Closing a business in America is not just about shutting the doors. An incorrect or incomplete closure can lead to tax debts, penalties, and personal liability risks that may arise years later. This process becomes even more complex for foreign entrepreneurs with a company, employees, or investments in the U.S.
Why is Closing a Business a Strategic Decision in America?
If you do not “officially” close a business operating in America, it continues to exist as a legal entity in the eyes of the state. This means:
- Ongoing annual report and fee obligations,
- Federal and state tax authorities still viewing your business as active,
- Potential future tax and penalty risks,
- Risks of identity theft and fraud (through dormant but open companies)
Moreover, the closure process varies depending on the type of company (LLC, corporation, sole proprietorship), the state in which it was established, other states in which it operates, and whether you have employees. Therefore, it is critical to systematically address the steps and complete each one at the right time.
1. Obtain Internal Approval for the Closure Decision
The first step is to make the “dissolution” decision in accordance with the company’s internal rules and document it in writing.
In Corporations (C-Corp, S-Corp)
- The board of directors prepares and approves a dissolution resolution.
- This decision is then submitted for shareholder approval according to the bylaws or the majority required by the relevant state corporate law.
- You keep the meeting minutes and decisions; these documents are critical evidence for both state and potential litigation and tax audits.
In LLCs
- The operating agreement typically specifies what majority is needed for dissolution.
- The managing members make this decision and record it in writing.
In Sole Proprietorships or Small Partnerships
- While a formal general meeting is not mandatory, obtaining and dating a written closure decision among partners prevents future disputes.
Proceeding without this approval can lead to the rejection of the dissolution application at the state level or legal disputes among partners.
2. File “Articles of Dissolution” with the State
To officially close the business, you must submit dissolution documents to the Secretary of State (or equivalent) of the state where you were established.
Essential Documents and Their Contents
These documents, commonly referred to as Articles of Dissolution or Certificate of Dissolution, typically include the following information:
- The full business name and file number,
- The date of the dissolution decision and its effective date,
- A statement that it has been approved by shareholders/members,
- A statement regarding any ongoing lawsuits or executions against the company.
For Companies Registered in Other States
If your company is also registered in other states as a “foreign entity,” you must fill out and submit forms such as:
- Application of Withdrawal or
- Certificate of Termination / Cancellation
Otherwise, your annual report and fee obligations may continue even if you are not operating.
Requirement for “Tax Clearance”
Some states may require a tax clearance letter from the tax authority before accepting the dissolution document. For example, in some states:
- All debts to state agencies (unemployment insurance, sales tax, etc.) must be settled,
- Any necessary agreements with creditors must be completed
are prerequisites for dissolution.
If you skip this step, your company remains “active” in state records, and annual fees and penalties continue to accrue.
3. Complete Federal, State, and Local Tax Obligations
One of the most critical stages in closing a business in the U.S. is to close the file with the tax office (IRS) and state tax authorities as “clean.”
Final Tax Returns with the IRS
You submit your final return by checking the “final return” box on the relevant tax form. The basic forms are:
- Sole proprietorship / disregarded entity: Schedule C attached to Form 1040,
- Partnership or LLC taxed as such: Form 1065,
- C Corporation: Form 1120 (with Schedule D if necessary),
- S Corporation: Form 1120-S and the “final K-1” sent to shareholders.
For corporations additionally:
- Form 966 – Corporate Dissolution or Liquidation: Notification to the IRS is generally required within 30 days of the board’s dissolution decision.
Other Important IRS Forms
- Final payroll and employment taxes (federal income tax withholding, Social Security, Medicare),
- Final W-2 for employees, final 1099-MISC/1099-NEC forms for independent contractors,
- Sale of business assets using Form 4797,
- For asset-based company sales, Form 8594 – Asset Acquisition Statement,
- If there is a retirement plan or fund, Form 5500.
You may also want to cancel the EIN (Employer Identification Number) for a now inactive business. To do this, you submit a written request to the IRS, specifying the company name, EIN, address, and reason for closure.
State and Local Taxes
State and local taxes are as important as federal taxes. These may include:
- State income tax,
- Sales tax,
- Unemployment insurance premiums and payroll taxes,
- Local business taxes and fees
For example, in some states, you must submit final payroll taxes and related reports within as short as 10 days. It is beneficial to review the IRS closing checklists for official calendars and obligations.
4. Inform Employees and Close Payroll Obligations
If you have employees, managing the human resources and payroll aspects correctly from the closure decision is crucial both legally and reputationally.
