Dissolution of a New Jersey Corporation – An Introduction
The dissolution of a New Jersey corporation is the process through which a New Jersey corporation winds-up its affairs, collects and liquidates its assets and addresses the payment of its liabilities. In short, it is the end of the life-cycle of a New Jersey corporation and puts the corporation to rest. Questions or comments? Chat with Me.
The dissolution of a New Jersey corporation is typically addressed when a business ceases operations, such as when it is no longer engaged in active business or has sold its business to a third party. Sometimes a New Jersey corporation is dissolved before it commences doing business, and other times it can be dissolved judicially in certain instances such as in cases of corporate deadlock or dissension.
Procedures for Dissolving a New Jersey Corporation
New Jersey law has specific procedures for the dissolution of a New Jersey corporation (see N.J.S. 14A:12-1 et seq.), and following these procedures can help decrease risk for the corporation and its officers, directors and shareholders.
Indeed, not following the dissolution procedures can expose the corporation’s constituents to liability that they would not have otherwise had under New Jersey law. Further, New Jersey’s dissolution procedures provide mechanisms which can limit the ability of creditors and other third parties from making claims relating to the New Jersey corporation’s prior business activities.
Dissolution and the New Jersey Division of Taxation
In nearly all cases, dissolution requires obtaining a tax clearance certificate from the State of New Jersey’s Division of Taxation. Indeed, the dissolution process itself typically involves the corporation’s counsel and accountant working together to prepare the appropriate corporate and tax-related documents and submitting them together (on paper or electronically) to kick off the dissolution review process by the State of New Jersey.
Effect of Dissolving a New Jersey Corporation
Note that dissolution does not mean a corporation must cease all activities. Instead, the New Jersey corporation in dissolution continues its corporate existence but may not carry on any business other than for the purpose of winding up its affairs.
This includes collecting its assets, conveying its assets for cash or deferred payments (which may be secured), paying, satisfying or discharging its debts and other liabilities and doing all other things required to liquidate its business and affairs. In some cases, subject to obtaining tax clearance, the dissolution process can be uncomplicated and proceed expeditiously (subject to how large the State of New Jersey’s current backlog is).
In other instances, where the corporation has significant liabilities or assets, the process may take more time and require legal and tax planning. It is important, as part of the dissolution process, that appropriate records and documents are prepared and maintained, including assignments, conveyances, settlements, terminations and other documents that evidence the disposition and satisfaction of corporate assets and liabilities.
Optional procedures under New Jersey’s dissolution laws can, if followed, be used to bar claims by a corporation’s creditors. However, not all dissolving corporations elect to use these procedures for cost or other reasons.
The dissolution of a New Jersey corporation can put a New Jersey corporation to rest and decrease risk for corporate constituents if handled properly. To prepare for the process, a corporation’s principals should evaluate all existing assets and liabilities of the corporation and the potential impact dissolution may have on the corporation’s rights and obligations under its agreements and applicable law.
A corporation’s principals should work with the corporation’s accountant, insurance advisor and a New Jersey business lawyer on the dissolution of a New Jersey corporation.
Copyright 2018, Geoffrey G. Gussis, Esq. All Rights Reserved. Learn more about me, the legal services I provide, and other articles I have written. Contact: firstname.lastname@example.org or (732) 898-0549. Licensed to practice in New Jersey and New York. Chat with Me.