CoSocius began trading in April 2014 and is jointly owned by Cheshire East and Cheshire West & Chester councils.
The firm blamed a "changing environment" for the decision.
Former Cheshire West council leader Mike Jones called the firm's performance "very disappointing" and "had not delivered what we expected".
In its first 11 months, CoSocius had operating losses of Â£800,000, added to a pension deficit of Â£8.5m.
More than 300 council staff employed by the jointly-owned company will now be brought back in-house.
Cosocius was established as "an innovative, sustainable and highly competitive business able to trade profitably with other organisations".
It was hoped the arrangement would generate savings of Â£5m over the first five years of operation, by bidding for contracts with other public and private bodies.
Managing director Dave Hudson said "CoSocius has made progress in a number of areas and contributed to the success of other areas of both councils, however the changing environment meant that many aspects of the company's original agreed business plan needed revisiting."
Cheshire East Council Labour spokesman Sam Corcoran criticised the project for "exposing council services to the disruption and expense of structural changes that are reversed a few years later."
The company will cease trading in April 2016.
A company set up to provide IT and HR services for councils in Cheshire is to be wound up after making huge losses.