companyGlossary
Dissolution terms, explained
Short, self-contained definitions of the words you will meet while closing a US company. Each term links to the guide or tool where it matters.
Dissolution
- The formal legal process of ending a company's existence with its formation state. It includes owner approval, settling obligations, filing final tax returns, filing dissolution paperwork and closing federal and state accounts.How to dissolve a US LLC step by step
Winding up
- The period after the decision to dissolve in which a company stops normal business, collects what it is owed, pays or provides for creditors and distributes any remaining assets to the owners.
Articles of dissolution
- The document a company files with its formation state to end its existence. Names vary by state and entity type; Delaware calls the LLC version a Certificate of Cancellation.
Certificate of cancellation
- The filing that ends a Delaware LLC's existence. Delaware accepts it only after the annual franchise tax has been paid through the current year.
Administrative dissolution
- A dissolution imposed by the state rather than chosen by the owners, usually because annual reports or franchise tax went unfiled. The company loses good standing and typically must be reinstated before it can be dissolved voluntarily.Estimate the cost of catching up
Reinstatement
- Restoring an administratively dissolved company to good standing by filing the missed reports and paying the outstanding fees and penalties, so it can operate again or be closed properly.
Good standing
- A status confirming that a company has met its state's filing and fee requirements. Many states only accept a voluntary dissolution from a company in good standing.
Annual report
- A yearly filing, biennial in some states, that updates the state on a company's basic details and usually carries a fee. Missing it leads to late penalties and eventually administrative dissolution.
Franchise tax
- A tax some states charge for the privilege of being registered there, owed whether or not the company made a profit. Delaware and California are well-known examples, and it must be current before a dissolution is accepted.
Registered agent
- A person or company located in the formation state that receives legal notices and official mail on the company's behalf. The service is usually cancelled only after the state confirms the dissolution.
EIN (Employer Identification Number)
- The nine-digit tax identification number the IRS assigns to a business. After the final return is filed, the IRS account tied to the EIN is closed by letter; the number itself is never reassigned.
Final tax return
- The last income tax return a company files, marked as final, covering the period up to its dissolution. Payroll and sales tax accounts receive their own final filings.
Form 5472
- An IRS information return that a foreign-owned US company, including a single-member LLC owned by a non-US person, must file every year to report transactions with its owner. The penalty for not filing is $25,000 per form, and the final year is not exempt.Closing a US LLC as a non-US owner
Pro forma Form 1120
- A mostly blank corporate tax return that a foreign-owned single-member LLC files as a cover for Form 5472, because the LLC itself is disregarded for income tax and owes no corporate tax on that form.
Tax clearance
- A certificate or confirmation from a state tax authority that a company owes nothing. Some states require it before they process a dissolution, which can add several weeks.
Foreign qualification and withdrawal
- Registration to do business in a state other than the formation state. When a company dissolves, each such registration needs its own withdrawal filing so that state stops expecting reports and fees.
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