The official process of legally closing a U.S. business at both the state and federal levels—requiring formal filings to terminate the company’s legal existence and end tax and compliance obligations.
What is Dissolution?
Dissolution is the formal, legal process of shutting down a U.S. business. For non-U.S. residents who own or manage U.S. companies, it’s important to understand that closing a business involves two separate processes: one at the state level, where the company was formed, and another at the federal level, with the Internal Revenue Service (IRS). Simply ceasing operations or letting a business become inactive is not enough. Without properly filing for dissolution, your company continues to exist on paper—and will still be expected to file taxes, pay annual fees, and maintain compliance.
At the state level, dissolution begins with an internal decision to close the company. For LLCs, this may be documented through a member resolution; for corporations, a board or shareholder resolution is usually required. Once that decision is made, the company must file official paperwork—called a Certificate of Dissolution or Articles of Dissolution—with the Secretary of State in the state of incorporation. This filing formally ends the company’s legal existence in that state. Some states also require the company to be in good standing (e.g., all taxes and annual reports filed) before they will accept the dissolution.
In states like Delaware, where many non-U.S. founders register their businesses, a franchise tax clearance or a final franchise tax report is typically required before dissolution can be approved. Failure to complete this properly may result in the company continuing to accrue annual franchise tax penalties, even if it has no activity.
At the federal level, the business must also notify the IRS that it is closing. This is done by filing a final tax return—for example, Form 1120 for corporations or Form 1065 for partnerships—and marking it as “final.” Any taxes due must be paid, and all employment and informational filings (such as Form 941 or Form 5472) must be completed through the date of closure. The IRS may still consider a business active until a final return is processed, so this step is essential.
In some cases, companies may also need to file a final Form 1099 for contractors, or Form 1042-S if they were withholding agents paying foreign individuals or entities.
In summary, dissolving a U.S. company means formally ending its existence at both the state and federal levels. For non-U.S. founders, this dual process ensures that the business is no longer liable for taxes, reports, or penalties, and that its record is cleanly closed. Ignoring either step—especially the federal filing—can lead to ongoing compliance issues, late fees, or legal complications down the line. Proper dissolution protects you from future risks and marks the business’s official conclusion in the U.S. system.
