Dissolution vs Withdrawal vs Dormancy: How to Properly Wind Down an Entity
When you no longer need a company, you have three options. Here is how each works, what they cost, and the compliance implications of getting it wrong.
The problem with doing nothing
The most common approach to an unwanted entity is to simply ignore it. Stop filing, stop paying fees, let the state dissolve it administratively. This is almost always a mistake.
Administrative dissolution does not end your obligations. In most states, the entity continues to accrue penalties and fees even after administrative dissolution. Directors and officers may remain personally liable. Tax obligations do not disappear. And reinstating a dissolved entity, which you may need to do for litigation, tax clearance, or asset disposition, costs significantly more than winding down properly in the first place.
Option 1: Voluntary dissolution
What it is: Formally ending the entity's existence. The company ceases to be a legal person.
When to use it: When the entity has no ongoing purpose, no assets to protect, and no reason to preserve its existence.
Process:
- Board resolution (or member consent for LLCs) authorising dissolution
- Settle all debts and distribute remaining assets
- File articles of dissolution with the state of incorporation
- File final tax returns (federal, state, and any foreign jurisdictions)
- Cancel foreign qualifications in every state where registered
- Notify creditors as required by state law
Costs:
| State | Dissolution fee |
|---|---|
| Delaware | $204 (expedited $404) |
| California | $0 |
| New York | $60 |
| Wyoming | $0 (online) |
| Texas | $40 |
Tax clearance: Several states (Texas, New York, Massachusetts) require tax clearance before accepting dissolution filings. This can add weeks or months to the process.
Option 2: Withdrawal of foreign qualification
What it is: Ending your company's registration to do business in a state where it is not incorporated. The entity continues to exist in its home state.
When to use it: When you are pulling out of a state but the entity itself remains active elsewhere.
Process:
- File a certificate of withdrawal (or application for withdrawal) with the state
- Obtain tax clearance if required
- Cancel your registered agent
- File any outstanding annual reports
This is simpler than dissolution but often overlooked. Companies that stop doing business in a state but do not withdraw continue to owe annual report fees and maintain registered agent obligations. Over several years, this adds up.
Option 3: Dormancy
What it is: Keeping the entity alive but inactive. No business operations, minimal compliance.
When to use it: When you might need the entity in the future (for a specific contract, licence, or intellectual property), or when dissolution would trigger adverse tax consequences.
Ongoing obligations during dormancy:
- Annual reports still due (most states)
- Franchise tax still due (Delaware, California, etc.)
- Registered agent still required
- Federal tax returns still required (even if zero activity)
- BOI reporting requirements still apply
Cost of dormancy: Depending on the jurisdiction, maintaining a dormant entity costs $500-2,000+ per year in filing fees, franchise tax, and registered agent fees. Over five years, that is $2,500-10,000 for an entity doing nothing.
The decision framework
| Factor | Dissolve | Withdraw | Go dormant |
|---|---|---|---|
| No future use | ✅ | N/A | ❌ |
| Still needed in other states | ❌ | ✅ | ❌ |
| May reactivate later | ❌ | ❌ | ✅ |
| Holding IP or contracts | ❌ | ❌ | ✅ |
| Minimise ongoing costs | ✅ | ✅ | ❌ |
How CompCal helps
CompCal tracks obligations for every entity, including dormant ones. When you decide to dissolve or withdraw, the system generates a checklist of required filings across all jurisdictions. No filing gets left behind, no state gets forgotten.