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If I remember correctly, they can destroy them if there are more than 8 factories in the same state and some of them are closed. There should be a check off button to toggle the option on and off.
 
I've never heard of this button; only Laissez Faire can have Capitalists destroy factories. Otherwise, I let them build and upgrade and I just close when it gets to 8 factories in a state.
 
In your politics tab, I think..if you hover over the various parties and economic policy, you will see who is in charge of building destroying factories. But yeah, only LF who can destroy from memory.