Think of a limited liability company (LLC) as a hybrid type of business entity, combining the limited liability of a corporation with the set-up ease of a solo practice. Starting up a New Jersey LLC takes very little time and little money; dissolving one requires jumping through a few more hoops.
LLCs in New Jersey
The LLC is an extremely popular entity structure for New Jersey businesses. It offers protection from personal liability in the same way that corporations do, and it can be started up rapidly without paying for legal advice. There may be tax advantages as well, and administering the business is straight forward.
Recall that in a New Jersey sole proprietorship or partnership, the business owner or owners may be have to pay company obligations and debts out of their own pockets if the business doesn't have enough assets. This is avoided in an LLC since it is, legally, a separate structure that protects the owner’s personal assets.
Incorporation of an LLC in the State of New Jersey
To start a New Jersey LLC, all an individual must do is:
- Choose a business name that nobody else is using.
- Appoint an agent for service of process in the state.
- File the New Business Entity Form with the New Jersey Division of Revenue & Enterprise Services.
- Pay the filing fee, around $125.
Dissolving an LLC in New Jersey
Despite the advantages of an LLC, it isn't appropriate for every business. A business may evolve to such an extent that an LLC is no longer a good choice, or the owner may simply decide to call it quits. In either case, it is important to officially dissolve the LLC when the business ends.
If the business owners simply walk away, they can be hit with tax liabilities and penalties. Note that while private obligations will not usually survive a dissolution if the LLC has no assets, dissolution does not negate outstanding tax obligations.
To dissolve an LLC in New Jersey, three general steps must be followed:
- Follow the dissolution rules and procedures as set out in the LLC operating agreement.
- Wrap up business tax matters.
- File the Articles of Dissolution.
Each of these steps requires a bit of explanation.
Operating Agreement Dissolution Rules
The operating agreement of a New Jersey LLC is prepared at the beginning of the LLC's existence and contains rules on operating the company. It also sets out rules for how to dissolve the company. The owners need to consult and follow those rules to properly dissolve the LLC.
While operating agreement dissolution rules differ, they will typically require a vote of the LLC members on a resolution to dissolve. If there is only one member, this vote can be waived. If there are additional members, the agreement will specify the percentage of members who must vote in favor of the resolution to dissolve the LLC.
The LLC's rules must be followed. For example, if the agreement specifies a specific time to meet and vote or requires giving a set amount of advance notice regarding the meeting, these procedural rules must be followed.
Dissolution Process After Vote
After a dissolution vote, the members choose a formal date for dissolution, notify the business' creditors and settle its debts, then divide the remaining LLC assets among the members. The decision to approve the resolution to dissolve can be recorded in the official minutes of the dissolution meeting or, alternatively, on a written consent form.
Winding Up Business Tax Obligations
Fulfill any outstanding annual report and tax return obligations that the LLC has with the New Jersey Division of Revenue before moving forward with the dissolution. A company must be in good standing with the state Revenue Division before it is permitted to dissolve.
Many of these obligations, including annual reporting requirements, must be completed before the application for cancellation is submitted. These are submitted electronically to the Revenue Division's website together with the appropriate fees.
If Tax Liabilities Not Settled
All business tax obligations for the LLC terminate as of the date the dissolution request is filed. However, back taxes are still owing, and liabilities will apply and be subject to the Division of Taxation's review.
If the LLC does not resolve prior tax liabilities, the case will be forwarded to the Special Procedures Branch, Judgment Section, for further collection action. Corporate officers can be held personally liable if there is outstanding trust liability.
If tax liability is not resolved, the Division of Taxation Special Procedures Branch will file a Certificate of Debt in the New Jersey Superior Court against the LLC and any responsible officers. Fees covering the cost of the debt collection will be added to the tax amount.
File the Certificate of Cancellation
Download and print a Certificate of Cancellation form (Form L-109) from the New Jersey Division of Revenue website. Fill it out with the appropriate information, including:
- LLC name.
- Employer Identification Number or LLC's 10-digit business entity number, issued by New Jersey when the organization was first established.
- Date of formation.
- Effective date of dissolution, no earlier than the date of the filing of the cancellation.
- Reason for dissolving the LLC.
Someone with authority to do so must sign the document and swear that they have the authority to do so. They must then submit the document online or by mail, along with the required fee, which is generally between $100 and $150.
Tax Clearance Certificate Application
The final step to dissolve a New Jersey LLC is to submit a tax clearance request application if the LLC is a for-profit company. The completion of dissolution notice will not be feasible until the Division of Taxation has issued this certificate, which clears the organization from tax liability going forward.
Note that the dissolution of a New Jersey LLC is effective only after the New Jersey Division of Revenue receives and approves the Articles of Dissolution and the Notice of Tax Clearance that was provided by the New Jersey Division of Taxation.
The business’ tax and reporting requirements will also end at this point. As previously described, however, any taxes adjudged due and owing before the dissolution must be paid before the final date of dissolution.
- New Jersey Division of Revenue: Instructions for Form L-109 Certificate of Cancellation -- Domestic and Foreign Limited Liability Companies
- New Jersey Division of Taxation: Consequences of Not Dissolving a Corporation
- Starting a Business.com: How to Form an LLC in New Jersey
- How to Start an LLC: New Jersey LLC Dissolution
- Upcounsel: How to Dissolve an LLC in New Jersey
Teo Spengler earned a J.D. from U.C. Berkeley's Boalt Hall. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an M.A. and an M.F.A in creative writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.