Thinking about shutting down your U.S. startup? Don’t just walk away. If you don’t close it properly, with the state and the IRS, you could face years of surprise tax bills, penalties, and blocked access to financial platforms.

In this guide, we’ll walk you through the key legal steps, tax requirements, and timelines to avoid trouble later.
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⚠️ Why proper dissolution matters
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Even if your startup isn’t operating anymore, it still legally exists unless you actively dissolve it. That means:

• Franchise taxes continue to accrue (especially in Delaware and California).
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• You’re still on the hook for annual filings and agent fees.
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• The IRS expects a final tax return, even if you made $0.
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• You might get blocked on Stripe, Brex, or Mercury for non-compliance.
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👉 Many founders find out years later, when they’re raising for their next startup, that they owe thousands because they skipped these steps.
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✅ Legal steps to shut down your startup
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Here’s what every founder needs to complete to properly dissolve a C-Corp or LLC:
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1. Internal Approval

C-Corps require a formal board and shareholder vote to approve dissolution. Keep written records, especially if investors are on your cap table.
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2. File Articles of Dissolution

Submit dissolution documents with the state where your entity is registered.

• In Delaware, file a Certificate of Dissolution + final Franchise Tax report.
• Some states require you to clear state taxes first.
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3. Cancel Business Licenses & Permits

Don’t forget to cancel local business licenses, permits, and your EIN (with IRS Form 966 if applicable).
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4. Notify Creditors

Legally, you must inform all known creditors and vendors, giving them time to submit final claims.
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5. Distribute Remaining Assets

If you have remaining funds or IP, distribute them according to your operating agreement or cap table. Keep everything documented.
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🧾 Final tax obligations (most founders miss this!)
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This is where things go wrong for most startups. Even if your company made no money, you’re required to submit a final tax return.

Depending on your entity:

• C-Corp: File Form 1120, check the “final return” box.
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• LLC (partnership): File Form 1065 and deliver final Schedule K-1s to each partner.
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• Had employees? File final W-2s, Form 941s, and pay any employment taxes.
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📅 Deadlines:

• March 15 for partnerships (LLCs).
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• April 15 for C-Corps.
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  Miss these dates, and you risk IRS fines, even if your business is closed.
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🚨 Real risks if you skip this process
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Failure to properly dissolve a U.S. entity leads to:

• Franchise tax accumulation: Delaware charges up to $400/year minimum.
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• IRS penalties: Late returns = $205/month per partner (LLC) or fixed penalties for C-Corps.
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• Banking issues: Mercury, Brex, and others may freeze or close accounts tied to non-compliant entities.
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• Red flags during fundraising: Investors run background checks. Unclosed entities show up.
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Even if you don’t plan to launch again soon, this can haunt you later.
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💼 How we help founders shut down cleanly
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We’ve helped over 100 LATAM founders close their U.S. startups properly, avoiding fines, clearing tax risk, and doing it fast.

With Lazo, we:

• File your Articles of Dissolution in Delaware or any state.
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• Handle final IRS tax returns (Forms 1120, 1065, W-2s, etc.).
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• Cancel your EIN and other federal registrations.
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• Advise on asset distribution and creditor notices.
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We make sure there are no loose ends so your future fundraising or re-incorporation isn’t affected.
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💬 Ready to close this chapter?
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Shutting down a business doesn’t mean failure, it’s part of the startup journey. What matters is doing it right. Don’t let unresolved paperwork follow you into your next venture.

👉 Book a free session with our team, we’ll help you dissolve your entity, file the right documents, and stay penalty-free.
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