chancery. Under Section 18-802 of the Delaware Limited Liability Company Act, any member or manager may petition the court to dissolve the LLC if:

  • It is no longer reasonably practicable to carry on the business in conformity with the LLC agreement.
  • There is a deadlock preventing the members from operating the company effectively.
  • Fraud, oppression, or breach of fiduciary duty has occurred among members or managers.

Recent Delaware cases highlight that while the court generally defers to the operating agreement’s terms, it will intervene when continuing the business becomes impossible or inequitable. This includes deadlock among equal members where neither side can agree on management or dissolution terms.

When filing for judicial dissolution, the petitioner must demonstrate a legitimate breakdown in operations and that no contractual mechanism exists to resolve it. The court may appoint a liquidating trustee to wind up the business fairly and distribute assets according to ownership interests.

How to Wind Up an LLC in Delaware

Winding up is the process of resolving certain final tasks related to your LLC after your LLC has agreed to dissolution. These tasks may be designated to one of your LLC managers or members or to several of them. Such people are referred to as liquidation managers, and some of the actions they will be tasked with under Delaware’s LLC Act include:

  • Defending and prosecuting lawsuits.
  • Closing and selling the LLC’s business.
  • Dispersing the LLC’s property.
  • Discharging the LLC’s liabilities.
  • Distributing any remaining assets to LLC members.

Insofar as discharging the LLC’s liabilities is concerned, in accordance with Delaware’s LLC Act, the LLC must:

  • Pay or make a reasonable provision to pay any obligations or claims, including any unmatured, conditional, or contingent contract claims, related to the LLC.
  • Make provision to compensate any claim against the LLC that pertains to a pending legal action, proceeding, or lawsuit.
  • Make provision to compensate any claims that are not currently held against the LLC but which may arise up to 10 years after dissolution.

Insofar as distributing the LLC’s assets is concerned, there is a particular order in which this is to be done. That order is:

  • First, creditors must be paid, including creditors who are LLC members.
  • Next, former and current members should be paid distributions, unless your LLC agreement has a provision against it.
  • Last, all remaining assets should be distributed to members and/or former members in proportion to what their share of distributions would normally be, unless your LLC agreement has a provision against it.

Required Notifications and Final Tax Obligations

During the winding up phase of a Delaware LLC, members must ensure all financial and legal obligations are satisfied before filing for cancellation. This includes:

  1. Settling Franchise Taxes – All Delaware LLCs must pay outstanding franchise taxes and file any pending annual reports before submitting the Certificate of Cancellation. Failure to do so can delay or invalidate the dissolution.
  2. Closing Business Accounts – Cancel the LLC’s EIN with the IRS, close state tax accounts, and terminate licenses or permits.
  3. Notifying Creditors – Delaware law requires making “reasonable provisions” for known and unknown creditors. This ensures the LLC is not subject to future claims after dissolution.
  4. Distributing Remaining Assets – Only after all debts and obligations are settled should any remaining assets be distributed to members in accordance with ownership shares or as outlined in the operating agreement.

The Delaware Division of Corporations recommends keeping detailed records of the wind-up process to protect members from future disputes or liability claims.

How to File a Certificate of Cancellation

Once all your winding up tasks are complete, you can then file your Certificate of Cancellation with the office of the Secretary of State. Information listed on this certificate should include:

  • The LLC’s name.
  • The date the LLC’s Certificate of Formation was filed.
  • The date of cancellation if it will not occur on the date of filing.

The filing fee for this certificate is $200. You can also include a Filing Cover Memo with your address, name, and phone or fax number if you wish to be contacted by the Secretary of State. All these items, in addition to your Franchise Tax payment (if necessary), can be mailed to:

Delaware Division of Corporations

401 Federal Street – Suite 4

Dover, DE 19901

If you are fax filing, the above items can be faxed with the following number: 302-739-3812. If fax filing, your credit card number must be provided on the Cover Letter, as checks are not accepted.

Additional Options and Consequences of Non-Filing

If an LLC fails to formally complete Delaware LLC dissolution, the entity remains active and continues to accrue franchise tax obligations annually. The Delaware Division of Corporations does not automatically dissolve entities for inactivity or non-payment, meaning neglecting the process can lead to costly penalties and legal exposure.

In some instances, company owners may choose an alternative to formal dissolution, such as instructing their registered agent to resign. However, this only causes the LLC to fall out of “good standing”—it does not legally terminate the entity with the state.

To properly dissolve:

  • File the Certificate of Cancellation with all required details.
  • Include payment for the $200 filing fee.
  • Verify all Delaware tax obligations are paid in full.
  • Retain confirmation from the Delaware Secretary of State for records.

Neglecting these steps may allow creditors to pursue claims or result in state-issued administrative action.

Frequently Asked Questions

  1. What is the difference between dissolution and cancellation in Delaware?
    Dissolution refers to ending business operations, while cancellation is the final legal step of filing the Certificate of Cancellation with the state to terminate the LLC.
  2. Can a Delaware LLC be dissolved without all members agreeing?
    Yes. If members are deadlocked or the business purpose has failed, any member may petition the Court of Chancery for judicial dissolution under Section 18-802 of the Delaware LLC Act.
  3. What happens if I don’t file the Certificate of Cancellation?
    The LLC remains active and continues to owe franchise taxes and penalties. It’s important to file cancellation documents to avoid ongoing liabilities.
  4. Can I simply let my registered agent resign to close my LLC?
    No. While an agent’s resignation may remove your company from good standing, it doesn’t legally dissolve the LLC. You must still complete the state’s dissolution process.
  5. Do I need a lawyer for Delaware LLC dissolution?
    While not required, consulting a business attorney can help ensure all legal, financial, and procedural obligations are satisfied. You can find experienced Delaware business lawyers on UpCounsel for help completing your dissolution properly.

If you need help further understanding the process of dissolving an LLC in Delaware, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.