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We have received inquiries recently concerning Delaware entities that have been cancelled by the State. This situation is not as bad as it sounds, and after a few simple steps (and a couple of checks), the entity can be reinstated.

How Does it Happen?

In Delaware, a corporation becomes “void” for failure to file its annual report. The entity becomes “forfeited” if its registered agent resigns and is not replaced. Registered agents typically resign if their annual fee is not paid in a timely manner. The registered agent is required to give 30 days’ notice of its intention to resign and will have forwarded to the address of record delinquency notices from the State with respect to unfiled reports.

The certificate of formation of a Delaware limited liability company will be cancelled if the entity fails to pay its annual franchise tax for three consecutive years, or if it fails to replace its registered agent within 30 days.

Before a Delaware corporation becomes void or forfeited or a limited liability company has its certificate of formation cancelled, such entity first ceases to be in “good standing.” This occurs as soon as an entity fails to pay certain fees or to file annual reports. While in this status, an entity cannot make any filings with the State or sue in the courts of Delaware. It is also difficult to close any transaction where a good standing certificate is required. This situation may be cured by filing the outstanding reports and paying all outstanding franchise taxes.