How to Dissolve an LLC in Delaware

By Larissa Bodniowycz, J.D.

How to Dissolve an LLC in Delaware

By Larissa Bodniowycz, J.D.

Let's say that a few years ago you started a business in Delaware and wisely formed an LLC to protect your personal assets. You have been operating your business and making a profit ever since. Recently, you were offered an even more lucrative and engaging opportunity. You've decided to accept it and shut down your business. You can just stop making sales, tell customers that you're no longer in business, throw an "out of business" sign on the door, and move on, right?

Delaware flag

Well, no, not exactly.

With few exceptions, once you've formed an LLC in Delaware and begun operating, you must formally terminate your LLC to avoid accruing additional fees and potential legal liability. This termination process is called "dissolving" your LLC. Fortunately, terminating your LLC is very manageable if you tap into your patience and follow these steps.

1. Vote to dissolve the LLC.

Once the possibility of dissolving the LLC is raised, the LLC members must vote on whether to end the business. It would create a lot of chaos if an LLC could be dissolved at the whim of any single member.

Under Delaware law, the default rule requires that more than two-thirds of the members vote in favor of the dissolution to start the process. However, Delaware LLCs can change this default rule by agreeing to a different required vote in their operating agreement. If you're not sure what the voting requirement is for your LLC, start by reading your LLC's operating agreement. If it does not set forth a voting requirement for dissolution, then the default rule applies.

The LLC should take a vote according to the rules in the LLC's operating agreement and the Delaware Limited Liability Company Act. The LLC should record the results, whether in favor of dissolution or not, in writing either as meeting minutes or a written consent. Even if you are the only member of your LLC, you should make a written record of your vote.

2. Wrap up business affairs.

Once the requisite number of members have agreed to terminate the business, the LLC has to wrap up its business. This wrapping up of the business is called "winding up." Winding up often includes:

  • Completing any pending lawsuits that involve the LLC
  • Closing the business
  • Selling the business's property
  • Distributing assets among creditors and members (creditors first, unfortunately)

Unless the LLC operating agreement provides otherwise, Delaware permits any of the LLC's managers or any person approved by more than 50 percent of the members to carry out the activities required to wind up. If the LLC does not have a manager, the members can wind up the business.

3. Take care of taxes.

As part of the dissolution and winding-up process, Delaware LLCs should ensure that they are fully up to date with all of their tax reporting and payment obligations. The Internal Revenue Service has developed this business closure checklist, which covers a dissolving LLC's federal tax obligations. However, Delaware LLCs must also consider their state tax obligations and pay any state franchise taxes owed. LLCs cannot leave their franchise taxes unpaid.

4. File a certificate of cancellation.

The final step in the dissolution process is to fill out a certificate of cancellation. The certificate informs the state of Delaware that the LLC is no longer operating, officially terminating the LLC in Delaware's records. Once processed, it also provides notice to those searching for your LLC in public records that the LLC dissolved.

The certificate is a short document with basic information about the Delaware LLC, including its formal name and date of formation. An authorized LLC agent must sign the completed certificate of cancellation and submit it to the Delaware Secretary of State for processing, along with the filing fee and a check for any unpaid franchise taxes. If payment for outstanding franchise taxes is not sent with the certificate of cancellation, the Secretary of State will reject the cancellation.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.