What Is an Inactive Corporation?

By Anna Assad

An inactive corporation legally exists but has no business activity. A corporation is created by filing the necessary forms with the state business department and the IRS. Once a corporation is officially registered with the state and federal government, it's a legal business and remains so until the corporation is formally dissolved. A corporation that is inactive but not dissolved still has tax and state reporting obligations.

State Reporting

An inactive corporation might still be subject to the state business department's reporting requirements and earn penalties for not complying. Laws vary by state. For example, in New Mexico, an inactive profit corporation must file a corporate report showing its business activity with the state every other year, whereas an inactive nonprofit corporation is required to file such a report each year. New Mexico charges a penalty for a late report, which is $200 at the time of publication. Kentucky, however, requires a report from all registered corporations by the last day of June every year. If a corporation fails to file the report, it may be subject to administrative dissolution by the Kentucky Secretary of State's office and will be in bad standing with the office.

State Taxes

A corporation with no activity for the year might still have to pay taxes to the state. For example, in North Carolina, an inactive corporation has to file a return each year and pay a franchise tax of $35 until the corporation is formally dissolved; in California, the minimum franchise tax is $800 a year. If the corporation's owners don't file a return because the corporation is inactive, tax penalties for late filling and not paying any outstanding taxes may apply. Penalties for not filing are usually charged for each month the return is late.

Ready to incorporate your business? Get Started Now

Federal Taxes

The IRS requires a federal tax return from an existing corporation, even if the business had no activity for the year. Penalties for failing to file or pay taxes won't apply if the corporation doesn't owe taxes, unless it's an S corporation. The IRS has a special failure-to-file penalty for S corporations that miss the tax year filing deadline for returns. The penalty is $85 multiplied by the number of shareholders the S corporation has.


An inactive corporation may formally dissolve to avoid penalties for not meeting state reporting requirements or filling tax returns. Dissolution procedures vary by state but commonly require the corporation to settle its business affairs, pay any state taxes due and file final reports and dissolution forms. The forms a corporation must submit to the IRS when ending a corporation depend on the corporation type. The corporation must deposit any employee taxes, file a final return and pay its federal taxes in full. A corporation can't cancel its Employer Identification Number, but the IRS can close the related business account if the corporation is dissolving.

Ready to incorporate your business? Get Started Now
The Difference Between Delinquent & Inactive Corporations


Related articles

How to Close Down a C-Corp

A corporation, also referred to as a C corp, is an independent legal entity formed when an incorporator files the articles of incorporation, or similar document, with the state. Corporations typically have perpetual existence, which means they continue to exist until they are officially dissolved. While the exact procedure for closing a C corp can vary among states, some of the steps involved in closing a corporation are the same across all states.

What Happens to Your EIN When Dissolving a Corporation?

When you formed your corporation, you applied for an Employer Identification Number (EIN) from the Internal Revenue Service. This number uniquely identifies your business, and it is used on federal tax filings and all other correspondence with the IRS. State government agencies also typically require the use of the EIN on tax filings and correspondence. If you are thinking about winding down the business of your corporation, you might wonder what will happen to your EIN and whether it terminates when your business is dissolved.

Terminating a New York S Corp

A corporation is considered an independent legal entity under New York state law. S corporation status is an IRS tax classification. Once of the consequences of corporate independence is that if you want to dissolve a corporation, you can't just lock the doors and walk away. Before New York will consider your corporation legally dissolved, you must satisfy state authorities that certain formalities have been completed. You must also notify the IRS.

LLCs, Corporations, Patents, Attorney Help

Related articles

Can a Corporation Stay Inactive or Does It Have to Be Dissolved?

In most states, corporations have an obligation to remain in good standing and avoid penalties, whether the company is ...

Can I Reinstate an Inactive Corporation?

A corporation is an independent entity that exists with a legal life of its own. Every corporation is subject to the ...

How to Dissolve a Corporation in New York With No Activity

Just as you must comply with filing regulations to form a corporation in New York, you must comply with final reporting ...

How to Close a Corporation With the IRS

A corporation is a business entity that is legally distinct from its shareholders. This means that, in addition to the ...

Browse by category
Ready to Begin? GET STARTED