Smith + Schwartzstein
Located In Morristown, NJ and New York, NY

The consequences of failing to dissolve a business in New Jersey

Businesses close for a myriad of reasons. When a New Jersey business decides to cease operation, it is essential to formally dissolve the business with the Department of the Treasury. Failure to take formal dissolution steps invites future liabilities for business taxes and penalties for the business and any shareholders.

Dissolution of an LLC or a corporation

The purpose of a formal dissolution is to remove the business entity from tax and public records. LLCs formed prior to March 20, 2013 only need to file a cancellation form with the New Jersey Department of the Treasury and pay any outstanding taxes. For LLCs formed after March 20, 2013 the process is a bit more involved. These LLCs must dissolve and terminate, which they can complete concurrently. These LLCs must also complete and file a tax clearance certificate along with a certificate of dissolution. Payment of any outstanding taxes is a prerequisite and the process will be effective upon payment of all fees and outstanding balances.

The process of dissolving a corporation the process bears similarity to that of terminating an LLC. The business needs to submit a tax clearance certificate and certificate of dissolution to the Division of Revenue. The business must pay all taxes owed and fees as a prerequisite. Business tax eligibilities cease once the Division of Revenue receives and accepts the dissolution articles.

Potential consequences

Failure to complete the dissolution procedures or pay outstanding liabilities will result in further collection action and fines. The Division of Revenue forwards cases requiring further action to the Special Procedures Branch, Judgement Section. The Judgement Section issues demand and payment letters to the business requesting funds. For corporations, responsible corporate officers may be held jointly liable for unpaid taxes. Additional costs for delinquent accounts include a 10.7 percent collection fee, a five percent late fee and a monthly late filing penalty of $100 per month. Also, corporations remain subject to the annual corporate business tax until dissolved which is a minimum of $500.

Given the significant penalties and continued liabilities at stake, businesses should take the appropriate steps to dissolve. Following the formal dissolution process and winding up financial matters are key to successful completion.

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