How to properly dissolve a Delaware C-Corp

TL;DR

If it’s time to wind down your startup, make sure dissolving your C-Corp is on your list. Before that, you’ll need to do several other items (final tax return, board and shareholder approval to dissolve, and closing all related accounts). Try to do it before the end of the year to avoid being on the hook for an additional year of franchise taxes and tax returns.

Why You Need to Officially Dissolve Your C Corp

Last post, we talked about Delaware Franchise Taxes - so this week, we figured we would share another Delaware C-Corp process: dissolving your entity. Shutting down a Delaware C Corp isn’t the highlight of anyone’s founder journey, but if you’re closing up shop, doing it right is non-negotiable.

Maybe your startup didn’t take off. Maybe you’re pivoting to something bigger. Whatever the reason, just walking away isn’t an option—unless you enjoy surprise tax bills, legal headaches, and unnecessary fees.

Here’s how to shut things down the right way, tie up loose ends, and move on without regret.

Ignoring the formal dissolution process is like leaving a subscription running on your old credit card—except instead of $15 a month, you could be on the hook for thousands. Delaware doesn’t forget, and neither does the IRS. If you don’t dissolve properly, you could still owe:

• Delaware Franchise Taxes (yes, even if you made $0)

• Unpaid debts and liabilities

• Federal & state tax filings

Long story short: closing your Slack workspace and moving on to “building something new” on LinkedIn doesn’t mean your company is dissolved.

How to wind down

If you don’t want to do this yourself - and I don’t blame you if you don’t - I can introduce you to Jaclyn over at Starcycle. They’ll handle the nitty gritty of getting your entity properly closed down (not sponsored, I just like what they do!).

Here’s the general idea of what you’ll need to cover though, so that you can make an informed decision about how you want to close up shop. This isn’t meant to be an exhaustive guide, and is more meant to open your eyes to what may need to happen.

Step 1: Resolve to dissolve

1. Check your by-laws. You will likely need both a board consent and a shareholder consent.

2. Pass your board consent. Even if you are founder, CEO, chairman of the board, and sole shareholder - you still need formal documentation of this.

3. Pass your shareholder consent. Same as the above - make sure to keep formal records of this consent, no matter how small the pool of shareholders is.

4. File your Certificate of Dissolution. If you’re issued stock, you need to do the “long-form” process (which also comes with a higher fee).

5. Tell the IRS. Notify the IRS of your decision to dissolve within 30 days of filing with Delaware via Form 966

Step 2: Clear your existing obligations

The assumption here is you have ample assets to cover any existing obligations. If you do not - this gets more complicated.

1. Identify & notify. Formally notify any of your creditors (e.g., vendors you owe money to) and other stakeholders, and settle any outstanding financial or employment obligations. In some situations, Delaware will require you to place a newspaper notice for 60 days.

2. Make outstanding payments. Make any outstanding payments and settle any debts.

Step 3: Closing down

1. File taxes. File your final state and federal returns, and any local returns required by your town/city. You’ll also need to pay your final Delaware Franchise Tax.

2. Distribute & transfer. Distribute any liquid assets, and transfer any intangible assets such as IP or trademarks.

3. Close accounts. Close out any final subscription accounts, bank accounts, professional licenses, and credit cards.

4. Close your EIN. Notify the IRS of your closure after your final accounts are closed and tax returns are filed.

Dissolving your Delaware C Corp properly means no surprise tax bills, no legal headaches, and no unfinished business. Take the time to do it right, and you’ll set yourself up for a clean exit. Got questions? Drop them in the comments or reach out—I’m happy to help.