Dissolving a U.S. Subsidiary What Documents Are Required?

How to Successfully Dissolve a U.S. Branch? What Documents Are Required?

In today’s increasingly globalized economy, more and more Chinese companies are choosing to establish branches in the United States to expand into overseas markets and enhance brand visibility. However, as market conditions evolve rapidly, some companies may find it necessary to adjust their strategic plans and decide to close their U.S. branches. Dissolving a U.S. branch is not a simple process-it involves legal, tax, and financial considerations, and any oversight may lead to future legal disputes or tax complications.

Understanding and mastering the correct procedures and required documents for dissolution is essential for any company planning to close its U.S. branch.

1. Determine the Type of Dissolution Dissolution or Liquidation?

Before starting the dissolution process, a company must first clarify the type of closure it intends to pursue. In the U.S., company dissolution generally falls into two categories Dissolution and Liquidation.

Dissolution refers to the formal cessation of business operations and filing documents with the state to terminate the company’s legal existence in that jurisdiction.

Liquidation, on the other hand, involves not only dissolution but also the formal settlement of assets, debts, and tax obligations to ensure all liabilities are properly resolved.

For most Chinese companies, if the U.S. branch has ceased operations and has no significant outstanding debts or assets, a simple dissolution may suffice. However, if the branch still holds assets, employs staff, or has unresolved debts, a full liquidation process is required.

2. Overview of the Dissolution Process

The process for dissolving a U.S. branch varies slightly by state, but generally includes the following steps

1. Board or Shareholder Resolution A formal decision to dissolve the branch must be made and documented.

2. Notify Employees and Terminate Contracts Employees must be notified in advance, severance payments made as required by law, and contracts with suppliers or service providers terminated.

3. Tax Filing and Clearance Complete all federal and state tax filings and obtain tax clearance certificates.

4. File Dissolution Documents Submit the dissolution application to the Secretary of State’s office in the state where the branch is registered.

5. Asset Disposal and Debt Settlement Handle remaining assets and settle all outstanding debts.

6. Close Bank Accounts and Cancel Credit Records Close company bank accounts and cancel business credit profiles e.g., DB.

3. Required Documents for Dissolution

To ensure a smooth dissolution process, the following key documents are typically required

1. Corporate Registration Documents Including Articles of Incorporation, Business License, and other original registration materials.

2. Board or Shareholder Resolution Meeting minutes or written resolution formalizing the decision to dissolve.

3. Tax Filing Records Federal and state tax returns and payment receipts.

4. Tax Clearance Certificates Issued by the IRS and relevant state tax authorities.

5. Employee Termination Documents Notices of termination, separation agreements, and records of severance payments.

6. Debt Settlement Proof Agreements or payment receipts with creditors and suppliers.

7. Dissolution Application Form Such as the Certificate of Surrender of Corporate Powers in California.

8. Bank Account Closure Proof Issued by the bank confirming account closure.

9. Business Credit Report If the company used credit services like Dun Bradstreet, these must be formally canceled.

4. Tax Compliance A Critical Step

Tax handling is one of the most critical aspects of dissolving a U.S. entity. All federal and state tax filings must be completed and confirmed by the relevant authorities.

The IRS requires the submission of Form 966 Corporate Dissolution or Liquidation to report the company’s dissolution. Under the U.S. Internal Revenue Code IRC, foreign companies liquidating their U.S. subsidiaries may face withholding tax Withholding Tax. If the U.S. branch distributes assets or cash to the parent company, a 30% withholding tax may apply unless a tax treaty provides otherwise.

In March 2025, the IRS announced an increase in audits of foreign companies undergoing liquidation in the U.S., with a focus on unreported income and asset transfers. Companies must ensure that all tax filings are accurate and complete during the dissolution process.

5. Importance of Professional Service Providers

Given the legal, tax, and financial complexities involved, it is highly recommended that companies engage professional law firms, accounting firms, or corporate service agencies to assist with the dissolution process. These experts can help develop a dissolution strategy, prepare necessary documents, and ensure compliance with regulatory requirements-greatly reducing the risk of errors or legal issues.

For example, in May 2025, a Chinese tech company successfully completed the dissolution of its Silicon Valley branch within two months by hiring a reputable local law firm to handle the liquidation, thereby avoiding potential legal disputes.

6. Common Questions and Key Considerations

1. Is it necessary to cancel the Federal EIN?

Yes. After dissolution, the company should submit Form 966 to the IRS and request cancellation of the Employer Identification Number EIN.

2. Can the process be completed remotely?

Yes. A U.S. agent can be authorized via a Power of Attorney POA to handle most tasks on behalf of the company.

3. Can the company still operate in the U.S. after dissolution?

Once dissolved, the company no longer has legal status to operate in the U.S. If future operations are planned, a new company must be registered.

4. Will dissolution affect the parent company?

As long as the dissolution is conducted in compliance with U.S. laws, it should not directly affect the parent company. However, unresolved tax or debt issues may impact the parent company’s business reputation in the U.S.

Conclusion

Dissolving a U.S. branch is a complex but manageable process. With proper planning, thorough preparation, and strict adherence to legal procedures, companies can complete the dissolution smoothly and avoid potential legal and tax risks.

Leveraging the support of professional service providers not only enhances efficiency but also ensures full compliance. As Sino-U.S. business interactions continue to deepen, understanding and mastering the U.S. company dissolution process will become an essential part of international business knowledge for more Chinese enterprises.