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What's the simplest way to kill a Delaware C Corp?

21 points by tlhunter ↗ HN
I've got a Delaware C Corp, based in California, that I started in January of this year (2022). It was to be an online Software as a Service company. Sadly I was only able to get two customers and after several months of lost wages I eventually went back to a regular job.

The company never had any employees (except for myself, though I never gave myself salary). Of the two customers, the first paid me under $1,000 USD and the second under $2,000 USD, via check, with no contracts. I also personally deposited $5,000 into the company's bank account which then went to things like hosting fees.

The company was founded using Stripe Atlas. I registered it in the city I live in, San Francisco. I'm pretty sure it's registered in the US via Stripe Atlas. I tried to register it in California but I was unable to figure out the paperwork (certificate of good standing stuff). The company hasn't paid any taxes yet -- which might be another thing that I've screwed up.

At this point I'm wondering: what's simplest way to shut down the company and wrap up any liabilities (legal / taxes) that it may have? I would be happy to refund the customers if that makes things easier.

22 comments

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steffan
You probably shouldn’t be coming to HN for legal advice, which is what you need.

In any case, you’ll need to dissolve the Delaware Corp in Delaware and unregister(?) the California foreign Corp. registration. You almost certainly owe taxes to CA and taxes / fees to Delaware.

I strongly recommend talking to an attorney who specializes in corporate law, at least having a consultation to enumerate the steps necessary.

brudgers
The simplest way is to pay a lawyer.

It is also the best way.

Not only because you also have a potential couldn’t-figure-out-the-paperwork problem with California.

But also because C-corps are complex legally and financially.

Good luck.

[For what it might be worth to people other than the OP, C-corps are really not DIY despite what Stripe sells. Also, most of the time, a C-corp is the worst choice.

The exception is when you are about to receive outside investment from investors who require a C-corp.]

HWR_14
Isn't it fairly easy to roll an LLC or S-Corp into a C-Corp if you need one?
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ianhawes
A general PSA for those finding this later on: Unless you expect to close a round of VC funding within 3-5 months (i.e. you already have investors lined up) you should generally save yourself the hassle and form a Delaware LLC instead.

The process of converting a DE LLC to a DE C Corp is far easier than the paperwork involved in properly running a DE C Corp when you're bootstrapping.

Remember that as a solo founder without investors, you are effectively being double taxed with a C-corp because it pays taxes on its income and then you pay taxes on your income.

gamblor956
As a tax lawyer, I am compelled to point out that Delaware is probably the worst place to organize an LLC. Delaware has a great volume of corporate tax law but most of it does not apply to the LLC form, which negates the only reason to go with Delaware versus another state.

If you are going the LLC route, either organize it in Wyoming or else in the state where you will actually be doing business. Wyoming LLCs have the greatest flexibility in terms of organizational requirements and capital structure (and the lowest tax/compliance costs for keeping it alive).

But no matter where you choose to organize your LLC you will need to register for business and file tax returns in the state in/from which you physically do business. You can't avoid that by organizing in another state or country; state of organization only determines what set of law applies to addressing conflicts between different owners in an LLC. If it's just going to be you, then your home state is almost always the best place to organize your LLC.

And if you are a solo founder, and you intend to run a lifestyle business (meaning, enough to replace your day job), the S-Corp is a better option than an LLC. It's not as organizationally flexible as the LLC but it's easier to understand, easier to maintain, usually much cheaper to maintain, and there are some tax benefits you can get that you don't get with an LLC.

giantg2
"Wyoming LLCs have the greatest flexibility in terms of organizational requirements and capital structure (and the lowest tax/compliance costs for keeping it alive)."

PA has been extremely easy and is actually cheaper (vs a WY LLC in PA given youd still need to pay PA income taxes) since the report is only due every 10 years with a renewal of $70 vs $50 every year. So it's definitely worth looking at your home/operating state prior to defaulting to WY.

itake
+1. I always just organize in the state I reside, because managing multiple LLC registrations (LLC state and the franchise state) is too much work for an almost non-existent business.
HWR_14
I thought a Nevada LLC is (was?) the most popular choice. The reasons I heard were anonymity of members and low fees. I know Wyoming is popular for crypto projects, but was curious if someone had looked at the difference between the two?

Or maybe I'm thinking of a Nevada S-Corp.

gamblor, you don't have a "for idiots" blog with a quick comparison do you?

encoderer
The counterpoint to this is QSBS. Also, the tax situation is complicated. The tax delta between the two is not that wide as long you run break even, though it does still favor the llc, until exit.
andrewmcwatters
This isn’t particularly helpful for the OP, so sorry tlhunter, but for anyone else reading, please don’t bother with Stripe Atlas or a Delaware company.

