Can I put my LLC "on hold" and not pay fees?
May 5, 2015 8:46 AM   Subscribe

I have gone from freelancing to full-time work so I don't need my LLC at the moment. But I will continue to be charged active-agent fees and taxes. Should I just dissolve it?

I have no idea what the future will hold. Maybe in 2 years I'll go back to freelancing. My life is somewhat fluid. My LLC is registered in Delaware with The Company Corporation. I don't want to pay fees and taxes on something I'm not using though.

Is it smarter to hold onto it just in case, or dissolve it and start over in a couple years if I return to freelancing?
posted by deern the headlice to Work & Money (7 answers total) 1 user marked this as a favorite
Not a lawyer but forming/maintaining LLCs is my day job.

Generally you can't not pay franchise taxes (not an actual tax, it's the name of the yearly maintenance fee) in DE without incurring fees and penalties and having your entity terminated after I believe two years of non-payment. After those two years, the entity is terminated and does not stack up more fees unless you wish to reinstate it (at which point you have to pay back fees from the time you stopped paying them to the time it was terminated.) There may be other issues with that so you may want to check with a lawyer before trying to use it to avoid paying franchise tax.

Registered agents will also not suspend service for you because all DE entities require a registered agent of one sort or another and the state will inactivate any entity for which the agent service is withdrawn.

To dissolve the entity, you'll need to pay any back franchise taxes, the current year's franchise tax (franchise taxes are generally paid the year after, so you pay for 2014 in 2015, but you'd need to pay 2015 to dissolve it) along with dissolution fees.

I usually advise clients to talk to a CPA about this because a lot of them say "oh! I just won't pay any fees and the state will dissolve it" and that could have repercussions I'm not aware of.
posted by griphus at 8:59 AM on May 5, 2015

Oh also keep in kind that while the entity doesn't rack up additional franchise tax fees while terminated, it still racks up interest on any existing fees.
posted by griphus at 9:00 AM on May 5, 2015

The question you should ask yourself is why you think that you need an LLC at all for freelancing, let alone one in Delaware. You may be able to simplify your life and taxes by eliminating it. All circumstances are unique, but many freelancers are inclined to unnecessary complications.
posted by JackFlash at 10:08 AM on May 5, 2015

An LLC is simpler than a corporation while still separating personal assets from company assets for liability purposes. It's not a bad idea for freelancers, actually.
posted by Johnny Wallflower at 10:27 AM on May 5, 2015

Response by poster: Having an LLC and a business bank account definitely was nice to formalize that income and keep it separate from personal income during those years as a freelancer.
posted by deern the headlice at 10:45 AM on May 5, 2015

No. Or at least not with a Delaware LLC.

Unless you live in Delaware, and can be your own resident agent for service of process, you're going to need to continue to pay someone to be that agent.

Delaware levies a $300 yearly flat franchise tax on all LLCs, active or not. You're probably on the hook for this year's already, which are due June 1. Yes, that's $50 more than you paid last year.

Considering how easy and inexpensive it is to spin up an LLC (and you did keep all of your formation documents, so you can easily re-form it, right?), I'd probably dissolve it, especially if you think it'll be more than a year or so before you start freelancing again.

It is definitely possible for you to keep an LLC and reduce your costs by moving your LLC to another state (either to reduce taxes/annual fees to the state, or to eliminate the need to hire a resident agent), but it won't be completely free.
posted by toxic at 11:46 AM on May 5, 2015

Having an LLC and a business bank account definitely was nice to formalize that income and keep it separate from personal income during those years as a freelancer.

This really makes no sense. There is no such thing as "formalizing income." And regardless if you file as Schedule C or as an S-corp, all income is personal income. It isn't clear what you think you are gaining by going to the expense and complication of an LLC. Your question is whether to discontinue your LLC. You need to adequately answer the question why you think you need an LLC first.
posted by JackFlash at 3:44 PM on May 5, 2015

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