Notifications and Final Payments
- Provide written notification to employees about the closure and the date the employment relationship will end as early as possible.
- On the last working day, pay them what they are entitled to according to state law:
- Final salary,
- Any bonuses and commissions,
- Accrued unused vacation pay in states where required
.
Payroll, Notifications, and Tax Aspects
- Pay final payroll taxes fully and on time.
- Close federal and state unemployment insurance accounts.
- Prepare 1099 series forms for independent contractor and consultant payments.
A poorly managed closure can result in retroactive payroll audits and penalties.
5. Inform Creditors, Suppliers, and Other Parties
During the company’s winding up process, you must properly terminate relationships with creditors and contracting parties.
Official Notification to Creditors
Many states require the company during the dissolution process to:
- Send written notification by mail to known creditors,
- In the notification:
- State that the company will be dissolved,
- Provide a mailing address for claims,
- Include the information that must be in the claim, and
- Specify the deadline for claims (generally around 120 days in most states).
Creditors who do not file a claim within the time limit may have their rights limited or extinguished under the relevant state law. Some states may also require a public notice in a local newspaper.
Other Contracting Parties and Practical Steps
- Inform customers, suppliers, distributors, and business partners.
- Implement early termination procedures for lease agreements (office, warehouse, vehicle, etc.).
- Cancel ongoing services and subscriptions (SaaS, software licenses, phone, internet, etc.).
- Review insurance policies and make necessary cancellation or continuation decisions.
- Cancel licenses, permits, and approvals associated with the business.
- Close company bank accounts, POS, and payment infrastructures; collect receivables.
After debts are paid, you distribute the remaining assets to partners in accordance with contracts and regulations. Distributing assets before debts are paid can create serious legal risks such as “fraudulent conveyance” for managers and partners.
6. Keep Records and Documents
Even if the company is closed, you are still obligated to keep business records for a certain period. In particular:
- Tax returns and attachments,
- Payroll records and employee files,
- Contracts, licenses, permits,
- Meeting minutes and dissolution resolutions
must generally be kept for at least 3–7 years. These documents play a critical role in tax audits, labor lawsuits, or debt disputes.
7. Risks of Non-Compliance: Why There is No Room for Negligence?
A business that “effectively” closes without completing legal procedures may face:
- State fees and administrative penalties,
- Federal and state tax debts,
- Labor and compensation claims,
- Creditor lawsuits
Additionally, companies that remain dormant but are still officially viewed as active become attractive targets for identity theft and fraud. These risks may be recognized later and can lead to much more costly consequences, especially for companies with foreign partners and partners following the process from Turkey or other countries.
How Does Corpenza Add Value in This Process?
For Turkey-based entrepreneurs and investors with a company in America, the closure process is a challenging combination to manage alone: State-based corporate law, federal and state tax regulations, payroll, immigration, and sometimes M&A and liquidation processes intertwine.
As Corpenza:
- We design the correct dissolution and withdrawal strategy for your LLC, corporation, or branch at the state level.
- We coordinate final tax returns, Form 966, final payroll, and reporting processes with accounting and tax advisors.
- If you need to transition to a new structure in America, Europe, or other countries, we design a comprehensive restructuring plan regarding company formation, payroll (EOR), posted worker model, and tax optimization.
- If you are planning investment or citizenship by investment, we ensure that the closure in the U.S. is aligned with your plans in other countries and optimized for tax purposes.
Thus, you make the closure in America not just about “closing the file” but a strategic part of your global action plan.
Conclusion: Planned Closure Reduces Future Risks and Costs
Closing a business in America is a multi-layered process consisting of obtaining internal approvals, filing dissolution applications at the state level, closing federal/state/local tax files, properly terminating relationships with employees and creditors, and retaining records for the long term.
If you plan these steps correctly:
- You minimize future tax and penalty risks.
- You reduce the likelihood of legal disputes with creditors, employees, and business partners.
- You place your global investment and mobility plans on a healthier foundation.
Especially for businesses with cross-border operations, it is safer both financially and legally to work with experienced professionals in corporate law, tax, and international mobility rather than navigating the process alone.
Important Warning and Disclaimer
This text is prepared for general informational purposes. No statement here constitutes legal, tax, or financial advice. Closing a company and tax processes in the United States may vary depending on the type of company, the state of operation, the industry, and current regulatory changes.
For your specific situation, always seek professional support from a licensed attorney, certified public accountant, or authorized tax advisor. You should regularly check the IRS official guide and announcements from the Secretary of State of the relevant state for up-to-date official information and closing checklists.
