What is an LLC?
A limited liability company (LLC) is a type of business structure that is legally seen as an entity separate from it’s business owners in the state that it was established in. The owners are not personally liable for the company's debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
What is Dissolving an LLC?
When you submit the articles of organization to the secretary of state in New Jersey, your LLC becomes officially registered with the state. To end your LLC legally, you must go through a process called dissolution. Business members may consider dissolution once the LLC completes its purpose or when it stops being viable economically. The members may also agree to dissolve the LLC if they cannot come to an agreement regarding fundamental decisions concerning the LLC's business operations.
There are several steps you need to take when closing a business. It's essential to take careful action to ensure proper compliance with state regulations and protect yourself from future liabilities. Following the proper procedures can help you move forward quickly when winding down your business. This will protect you from being responsible for paying annual fees, filing annual reports, and paying business taxes. The following describes how to dissolve an LLC business structure. The dissolution process is state-specific, so look into your state's requirements. This article will cover the dissolution process for an LLC in New Jersey.
What are some reasons for Dissolving an LLC?
There are many reasons for dissolving an LLC. This can include that the company is going out of business, is not paying its taxes, or following state regulations. In some cases, LLCs are created to fulfill a purpose. Once the goals are completed, there may be no reason to continue the LLC. Members may also disagree about the direction of the business, what subsequent actions to take, or how to disburse profits. Another reason is if a single person formed the LLC, the individual's death or retirement might signal the organization's end. Finally, if there are decreasing demand or liability concerns for the products sold, you may decide to dissolve the business as running the company no longer becomes profitable.
In New Jersey, the laws for when to dissolve your LLC include the following:
- The calendar date you set in your dissolved operating agreement has passed.
- If no termination date is specified, then 30 years after your LLC was formed.
- Any event outlined requiring dissolution in the operating agreement occurs.
- Death, retirement, bankruptcy, or resignation of any member unless all other members agree to continue the LLC.
- Court mandates dissolution for whatever reason
How to dissolve an LLC?
There are some basic steps to dissolving an LLC in New Jersey.
Step 1: Follow your company’s operating agreement.
Review your company’s operating agreement. Most likely, it will contain information on how to dissolve the company. Typically this includes a vote amongst the members on whether to dissolve your company. If so, ensure you follow the requirements as part of the dissolution rules, including setting up the meeting to vote and providing notice to all members.
If it is not outlined in these documents, follow the procedures in the New Jersey LLC laws.
Step 2: Winding up
After completion of the vote for dissolution, several final tasks need to be completed. This step is called winding-up and means closing the operations of a business, selling assets, paying creditors, and distributing assets to members. One or more LLC members may be designated to take charge of this step.
Under New Jersey’s LLC Act, several important winding up tasks can include the following:
- Finalizing LLC debts, obligations, and other LLC liabilities
- Settling any LLC activities
- Distributing company assets
- Defending and prosecuting any civil, criminal, and administrative actions
- Transfer of any LLC property
- Resolving any disputes
Note that your company’s assets must first be used to pay off any creditors. The remaining available assets are then distributed to business owners in proportion to their distributive shares.
Step 3: File certificate of dissolution
Under New Jersey’s new LLC Act, the next steps required when dissolving an LLC include submitting a certificate of dissolution and sending a statement of termination. In the certificate of dissolution, you will include the name of your LLC, business ID number, whether the entity has finalized all the winding up procedures, and an authorized person’s signature that attests that all affairs have been completed. The cost of submitting this form to the Department of Revenue costs $125. You can find the certificate to fill out on the New Jersey Treasury website.
Step 4: File the final tax return
Certain states require LLC owners to obtain a tax clearance, consent to dissolution, or verify good standing from the state's tax agency. You may be required to file your last tax return before applying for dissolution. Make sure to indicate that this will be your company's final tax return by checking the box on IRS Form 1065. You can submit a request electronically or via mail to receive the clearance from your state's tax agency. If you are up to date on filing tax returns, you will receive the certificate that declares you have no tax liability.
Note that in New Jersey, you do not need to submit a tax clearance certificate to dissolve your LLC. However, it is still good practice to submit your final tax return to avoid any penalties.
Other necessary actions:
Other steps needed when properly closing a business include letting go of employees and settling severance packages, paying final payroll taxes, negotiating contract cancellations, and canceling business licenses and permits.
Finally, you'll have to close your business bank accounts, and your Federal Employer Identification Number and state tax identification number will be inactivated.
If your business operates in other states, you will need to file separate forms to terminate your right to conduct business in each state. Otherwise, you will continue to be liable for annual report fees and minimum business taxes. In other states, the form you may need to file may also be referred to as termination of registration, certificate of surrender, certificate of termination of existence, or application of withdrawal.
How long does it take to dissolve an LLC?
Once the Department of Revenue receives the certificate of dissolution, it generally takes about 1-2 weeks to process if the application is received by mail. If you submitted the form online, it can process immediately. However, to officially be closed, your final tax clearance must be received from the Division of Taxation which can take up to several months.
Can you reopen your LLC after it’s dissolved?
After your LLC dissolves, you have to follow submit several documents to reinstate your New Jersey LLC. These include the following:
- Reinstatement Application
- Submit any delinquent annual reports and fees
- Fee of $75
- Any amendments if there are changes to your LLC nme or registered agent
You will need to have your entity ID number on hand and the formation date of your LLC when you submit your reinstatement application.
Are you still liable for anything?
If you fail to file a tax return and pay taxes, you must contact the Department of Revenue for any due taxes, penalties, or interest. You also may be liable for any debts left unpaid.