Failing to Legally Close Your New Jersey Business Can Lead to Liability

Failing to Legally Close Your New Jersey Business Can Lead to Liability

When you decide it’s time to close a New Jersey business, you can’t simply close the doors...

When you decide it’s time to close a New Jersey business, you can’t simply close the doors. Just like when you opened your business, there is a legal process you must complete to ensure that you and your business don’t face unintended liability.

The State of New Jersey requires owners to take certain steps to remove their business from the state’s tax and public records. The specific process depends on the structure of your business. The terminology is also different — corporations and limited liability companies (LLC) dissolve, while Limited Partnerships (LPs) and Limited Liability Partnerships (LLPs) cancel. 

Dissolving a New Jersey Corporation

The dissolution process for a New Jersey corporation is the most complex. The New Jersey Department of the Treasury requires a multi-step process that is intended to not only ensure that creditors are put on notice that the corporation can no longer incur business debts, but also to protect business owners from incurring any future legal liability.

Every corporation subject to the New Jersey Corporation Business Tax Act must submit tax returns, regardless of whether it has discontinued business or distributed assets in liquidation. In addition, corporations remain subject to at least the annual minimum tax of $500 until legally dissolved.

While dissolving a New Jersey for-profit corporation requires a number of forms, the process can largely be completed online. The exception is the tax clearance certificate, which must be provided by the Division of Taxation.

As detailed by the NJ Department of the Treasury, the forms and payments to be submitted for dissolution are:

• Certificate of Dissolution: The type of form required depends on whether the corporation is dissolved without a meeting of the shareholders (Form C-159D) or pursuant to action by the board and with a meeting of the shareholders (Form C-159S)
• Estimated Summary Tax Return (A-5052-TC), with a separate payment for any taxes due. Payment may be made by check.
• Request for Tax Clearance Certificate (Form A-5088-TC)
• Payment of all fees: $120.00. This includes the $ 95.00 dissolution fee and the $ 25.00 tax clearance certificate application fee. Payment may be made by either check or credit card. Checks are payable to: Treasurer, State of New Jersey.

The dissolution is considered effective as of the date the Division of Revenue receives the properly completed and executed articles of dissolution, payment of all fees, and notice of Tax Clearance from the Division of Taxation. All business tax liabilities for the corporation will terminate as of the date the request for dissolution is received and accepted by the Division of Revenue.

Failing to Properly Close Your Business Can Result in Liability

Failing to properly close your business can lead to significant liability.  For instance, if a corporation is not formally dissolved, third parties may continue to sue it as though it is still operational.

Businesses also continue to incur tax obligations until they are formally dissolved. In New Jersey, the failure to dissolve the corporation when the corporation has ceased doing business will result in the legal requirement to continue to file Corporation Business Tax (CBT) returns and pay the minimum CBT tax. 

If dissolution procedures are not completed, and full payment of the outstanding liability is not received, the New Jersey Treasury’s Division of Taxation will pursue further collection action. If the tax liability is still not resolved, a Certificate of Debt will be filed in the New Jersey Superior Court against the corporation and any responsible officers. A 10.7 percent Cost of Collection fee is added to the docketed judgment amount and becomes part of the outstanding debt.

Corporate executives may also be held liable for unpaid tax liabilities. Under New Jersey law, any officer or director of any corporation who distributes any assets in dissolution or liquidation to the stockholders without having first paid all corporation franchise taxes, fees, penalties and interest can be personally liable for said unpaid taxes, fees, penalties and interest. 

Working with Experienced Professionals to Close Your Business

Because corporate dissolution can be paperwork intensive and time-consuming, many corporations seek the assistance of experienced professionals, such as accountants and business lawyers, who are familiar with the process. This helps ensure that all of the required steps are completed to officially dissolve the corporation and avoid any unforeseen future liability. Additionally, it is important to recognize that filing dissolution documentation with the state of New Jersey is just one step of legally closing your business. Other important issues to address may include liquidating your assets, terminating your lease and/or selling your commercial property, resolving outstanding liabilities, cancelling contracts, and notifying customers, employees, vendors, and other business partners that you plan to close.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Thomas Herndon, Jr., or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.