How to Dissolve Your Delaware C Corporation
IMPORTANT DISCLAIMER
This is not legal advice. This guide will walk you through the steps involved in dissolving your Delaware Corporation. Consulting with a lawyer is always recommended.
Before You Begin
Ensure you have paid all outstanding Delaware franchise taxes and filed tax returns for all previous years your company operated.
The Decision to Dissolve
Dissolving a company is a significant decision. Remember, it’s crucial to address outstanding obligations before your finances are depleted. While officers and directors typically aren’t personally liable for company debts, exceptions exist:
- Failing to pay employee-related taxes, wages, or benefits can expose officers and directors to personal liability.
- Directorial obligations shift during insolvency, requiring them to maximize company value.
Steps to Dissolve Your Corporation
For clarity, these steps are presented in chronological order and should be followed in the order listed.
FINAL PAYROLL
Inform payroll provider of final pay date for employees and contractors, ensuring accurate tax filings (Forms 941, W-2, 1099-NEC).
DELAWARE FRANCHISE TAXES
Contact Delaware to determine company’s prorated franchise tax liability; settle all taxes.
FILE CERTIFICATE OF DISSOLUTION
File the Certificate of Dissolution with Delaware. Share copy of date-stamped certificate from DE with investors.
LIQUIDATING DISTRIBUTIONS
Sell any non-cash assets, settle outstanding debts to creditors, distribute remaining funds to stockholders.
SPECIAL CONSIDERATIONS
- Close your bank accounts and inform the bank.
- If in CA, file certificate of surrender with Secretary of State.
- Keep a copy of records associated with the closing.
1. Final Payroll:
Inform your payroll provider about the last payroll date to ensure proper filing of final tax returns.
- You must pay your employees final wages and compensation owed.
- You must also make final federal tax deposits and report employment taxes. This will be completed through Form 941 – https://www.irs.gov/forms-pubs/about-form-941, which is the responsibility of your payroll provider, for the quarter in which you make the final wage payments.
- The provider needs to check the box to tell the IRS the business has closed and enter the date for final wages.
- The provider will also provide a final Form W-2 to each of your employees for the calendar year in which you pay them their final wages.
- For any contractors that were paid at least $600 for services (including parts and materials) during the calendar year in which you close your business, you must report those payments using Form 1099-NEC – https://www.irs.gov/forms-pubs/about-form-1099-nec.
2. Delaware Franchise Taxes:
- Contact Delaware (302-739-3073, option 3) to determine your company’s prorated franchise tax liability for the year.
- Inquire about both calculation methods; the second is generally cheaper. Ensure they use the most cost-effective option.
- Settle all outstanding franchise taxes before proceeding.
3. Approvals:
- Inform your investors about the dissolution and potential distribution of remaining assets.
- You will need to obtain, both, board and stockholder, consent authorizing the dissolution.
4. Filing the Certificate of Dissolution:
- Once board and stockholder consents are signed, file the Certificate of Dissolution with Delaware – https://corp.delaware.gov/disso09/. Include the following cover sheet when faxing or mailing the state of Delaware: https://corpfiles.delaware.gov/filingmemo.pdf
- Upon receiving the date-stamped Certificate, send a copy to your board and investors for their records.
5. Liquidating Distributions:
- Following dissolution, handle the liquidation and distribution of assets:
- Sell or distribute any non-cash assets (e.g., intellectual property, furniture).
- Distribute remaining cash:
- Settle outstanding debts to creditors (including convertible note investors).
- Determine how much needs to be left in the account to accommodate final steps of dissolution, such as tax preparation.
- Distribute any remaining funds to stockholders
6. Taxes:
- File two critical tax forms:
- Form 966 (Notice of Corporate Dissolution or Liquidation) within 30 days of dissolution (details at http://www.irs.gov/pub/irs-pdf/f966.pdf).
- Form 1120 (U.S. Corporation Income Tax Return) as a “final return” by the 15th day of the 3rd month after dissolution. The current year tax forms are not typically released by the IRS until December. To file before then, a Company can choose to file the final return on the prior year tax forms notating it’s for the current year and snail-mailing into the IRS (e-filing will not work).
7. Cancel your EIN and close your IRS business account:
- Send the IRS (Internal Revenue Service Cincinnati, OH 45999) a letter that includes:
- The complete legal name of the business
- The employer identification number (EIN)
- The business address
- The reason you wish to close the account
- If accessible, enclose a copy of the initial letter received from the IRS assigning the EIN.
- This step cannot be completed until final payroll is made and Forms 966 and 1120 have been filed. The IRS will not close your business account until all returns have been filed and all taxes paid.
8. Special Considerations:
- Bank Account: Close your corporate bank account(s) after distributing all remaining cash. Inform your bank accordingly.
- California: If operating in California, file a certificate of surrender with the California Secretary of State (refer to https://bpd.cdn.sos.ca.gov/corp/pdf/foreign/corp-surc.pdf for form and instructions).
- Record Keeping: keep a copy of all records associated with closing the business.
Additional Notes
- This guide is a general overview, and specific situations may require additional steps.
- Consider consulting with a lawyer for professional advice.