How to Properly Dissolve a Delaware Corporation

Properly Dissolve a Delaware Corporation

Dissolving a Delaware Corporation is not as simple as stopping business operations.
Until the company is formally dissolved with the Delaware Division of Corporations, annual franchise tax and report obligations continue to accrue.
This guide explains how to file the Certificate of Dissolution, pay final taxes, and ensure complete compliance when closing a Delaware corporation in 2025.

Step 1: Hold a Board and Shareholder Meeting

Under Delaware General Corporation Law (DGCL) §275, dissolution requires approval from both the Board of Directors and majority shareholders.

Board Action:

• Adopt a resolution proposing dissolution.
• Recommend the proposal to shareholders.

Shareholder Vote:

• A majority of outstanding shares must approve.
• The approval must be recorded in the corporate minutes.

For small corporations, written consent from all shareholders can replace a formal meeting.

Step 2: File the Certificate of Dissolution

After approval, file the Certificate of Dissolution with the Delaware Division of Corporations.

Filing Details:

• Form: Certificate of Dissolution (available on the Division of Corporations website).
• Filing Fee: $204 (as of 2025).
• Contents required:
  1. Corporate name and file number.
  2. Date of incorporation.
  3. Statement that dissolution was approved by directors and shareholders.
  4. Effective date (can be immediate or a future date).

Submit the form by mail or electronically. Once accepted, the corporation is legally dissolved under DGCL §278.

Step 3: Pay Final Delaware Franchise Tax

Dissolution does not eliminate franchise tax due for the year of dissolution.
Every Delaware corporation must:

• File its final Annual Franchise Tax Report.
• Pay the franchise tax for the current year.

Example:
If a corporation dissolves on July 31, 2025, it still owes franchise tax for 2025.
The Division of Corporations will not finalize dissolution until the franchise tax balance is cleared.

Tax Range:

• Minimum: $175
• Maximum: $200,000 (for large share structures).

Step 4: File Federal Final Return

The IRS requires a final corporate income tax return when a corporation dissolves.

File Form 1120 and check the box “Final Return.”
Attach:

• A statement explaining dissolution and the effective date.
• Final balance sheet and distribution details.
• Form 966, “Corporate Dissolution or Liquidation,” within 30 days of the board resolution.

If the corporation distributed property to shareholders, report it under IRC §331–§336 as capital gain or loss.

Step 5: Notify Creditors and Settle Liabilities

Before distributing assets, Delaware law requires reasonable efforts to pay or provide for all debts and liabilities.
Send written notice to known creditors and publish notice in a local newspaper if necessary.

Unpaid obligations after dissolution can lead to shareholder or director liability.
Keep written documentation of creditor communications for your records.

Step 6: Distribute Remaining Assets to Shareholders

Once debts and taxes are paid, distribute the remaining assets proportionately among shareholders.
Distributions should be approved by the board and recorded in corporate minutes.

Example:
If two shareholders each own 50 percent of the corporation, each receives half of the remaining cash or property after liabilities are settled.

All distributions must comply with IRC §331 to avoid double taxation.

Step 7: Cancel Foreign Registrations

If the corporation is registered to do business in other states, you must separately file withdrawal or termination certificates with those states.
Failing to do so may result in continued annual report and tax obligations outside Delaware.

Step 8: Maintain Corporate Records After Dissolution

Under DGCL §278, dissolved corporations continue to exist for three years for the purpose of winding up affairs.
Maintain these records during that period:

• Tax returns and payment confirmations.
• Board and shareholder resolutions.
• Proof of creditor notifications and asset distributions.
• Franchise tax and dissolution filings.

After the three-year statutory period, the corporation’s existence fully terminates.

Step 9: Common Mistakes to Avoid

1. Not filing final franchise tax or annual report.
2. Dissolving before paying outstanding debts.
3. Forgetting to notify the IRS or file Form 966.
4. Failing to withdraw from other states.
5. Distributing assets without board approval.

Each of these errors can delay dissolution or lead to legal liability for officers and shareholders.

Conclusion

A proper Delaware corporation dissolution requires both state and federal compliance.
By filing the Certificate of Dissolution, paying final franchise tax, and notifying the IRS, business owners can close operations cleanly and avoid future penalties.
Maintaining organized records during the winding-up period ensures a smooth transition and complete legal closure.

Call to Action

For professional help with Delaware corporate dissolution, final tax filings, or franchise compliance, 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 assisting Delaware corporations with final returns and closure.

Disclaimer

This article is for informational purposes only and should not be treated as legal or tax advice. Always consult a CPA before dissolving a corporation or distributing assets.

Top 5 FAQs

1. When is a Delaware corporation officially dissolved?
   After the Certificate of Dissolution is filed and accepted by the Delaware Division of Corporations.
2. Do I still owe franchise tax after dissolution?
   Yes. The final franchise tax must be paid for the year of dissolution.
3. What is Form 966?
   It is the IRS form required to report corporate dissolution or liquidation within 30 days of the decision.
4. Can I reopen a dissolved corporation?
   Only by filing a Certificate of Revival, provided all taxes and penalties are paid.
5. How long must records be kept after dissolution?
   At least three years, per DGCL §278.

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 dissolution filings, tax clearance, and federal compliance.