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How to Cancel a Delaware LLC Officially and Legally

Cancellation is the term that Delaware uses to describe the process of closing a Delaware LLC. Many business owners are familiar with how to form a Delaware LLC, however, not many know how to cancel a Delaware LLC when the company stops doing business. 

A Delaware LLC needs to file a Certificate of Cancellation in order to formally close the company with the state. 

When to Cancel a Delaware LLC

A Delaware LLC should not file a Certificate of Cancellation until the business has paid creditors, ceased operations, and provided reserve funds for foreseeable future creditors for the next 10 years before distributing funds to its members.

How to Cancel a Delaware LLC: 8 Steps 

The following are “wind down” steps to take before canceling a Delaware LLC:

Step 1.) Consult the LLC Operating Agreement

LLC Operating Agreements often contain requirements for canceling the LLC. Those requirements typically detail what is necessary to call a member vote to dissolve the Delaware LLC, and what percentage of membership interests must vote for the cancellation to be valid.

Step #2.) Take a Member Vote

If the LLC Operating Agreement does not specify guidelines for canceling the LLC, the Delaware LLC Act states that the LLC may be canceled after affirmative or written consent of members who own more than two-thirds of the current percentage ownership.

Step #3.) Appoint a Manager to Wind up the LLC’s Affairs

The state of Delaware requires the LLC to pay existing debts, settle lawsuits, and “make reasonable provision” for the LLC’s liabilities before the company can be canceled. A liquidation manager can be appointed by the LLC to handle these duties. The liquidation manager of the LLC often oversees the distribution of the remaining assets of the LLC.

Step #4.) Payoff Creditors, Current and Foreseeable, before paying Members

The liquidation manager should respect the order of priority when paying debts and distributing residual funds to managers. The LLC liquidation manager should first pay off current creditors and set aside sufficient funds to pay off all foreseeable creditors over the next 10 years before payments are made to members for their equity interest. Paying members distributions when creditors exist and the company is insolvent is a voidable or fraudulent transfer, which results in both transferor and transferee liability.

Step #5.) Pay The Delaware Franchise Tax

The company needs to pay its Delaware franchise tax balance before filing the Certificate of Cancellation. The total balance must be paid, including the current calendar year franchise tax, even if the cancellation is filed on January 1, or the Delaware Division of Corporations will not accept the cancellation filing.

The franchise tax is an annual fee not influenced by the LLC’s income or business conducted. If the LLC generated no income during the past year, or ever, the company still needs to pay the annual franchise tax, plus any back taxes, penalties, and interest due to the Delaware Secretary of State. The LLC cannot be canceled until all Delaware franchise tax is paid.

Delaware franchise tax is not prorated. As a result, the LLC will need to pay the full Delaware franchise tax for the year if the LLC is not canceled before January 1.

IncNow can help an LLC determine the franchise tax fee owed, plus we can assist with paying outstanding fees to the State of Delaware. Please call us at Call: 800-759-2248 for help.

Step #6.) Pay the LLC’s members

Funds available after providing for current and foreseeable creditors should then be distributed to the members of the LLC according to the allocations and pro-rata distributions provided for in the Operating Agreement.

Step #7.) File a Certificate of Cancellation

The Certificate of Cancellation is a document that is filed with the state of Delaware in order to officially cancel the LLC. The Certificate of Cancellation should only be filed after your LLC has “wound down” its affairs completely.

IncNow can help file the Certificate of Cancellation. The processing fee is $189 (plus a $200 state fee and outstanding franchise taxes). Please call Call: 800-759-2248800-759-2248 for details or use our fast and easy Cancellation/Dissolution online order form.

Please note: Once the Certificate of Cancellation has been filed, it can no longer conduct business through the LLC.

Should the LLC file its Certificate of Cancellation in error, we can help controlling members file a Certificate of Correction to undo that filing and restore the Delaware LLC to Good Standing which ratifies actions during the canceled period as though the company was always in Good Standing.

Step #8.) Close Your Business Account with the IRS

For a multi-member LLC, the IRS can close the LLC’s federal tax record (after taxes have been filed and the LLC has indicated to the IRS that the return is a final return). The LLC should also send a final return to the State Division of Revenue authorities anywhere income taxes are due.  The IRS should be sent a letter that includes the full legal name of the LLC, the EIN, the LLC address, and the reason for closing the account (i.e. canceling the LLC). If the LLC retained a copy of the original notice issued from the IRS when the LLC’s EIN was assigned, include that too.

Most LLCs are single-member LLCs which do not have tax returns, but instead report on the single member’s Schedule C for self-employment income on the individual’s Form 1040 personal return. Most others file 1065 partnership tax returns which will need to be filed as a final return in addition to state income tax returns where the company did business.

Why Cancel a Delaware LLC

It is advisable to formally cancel a Delaware LLC if the company has ever been used in any capacity. The LLC will continue to accrue Delaware franchise tax year after year if the company is not properly canceled. 

The public cancellation filing stops the LLC from accruing future franchise tax, penalties, and interest. Should a Certificate of Cancellation be filed in error, a Certificate of Correction can be filed to undo the cancellation retroactively and restore Good Standing status.

What Happens if an LLC Goes “Void”?

The Delaware Secretary of State will administratively cancel an LLC if the company fails to pay franchise tax or does not maintain a Registered Agent. This kind of cancellation is known as the company going into “void” status. 

The tax, late fees, and interest must be paid should the members later decide to renew and revive the LLC and bring the company back to Good Standing status. 

IncNow Can Help

We can prepare and file a Certificate of Cancellation for you! Please call 800-759-2248 for details or use our fast and easy Cancellation/Dissolution online order form.