How Do You Dissolve an LLC in Delaware?

Closing your Delaware limited liability company (LLC) will involve a variety of tasks. Among the most important are what's known as "dissolving and winding up" the business.

This article covers information specific to dissolving and winding up your Delaware LLC. Key elements of the dissolution procedure are laid out in the following sections of Delaware law: Del. Code tit. 6, §§ 18-801 and following (2023).

For general step-by-step guidance, see our article on the steps to take to dissolve your LLC.

Dissolving Your LLC in Delaware

Your LLC is registered with the State of Delaware. Officially ending its existence as a state-registered business entity—and by extension, putting it beyond the reach of creditors—begins with a formal process called "dissolution." While an LLC might be involuntarily dissolved by the state or a court, here we're concerned with voluntary dissolution by the LLC owners (called "members").

Dissolving your business refers to the process of voting to end your LLC and filing the appropriate paperwork with the Delaware government.

Winding up your business refers to the process of:

• settling your business debts
• liquidating your assets, and
• ending your licenses, permits, registrations, and accounts.

Review Your LLC Articles of Organization and Operating Agreement

To voluntarily dissolve your LLC, you first should look at the company's formational documents:

• the articles of organization, and
• the operating agreement.

In most cases, one of those two documents will contain a section with rules for how to dissolve the company. Typically the rules will require a vote of the LLC members on a resolution to dissolve, and more specifically a requirement that some percentage of members vote in favor of the resolution. For example, your operating agreement might require two-thirds of the LLC members to vote to approve the dissolution for the vote to pass.

Make sure you follow any specific procedural requirements that might be part of the dissolution rules, such as setting a specific time to meet and vote and giving advance notice to all members regarding the meeting.

Delaware's LLC laws. If your articles of organization or operating agreement don't specify when and how the LLC can be dissolved, you'll need to apply Delaware's default rules for LLCs. Under Delaware law, you can dissolve your LLC with the consent of LLC members who together have at least a two-thirds ownership interest in the company. (Del. Code tit. 6, § 18-801 (2023).)

For example, suppose an LLC has three members. Member A has a 70% ownership interest and Members B and C each have a 15% ownership interest. A vote to approve the LLC's dissolution would require approval only from Member A—who has more than a two-thirds ownership interest in the LLC. In this example, the vote wouldn't require a majority of the members to vote to approve the dissolution—only the vote of the member who has at least a two-thirds ownership interest.

Recording your decision to dissolve. For either dissolution approach—relying on rules in formational documents or on the consent of two-thirds of the ownership interests—you should make sure to record the decision to approve the dissolution. You can record this action in the official minutes of the dissolution meeting or on a written consent form.

Note that if you have any legal actions or proceedings filed by or against your business, dissolving your LLC doesn't stop these actions.

Do You Need to Obtain Tax Clearance Before Dissolving Your LLC?

Delaware doesn't require you to obtain tax clearance before dissolving your LLC. But Delaware does require that all taxes are paid before you file your certificate of cancellation. In addition to paying any taxes your business owes, it's a good idea to file the following tax-related documents as part of dissolving your LLC:

• final business tax returns
• if you have employees, a final Form WTH-TAX (withholding return), and
• if you sell goods, a final sales tax return.

When you file your federal tax return, check the "final return" box on your IRS Form 1065 (if your LLC is classified as a partnership for tax purposes) or IRS Form 1120 (if your LLC is classified as a corporation for tax purposes).

Winding Up Your LLC in Delaware

Following the vote to dissolve your LLC, the company continues to exist for the purpose of taking care of final matters that, collectively, are known as "winding up" the company. You'll probably designate one or more LLC members or managers to handle the winding up.

Under Delaware's LLC laws, key winding-up tasks include:

• prosecuting and defending civil and criminal lawsuits (if any)
• settling and closing the LLC's business
• disposing of and conveying the LLC's property
• discharging or making reasonable provision for the LLC's liabilities (for example, paying creditors or setting aside enough money for such payments); and
• distributing any remaining assets to LLC members.

