How To Dissolve Your Startup

In this guide we discuss each step a founder needs to take in order to dissolve their Delaware C Corporation.

David J. Phillips
CEO & Founder
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In this guide we discuss each step a founder needs to take in order to dissolve their Delaware C Corporation.

Dissolution process

The dissolution process can be a difficult one, both emotionally and logistically. You'll need to notify your investors of the impending dissolution, and begin winding down the company. This can be a daunting task, but it can be done smoothly with careful planning and execution. If you want, Fondo can take this off of your plate too. Below are the tactical steps you will need to take if you are dissolving a Delaware C Corporation doing business in California.

DE Franchise Tax

The first step is to call Delaware and find out what the company owes in franchise taxes (call 302-739-3073, option 3). It will be a pro-rated amount for the year and there are two ways of calculating it.

Assumed Par Value vs Authorized Share Method

Delaware looks at share counts to calculate the Franchise Tax. There are two methods to calculate the total Delaware Franchise Tax: the Authorized Shares Method and Assumed Par Value Capital Method. Delaware gives startups the flexibility to use the method that results in the lesser tax -- in most cases this will be Assumed Par Value Capital Method. Please note, the total tax will never be less than $125.00, or more than $200,000.00.

The Authorized Share Method is Delaware’s default method. This approach uses tax brackets based on share count to determine the tax payment. Corporations with 5,000 or fewer shares will pay the minimum tax. More shares push the corporation to a higher tax bracket. Delaware looks at authorized shares instead of outstanding shares. A corporation will have more authorized shares than outstanding shares. Authorized shares are shares a company can issue. Outstanding shares are shares a company has issued. Corporations use their pool of authorized shares to issue outstanding shares.

The Assumed Par Value Capital Method incorporates authorized shares, outstanding shares, and the corporation’s gross assets. You will need to know all issued shares and total gross assets. Total Gross Assets are “total assets” reported on the U.S. Form 1120, Schedule L (Federal Return) relative to the company’s fiscal year ending the calendar year of the report. For most startups, Gross Assets as of 12/31 will include: Cash, Investments (Brokerage/Money Market/Treasury Accounts), Fixed Assets (laptops, etc.), Crypto, Accounts Receivable, Inventory, Real Estate, Investments or Loans to Foreign or Domestic Subsidiaries. The tax rate under this method is $400.00 per million or portion of a million shares. If the assumed par value capital is less than $1,000,000, the tax is calculated by dividing the assumed par value capital by $1,000,000 then multiplying that result by $400.00.

The Assumed Par Value Capital Method way is pretty much always cheaper, make sure they use this method. If you have less than $1M assets when you dissolve, it should be $450. Delaware won't let your company dissolve until all outstanding franchise taxes are paid.

At this point you should also tell your investors what is happening and whether there are likely to be any winding-up proceeds for them.


The next step involves getting board and stockholder consent for the dissolution. Attached please find templates for:

1) A board consent authorizing the dissolution. If you are not registered in CA, then you will need to take out the CA references in here.

2) A stockholder consent authorizing the dissolution. If you are not registered in CA, then you will need to take out the CA references in here.

Certificate of Dissolution

The formal dissolution of the company involves having the board and stockholders sign the consents and then filing the Certificate once those consents are obtained. Submit the certificate of dissolution here: and you need to ensure that you enclose a cover memo so they can contact you with any questions. You can find this at The filing fee for the dissolution certificate is approximately $200.

When you receive the date-stamped Certificate of Dissolution from DE, please send a copy to your investors for their records.  


If you are registered as a foreign entity in CA, which you should be if you're operating in CA, then you will also need to file a certificate of surrender with CA. You can find the form and the instructions at


If you have a payroll provider, you will need to tell them when the last payroll will be or was as they will need to file final returns with the IRS and state.

Liquidating Distributions

Once dissolved, you will complete the liquidation and distribution process. The first step in this process is the liquidation of any illiquid (non-cash) assets. If the company has any intellectual property (eg domain names) that can be sold or other personal property (like desks, chairs, laptops) that were purchased with corporate funds, those should be offloaded, even to yourself.

The next step is to take all the cash and distribute it, first to the creditors (i.e. your investors who invested on convertible notes) until all outstanding debt is satisfied and then to the stockholders, if anything is left.  


You will need to file two things.

1) Form 966, Notice of Corporate Dissolution or Liquidation, must be filed within 30 days of the dissolution. It's pretty straightforward to complete at I've also attached a secretary's certificate that you can use to certify the docs that are to be sent with the form.

2) Form 1120, U.S. Corporation Income Tax Return, must be filed by the 15th day of the 3rd month after dissolution. You need to make sure to check the "final return" box. Presumably, you have been working with a CPA to file tax returns for the previous years so you can just work with them to get it sorted out.


Cancel your EIN and Close IRS Business Account:  You will need to cancel your employer identification number – or EIN and close your IRS business account.  In order to do so you will need to send a letter to the IRS that includes:.

1)    The complete legal name of the business

2)    The business EIN

3)    The business address

4)    The reason you wish to close the account

If you kept the original notice the IRS sent you when you were assigned an EIN, you should enclose a copy of it with the EIN cancellation letter.

You will send both documents to:

Internal Revenue Service

Cincinnati, OH 45999

The IRS cannot close your business account until you have filed all necessary returns and paid all taxes owed.

Bank Account

Don't forget to tell your bank that you want to close the corporate bank account(s) once you've distributed all remaining cash.


Dissolving your startup might seem like giving up, but it can actually be the best thing you can do for yourself and your startup. It allows you to move on to your next big idea. So if you feel like your startup has reached the end, don’t be afraid to pull the plug and start over.

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This guide for informational purposes only and does not constitute legal or tax advice or create an attorney-client relationship. Companies should consult their own attorneys or tax accountants for advice on these issues. Because of the generality of the issues discussed in this piece, the information provided may not apply in all situations and should not be acted upon without specific legal or tax advice based on particular situations.