Delaware Corporation Termination
When a Delaware corporation ceases to operate or decides to exit the state, it must formally notify the Delaware Division of Corporations.
However, business owners often confuse termination with withdrawal.
While both end a company’s presence in Delaware, they serve different legal purposes.
This guide explains the difference between corporate termination and withdrawal, the forms required, and the tax steps to ensure full compliance in 2025.
Step 1: Understanding Corporate Termination
A termination refers to the complete dissolution of a Delaware corporation under Delaware General Corporation Law (DGCL) §275–§278.
When a company terminates, it ceases to exist as a legal entity in Delaware and anywhere else.
When to Use Termination:
- The corporation is closing permanently.
- There are no plans to continue business in any state.
- The corporation has filed a Certificate of Dissolution and paid all outstanding franchise taxes.
Example:
A startup that shuts down its operations and distributes assets to shareholders would file for termination through dissolution.
Step 2: Understanding Corporate Withdrawal
Withdrawal applies when a corporation formed in another state (a foreign corporation) decides to end its Delaware registration but continues operations in its home state or other jurisdictions.
When to Use Withdrawal:
- The entity is registered as a foreign corporation in Delaware.
- It no longer conducts business or owns assets in Delaware.
- It wants to cancel its Certificate of Authority but remain active elsewhere.
Example:
A California corporation registered to do business in Delaware but moving operations entirely back to California would file for withdrawal, not termination.
Step 3: Filing Requirements for Termination
To terminate a Delaware corporation, you must file a Certificate of Dissolution with the Delaware Division of Corporations.
Filing Steps:
- Hold a board and shareholder vote authorizing dissolution.
- File the Certificate of Dissolution.
- Pay the $204 filing fee.
- File the final Annual Franchise Tax Report and pay franchise taxes for the current year.
- File IRS Form 966 and a final Form 1120.
After acceptance, Delaware issues a Certificate of Dissolution, marking the legal termination of the corporation.
Step 4: Filing Requirements for Withdrawal
To withdraw a foreign corporation, file a Certificate of Withdrawal under DGCL §3813.
Filing Steps:
- File all outstanding Delaware Annual Reports.
- Pay any franchise tax balance owed.
- File the Certificate of Withdrawal with:
- Corporate name and file number.
- Statement confirming the corporation is no longer doing business in Delaware.
- Mailing address for service of process.
- Pay the $200 filing fee.
Once approved, Delaware cancels the corporation’s authority to conduct business in the state but does not dissolve it in its home jurisdiction.
Step 5: Franchise Tax Implications
| Scenario | Tax Responsibility | Final Filing Required |
|---|---|---|
| Termination | Franchise tax due up to dissolution date | Final Annual Report and Franchise Tax Report |
| Withdrawal | Franchise tax due up to withdrawal date | Final Annual Report only |
Example:
A Delaware corporation dissolving on August 31, 2025, must pay the full 2025 franchise tax.
A New York corporation withdrawing on the same date owes franchise tax only until the withdrawal becomes effective.
Step 6: Federal and Multi-State Compliance
For termination:
- File IRS Form 1120 marked “Final Return.”
- File Form 966 within 30 days of dissolution authorization.
For withdrawal:
- Notify the IRS only if operations cease entirely.
- Continue federal tax filings in the state of incorporation.
In both cases, cancel any Delaware business licenses and registered agent agreements.
Step 7: Post-Filing Recordkeeping
Keep the following records for at least seven years after termination or withdrawal:
- Certificate of Dissolution or Withdrawal.
- Franchise tax payment confirmations.
- IRS filings and correspondence.
- Board and shareholder resolutions.
These records protect shareholders and officers in the event of future audits or legal disputes.
Step 8: Key Differences Between Termination and Withdrawal
| Feature | Termination | Withdrawal |
|---|---|---|
| Entity Type | Delaware domestic corporation | Foreign corporation registered in Delaware |
| Purpose | Permanent closure | Ending Delaware business presence |
| Filing Form | Certificate of Dissolution | Certificate of Withdrawal |
| State Existence | Ends completely | Continues in home state |
| Franchise Tax | Final return required | Final annual report required |
| Filing Fee | $204 | $200 |
Conclusion
Understanding the difference between termination and withdrawal helps corporations avoid unnecessary fees and maintain clean compliance records.
A termination ends the existence of a Delaware corporation entirely, while a withdrawal only ends its right to do business in Delaware.
By filing the correct form, paying final franchise taxes, and maintaining records, corporations can close or exit Delaware properly in 2025.
Call to Action
For professional assistance with Delaware corporation termination or withdrawal filings, contact Anshul Goyal, CPA EA FCA, a U.S.-licensed Certified Public Accountant, Enrolled Agent authorized to practice before the IRS, and cross-border tax expert helping corporations manage Delaware filings, dissolution, and state withdrawals.
Disclaimer
This article is for informational purposes only and does not constitute legal or tax advice. Always consult a CPA before filing corporate dissolution or withdrawal forms.
Top 5 FAQs
- What is the main difference between termination and withdrawal?
Termination ends the Delaware corporation’s existence completely, while withdrawal only ends its Delaware registration. - Does a foreign corporation need to dissolve in Delaware?
No. It must file a Certificate of Withdrawal, not dissolution. - Are franchise taxes required for withdrawal?
Yes, all outstanding franchise taxes and annual reports must be filed before withdrawal. - Is IRS notification required for withdrawal?
Only if the corporation is ceasing operations entirely. - Can a dissolved or withdrawn entity be revived?
Yes, by filing a Certificate of Revival and paying past-due franchise taxes and fees.
About Our CPA
Anshul Goyal, CPA EA FCA is a Certified Public Accountant licensed in the United States, Enrolled Agent authorized to practice before the IRS, and cross-border tax expert assisting Delaware corporations with termination, withdrawal, and federal compliance.