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

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

#1

Post by tlhunter »

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.

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

#2

Post by 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.

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

#3

Post by 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.]

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

#5

Post by 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.

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

#6

Post by 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.

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

#7

Post by 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.

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

#8

Post by billwear »

andrewmcwatters wrote: post #6

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.

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.

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

#9

Post by 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.

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

#10

Post by gamblor956 »

ianhawes wrote: post #5

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 w…

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.

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