Just form your private business with your local corporation commission.

You need to understand basic corporate operations to do business, and jumping immediately into all of this extraneous work is completely unnecessary for small private businesses.

billwear
this. i had a small business through 2007 as a copywriter. subprime crisis killed the customers, but i was only incorporated locally, through my state. all it cost me was $25 to dissolve the corporation, a simple postcard. my only real admin job was keeping my quarterly taxes up to date, which wasn't difficult. don't go large to start.
brudgers
A sole proprietorship is the simplest thing that might work.

I know it is not a popular suggestion, but it can be a good choice when there’s not a whole lot of uninsurable liability, few assets, and limited working capital.

Since anyone can sue anyone for anything anyway.

YMMV…but YAGNI also often applies.

matt_s
When investigating such things for a solo software business I read that you can even just claim additional income on your taxes and call it a hobby until you get sufficiently big enough and then pay an attorney and accountant to figure out the best path forward. There is some risk about liability but for small revenue software its unlikely someone wants something beyond a 100% refund.
brudgers
I am neither an accountant nor attorney.

The way I do it is using Schedule C and the relates forms.

Banking is one thing a sole proprietorship simplifies because all you need is a separate personal account to use for the business and banks are happy to set one up.

If the business doesn’t generate much income you might even get away with not paying out taxes quarterly and use additional withholding instead.

prirun
A good SF accountant can probably walk you through this if you don't want to go the more expensive lawyer route. If a lawyer is needed, an accountant will be able to tell you that.

Not a lawyer or accountant, but for $3000 in income, I don't think you have a lot to worry about.

ilaksh
I think the whole industry around incorporation is a racket at this point. It's literally a database. It should not cost hundreds of dollars to put a record in a database, or keep it in there. Or thousands of dollars to tell you how to take it out.

I had stupidly incorporated something related to some fantasy idea I never ended up with the funds to pursue. A year later with zero actual activity, I am informed that I owe hundreds in taxes for it by the company that is in charge of the record or something. I tell them I need to dissolve it, they point me to their FAQ that says nothing useful. Or maybe it was selling me another dissolution service for hundreds of dollars. I don't remember. But it was actually two layers of companies, the retail and then the record keeping, then Delaware itself, all extracting hundreds in fees, for absolutely nothing to happen. I doubt anyone even searched for my business name in that time.

It's the type of thing that makes me want to root for the AIs to take over.

MichaelZuo
> I think the whole industry around incorporation is a racket at this point. It's literally a database. It should not cost hundreds of dollars to put a record in a database, or keep it in there. Or thousands of dollars to tell you how to take it out.

It costs them 0.01 dollars to put a record in a database, and $499.99 to assume legal liability over the record.

piperswe
There's also prior art for simplified corporation registration - the UK's Companies House very much acts as just "creating an entry in a database for a nominal fee," with incorporation on the website costing only 12GBP, and a dissolution ("strike this company off the database, please") happening entirely online and costing 8GBP (a "voluntary strike off")

https://www.gov.uk/government/publications/companies-house-f...

zugi
Why start a corporation in the first place versus an LLC or even a sole proprietorship? The latter costs close to nothing to start, and it doesn't ever need to be dissolved - just stop filing Schedule C once you stop having income and expenses.

If you choose the more complex route of a Delaware corporation, it's going to cost you more. OP would have at least made some money under an LLC or a sole proprietorship, but going the Delaware corporation route likely turned it into a net loss.

aficiomaquinas
In order to surrender the foreign qualification in the state of California you'll have to file your last California return, be sure to mark the return as final in the actual form and make sure it's correct. Hire a CPA. California franchise tax is paid in advance, so don't pay the 800 dollars for next year, otherwise they'll make you beg them to give it back, which they'll eventually will, after a couple of years, by the time the company will not exist and that payment will be unrecoverable. Once the final Cal return is filed, you'll have to file form SURC.

You'll have to file your final federal tax return, too. Although you might be able to do it yourself with Turbotax, I'd hire a CPA.

You'll have to legally dissolve the company with the articles of dissolution and make sure all the previous board meetings and cap table is sound. Then file the dissolution with the Delaware Secretary of State. If you don't hire a lawyer to double-check the corporation for you, you'll be exposing yourself to liability down the road, which will could be costlier than the lawyer's fees. Corporations must liquidate their assets, and that requires filing forms with the IRS, too. After that, you'll have to close the bank accounts, vendor accounts, credit cards, etc.

annoyed_eng
I had a similar situation. I used https://legalinc.com/ to close my Delaware C Corp. My C Corp was also formed by Stripe Atlas. Process was pretty painless. Cost in my case was ~$800 including this years franchise tax (~$400) which was also due. I believe you will still need to file a tax return for the Corp for this year...