Closing your New Jersey limited liability company (LLC) will involve a variety of tasks. Among the most important are what is known as dissolving and winding up the business.
Important Note: New Jersey updated its LLC Act effective March 18, 2013. This article is based on the rules in the 2013 Act. Given certain discrepancies in information available from the State of New Jersey—see the section below on Required Filings—you are advised not to rely solely on this article, but rather to also consult with a local business attorney.
Your LLC 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 begins with a formal process called dissolution. While an LLC may be involuntarily dissolved for administrative reasons, such as failure to file annual reports or pay state administrative fees, or through a court order, this article covers a voluntary dissolution by the LLC members.
In order to voluntarily dissolve your LLC, you first should look to your operating agreement. In most cases, it will contain a section with rules for how to dissolve the company. Typically the rules will require a vote of the LLC members on a resolution to dissolve and a requirement that some percentage of members vote in favor of the resolution. Make sure you follow any specific procedural requirements that may be part of the dissolution rules, such as setting a specific time to meet and vote and giving advance notice to all members regarding the meeting. Make sure to record the decision to approve the resolution in the official minutes of the dissolution meeting or on a written consent form.
Regardless of whether your operating agreement contains dissolution provisions, New Jersey's LLC Act provides an alternative method to voluntarily dissolve an LLC: by consent of all LLC members.
For either approach to dissolution of your LLC—relying on rules in operating agreement or on unanimous member consent—make sure you record the decision to approve the dissolution in the official minutes of the dissolution meeting or on a written consent form.
In order to legally dissolve your LLC, it must be in good standing with the Division of Revenue (DOR).
Following the vote to dissolve your LLC, the company continues to exist for the purpose of taking care of certain final matters that collectively are known as winding up the company. You will probably designate one or more LLC members or managers to handle the winding up.
Under New Jersey's LLC Act, key winding up tasks may include:
Two other required winding-up tasks under New Jersey's new LLC Act are filing a certificate of dissolution and filing a statement of termination.
LLC assets must first be used to pay creditors, including LLC members who are creditors. Next, LLC members should receive distributions based on previous, unreturned contributions to the company. If there are insufficient assets to fully make these member distributions, then the available assets should be distributed in proportion to each member's relative contributions. Finally, if any assets still remain, current and dissociated members should—with certain possible exceptions—receive distributions in equal shares. (Unlike many other states, New Jersey's LLC Act does not explicitly allow for the possibility that an LLC operating agreement may provide alternative rules for member distributions.)
One other key task is giving notice to creditors and other claimants of your LLC's dissolution. Giving notice is optional. However, giving notice will help limit your liability and also allow you to more safely make final distributions to members.
Under New Jersey law, one way to give notice is by sending a written document directly to known claimants following dissolution of the LLC. Proper written notice must:
You may also give notice to other (unknown) claimants by publishing in a newspaper. As with sending direct notice to individual claimants, there are specific rules for giving notice through publication. Generally speaking, claimants have five years after the date of newspaper publication to bring a claim.
There can be certain advantages to giving direct written notice to individual claimants. In any case, if you choose to give claimants notice of your LLC's dissolution, you should strongly consider getting assistance from a business attorney.
Certificate of Dissolution. Under the laws that came into effect in March 2013, you are required to file a certificate of dissolution, presumably with the DOR, as part of the process of winding up your LLC. However, while certificate of dissolution forms for corporations are available for download, no information is available online from the DOR at this time regarding a certificate of dissolution for LLCs. A different document, a certificate of cancellation for LLCs, is available, but is not mentioned in the current LLC Act.
Statement of Termination. The new LLC laws also state, without elaboration, that you are required to file a statement of termination. As with the certificate of dissolution, no information is available online from the DOR regarding the statement of termination.
The DOR recently posted online guidance for dissolving, cancelling, or withdrawing a New Jersey business. The guidance states that "Technically . . . LLCs (formed prior to 3/20/2013) will cancel" while "LLCs formed on or after 3/20/2013 are required to dissolve and terminate." New Jersey's revised LLC Act, however, makes no distinction regarding dissolution of LLCs formed before 3/20/2013 and LLCs formed on or after 3/20/2013. Therefore, you are advised to:
New Jersey does not require that you obtain tax clearance before dissolving your LLC. However, as mentioned above, your LLC must be in good standing with the DOR before it can dissolve.
For federal tax purposes, check the "final return" box on your IRS Form 1065 (if your LLC is classified as a partnership for tax purposes) or IRS Form 1120 (if your LLC is classified as a corporation for tax purposes).
Is your LLC 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 limited additional information regarding dissolving your LLC on the Division of Revenue website.
For information on dissolving and winding up LLCs formed in other states, check Nolo's 50-state series on dissolving LLCs.
Dissolving and winding up your LLC is only one part 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.