(Del. Code tit. 6, § 18-803 (2023).)

Delaware law doesn't require you to take any of these actions as you wind up your LLC. But these tasks are natural and important steps in closing your business. Avoiding any of them can put you and your business at risk—financially and legally.

Settling Debts and Distributing Assets

When settling your company's debts and distributing its assets, Delaware law sets out a particular order for making payments:

1. to creditors (including members who are creditors)
2. to each member who is due a distribution following an earlier resignation
3. any contribution to the LLC made earlier by a member; and
4. to members in proportion to their respective membership rights to share in distributions.

(Del. Code tit. 6, § 18-804 (2023).)

For example, suppose Coastline Management is a Delaware LLC that has three members: Henry, Inez, and Jack. The three members have equal membership interests and all agree to dissolve the business. No member resigned at an earlier time. After liquidating its assets, the company has $100,000 to distribute.

First, the LLC must pay off its creditors. So, the business pays the remaining $20,000 on a loan and $5,000 in taxes, leaving $75,000. Second, the company must pay Inez back for the $15,000 she contributed to the business when it first started out. Third, the LLC can distribute the remaining $60,000 to the members in proportion to their membership shares. Because the members have equal interests, each member will receive $20,000.

While you're required to pay (or make arrangements to pay) your creditors and are commonly expected to do so before making any other distributions, your operating agreement might provide a different structure or order for those other distributions. For example, your operating agreement might require that when dissolving your LLC, you return members' contributions before you make any interim distributions.

Notifying Creditors of Your LLC's Dissolution

Unlike other states, Delaware doesn't require LLCs to notify creditors of the company's dissolution. Even though it's not required, you should let creditors know that you're planning on or have dissolved your LLC. In your notice, you should tell your creditors that they should submit any claim against you to a specified address by a specified date.

You should also put a notice of your LLC's dissolution in a local newspaper. Again, while not required, publishing a dissolution notice can help protect you from liability. For example, a creditor probably couldn't argue that you intentionally avoided paying a debt by secretly dissolving your business if you published your dissolution in the newspaper.

Canceling Out-of-State Registrations and Other Licenses and Permits

Is your LLC registered or qualified to do business in other states? If so, you must file separate forms to terminate your right to conduct business in those states. Depending on the states involved, the form might be a:

• termination of registration
• certificate of termination of existence
• application of withdrawal, or
• certificate of surrender of right to transact business.

If you don't file the additional termination forms, you'll continue to be liable for annual report fees and minimum business taxes.

Delaware requires a general business license for businesses with property, employees, or sales in Delaware. Your Delaware business license is issued by the Division of Revenue—and you can cancel it by indicating the LLC is out of business on a final state tax document. In addition, depending on your business and profession, you might be required to have different licenses and permits. You should cancel any licenses, permits, and registrations associated with your business. You might be able to sell or transfer some permits.

You also need to close any bank accounts in your business name. In addition, make sure to end or settle any contractual obligations. You might be able to assign your contract rights and obligations to someone else.

Filing a Certificate of Cancellation With the Delaware Division of Corporations

When all of the property and assets of your LLC have been properly distributed, you need to cancel your articles of organization by filing a certificate of termination with the Division of Corporations (DOC). The certificate of cancellation will contain:

• the name of your LLC; and
• the date on which your LLC's certificate of formation was filed.

The certificate of termination must be signed by an authorized individual, such as an LLC member or legal representative. As of 2023, the filing fee for the certificate is $220. You can download a certificate form, which includes a cover letter form, from the DOC website.

Be aware that your business name will become available for use by others once your LLC is dissolved.

Additional Guidance on Dissolving Your LLC

Dissolving and winding up your LLC is only one piece of the process of closing your business. For further general guidance on many of the other steps involved, see our checklist for closing your business and read about what you need to know about closing a business.

If you have further questions or need legal assistance, you should talk to a Delaware business attorney. Many business owners can dissolve their LLCs on their own. But you might want to seek legal help if there are disagreements among members, complicated debt settlement negotiations, or ambiguous contract assignment terms.