For some corporations, a time comes when the people who own and run things voluntarily decide to close the business. If you’ve reached that point with your New Jersey corporation, you’ll need to take care of multiple tasks—including what is called dissolving and winding up your business.
Your corporation is registered with the State of New Jersey. Officially ending its existence as a state-registered business entity, and putting it beyond the reach of creditors and other claimants, begins with a formal process called “dissolution.” While a corporation may be involuntarily dissolved through a court decree, or for administrative reasons such as failing to file annual reports, this article covers voluntary dissolution by a corporation’s shareholders. Also, while there are streamlined procedures for dissolving corporations that have not yet issued stock, have not started doing business, and have no debts, as well as special procedures for dissolving corporations with no assets, none of those procedures are covered in this article.
New Jersey’s Business Corporation Act (“BCA”) provides for three main methods for shareholders to voluntarily dissolve a corporation:
Under the first method, your board of directors must adopt a resolution to dissolve and submit it to the shareholders. The shareholders must then vote on the resolution at a formal shareholder meeting. Keep in mind that you are required to give at least 10 days advance notice to each shareholder, whether or not entitled to vote, of the proposed meeting on dissolution. Then, unless your certificate of incorporation requires a greater vote, a majority of the votes at the meeting must approve the dissolution. (If there are several voting groups, the majority-vote rule applies to each voting group.) Some corporations organized prior to the effective date of the current BCA (January 1, 1969) may be subject to a rule requiring a two-thirds majority vote rather than a simple majority. If you use this method, make sure to properly record both the board’s resolution and the shareholders’ votes.
Under the second method, you need to obtain written consent from all voting shareholders. More specifically, if all shareholders otherwise entitled to vote on dissolution sign the appropriate certificate of dissolution, no meeting of shareholders is necessary. However, if you use this method, you must give notice of dissolution to all shareholders not entitled to vote on the matter at least 10 days in advance of filing the certificate of dissolution with the Secretary of State. For small businesses where the directors are the only shareholders, unanimous written consent of voting shareholders often will be a more efficient way to dissolve than a formal shareholder vote.
Finally, the BCA allows for the possibility that a certificate of incorporation provides for dissolution initiated by one or more shareholders upon the occurrence of a specific event. You should review your certificate of incorporation for any such provision.
Note that dissolution, alone, does not:
New Jersey requires you to obtain tax clearance before you can dissolve your corporation. You must file a Department of the Treasury (“DOT”) Form A-5088-TC (Application for Tax Clearance Certificate) with the DOT’s Division of Taxation. There is a $25 fee to file the application. You can download a copy of the form from the DOT website. A copy of the form will also be made available to you if you use the state’s online business filings system, although you must still print out the form and mail it in. Be aware that it can take several months for a corporation to receive a tax clearance certificate from the DOT.
You must also include a final estimated tax return with your certificate of dissolution. Use DOT Form A-5052-TC (Estimated Summary Tax Return) for this purpose. (Or, if you are subject to the Alternative Minimum Assessment, use Form CBT-100.)
For federal tax purposes, check the “final return” box on your IRS Form 1120 (for traditional corporations) or IRS Form 1120S (for S corporations).
After dissolving your corporation, you must file a certificate of dissolution with the Division of Revenue (“DOR”). You must be in good standing with the state before you can dissolve. This means that you must be current not only with your taxes but also with your annual reports. The specific information required on your certificate of dissolution will vary depending on the method you used to dissolve your corporation.
Dissolution by shareholder vote. Your certificate of dissolution must contain:
The DOR has an appropriate certificate of dissolution form, Form C-159S, available for download.
Dissolution without a shareholder meeting. If you dissolve your corporation by obtaining written consent of all shareholders entitled to vote, your certificate of dissolution must contain:
A certificate of dissolution form appropriate for this kind of dissolution, Form C-159D, is available for download from the DOR website.
Dissolution based on provisions in the certificate of incorporation. For dissolutions occurring on this basis, your certificate of dissolution must contain:
The certificate of dissolution must be signed by one or more shareholders as specified in your certificate of incorporation. There is no DOR form available for this type of certificate of dissolution. Therefore, it is particularly advisable with this type of certificate to get assistance from a lawyer.
You can file your certificate of dissolution by mail, in person, or online. When filing by mail or in person, you should include a cover letter containing various information about who is filing and what method of payment is being used (check with the DOR for more details). Also, as mentioned above, you must include your request for tax clearance certificate (DOT Form A-5088-TC) and your estimated final tax return (DOT Form A-5052-TC).
There is a $120 fee to file your dissolution package. This includes the $25 fee to request tax clearance. Filings submitted by mail usually will be processed in three to ten business days. In-person filings can receive expedited processing. For information on processing time for online filings, check with the DOR.
Be aware that your business name will become available for use by others one year after dissolution.
Following dissolution, your corporation continues to exist only for the purpose of taking care of certain final matters that, collectively, are known as “winding up” the company. It may be appropriate to designate one or more officers and/or directors to handle the winding up.
Under the BCA, key winding up tasks include:
Be aware that your corporation’s first obligation is to discharge liabilities. This includes paying all business taxes and creditors. Only then may the corporation distribute remaining assets, if any, to shareholders.
One other key task is giving notice to creditors and other claimants of your corporation’s dissolution. Giving notice is optional. However, doing so will help limit your liability and also allow you to more safely make final distributions to shareholders.
Under the BCA, at any time after dissolution, you give notice to all creditors by publishing a notice for three consecutive weeks in a newspaper of general circulation. In addition, on or before the date of first publication in a newspaper, you must send a written notice directly to each known claimant. Generally speaking, claimants have at least six months after the date of newspaper publication to bring a claim.
Many of the specific rules for giving notice and responding to claims can be hard to understand. Therefore, if you choose to give claimants notice, you should strongly consider getting assistance from a business attorney.
An S corporation is a corporation that has filed an election with the IRS to have business income, losses, deductions, and credits pass through to individual shareholders for federal tax purposes. Only the shareholders, and not the corporation, pay federal taxes on income from the business. Potential tax issues aside, the process for dissolving and winding up an S corporation is generally the same as dissolving and winding up a traditional corporation.
Is your corporation registered or qualified to do business in other states? If so, you must file separate forms to terminate your right to conduct business in those states. Depending on the states involved, the form might be called a termination of registration, certificate of termination of existence, application of withdrawal, or certificate of surrender of right to transact business. Failure to file the additional termination forms means you’ll continue to be liable for annual report fees and minimum business taxes.
You can find additional information, such as forms, mailing addresses, filing fees, and instructions on the online filing system, on the DOT website, the DOR website, and the DOT’s Division of Taxation website.
For information on dissolving and winding up corporations formed in other states, check Nolo’s 50-state series on dissolving corporations.
Final Note: Dissolving and winding up your corporation is only one piece of the process of closing your business. For further, general guidance on many of the other steps involved, check Nolo’s 20-point checklist for closing a business and the Nolo article on what you need to know about closing a business.