When the Corporate Dissolution is Effective in NJ

A dissolution shall be considered filed and effective as of the date the Division of Revenue receives the properly completed and executed Articles of Dissolution, payment of all fees, and a Notice of Tax Clearance issued by the New Jersey Division of Taxation. All business tax eligibilities for the corporation will cease as of the date the request for dissolution is received and accepted by the Division of Revenue. However, prior tax liabilities will still apply and be subject to the Division of Taxation’s review. Please note that if the corporation does not resolve prior tax liabilities due the Division of Taxation and a Tax Clearance Certificate is not issued, the business tax eligibilities will be reversed as if there was no lapse in the Corporation’s non-dissolved status.

Penalties if Corporation Dissolution Procedures Are Not Followed Properly

If dissolution procedures are not properly completed, and full payment of the outstanding liability is not received, the matter will be forwarded to the Special Procedures Branch, Judgment Section, for further collection action. Notice and Demand for Payment letters by the Division of Revenue will be sent to the Corporation and, in the event there is outstanding trust fund liability (for example, unpaid sales or employee withholding taxes), to its corporate officers. Responsible corporate officers (as defined by applicable statutes) will be held jointly liable with the corporation for any unpaid trust fund taxes. If the tax liability is not resolved, a Certificate of Debt will be filed in the New Jersey Superior Court against the corporation and any responsible officers. A 10% Cost of Collection fee is added to the docketed judgment amount and becomes part of the outstanding debt. A Notification of Judgment letter is thereafter sent to the corporation and responsible officers who are covered by the docketed judgment. Also, in accordance with N.J.S.A. 14A:6-12, N.J.S.A. 54:50-18 and other applicable provisions, any officer or director of any corporation who distributes or causes to be distributed any assets in dissolution or liquidation to him or herself and/or other shareholders without having first paid all corporation franchise taxes, fees, penalties and interest imposed upon said corporation, shall be personally liable for said unpaid taxes, fees, penalties and interest.

Differences For the Dissolution of an LLC in New Jersey

While the formal dissolution process as described above is required for any for-profit domestic or foreign corporation ceasing business operations in New Jersey the process is a bit less complicated for a Limited Liability Company (“LLC”) doing business in New Jersey who decides to cease operations. An LLC formed prior to March 20, 2013 may simply be canceled and terminated, effective as of the time the required cancellation/termination form is filed with the New Jersey Department of Treasury. A tax clearance certificate is not required for these LLCs as a prerequisite to be canceled/terminated, but the LLC will be required to file tax returns and pay any outstanding taxes due as a result of the LLC’s operations up to the date of its formal cancellation/termination.

Domestic LLCs formed on or after 3/20/2013 are, however, required to formally dissolve and terminate. Dissolution allows the LLC the opportunity to wind up their affairs before terminating. These LLCs also have the option to Dissolve/Terminate concurrently. In all cases, the business must be in good standing at the time the Certificate of Dissolution or Certificate of Termination is filed. The dissolution/cancellation/withdrawal status will be considered effective when all online information, payments and, in the case of for-profit corporations, tax clearance certificates have been received.

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How NJ Contractors can Benefit from Requirements Contracts

For the Contractor, a “requirements” contract can result in high volume work which permits its operations to expand, offers potentially large overall profits (even at a reduced profit margin) and can also provide the Contractor with opportunities to engage in other large scale projects which the Contractor was previously financially unqualified or otherwise unable to perform.

Benefits for Municipalities & Customers

For the municipality or other public end user, a “requirements” contract offers a wide variety of benefits, such as having a qualified contractor perform necessary repair/maintenance projects on as-needed basis without having to go through the time and expense engaging in the bidding process for each specific project. Furthermore, a requirements contract can, and often does, stipulate a unit price or prices for certain material(s) or other commodity which the Contractor is required to furnish as part of the projects it will be requested (and required) to perform over the duration of the agreement. Such an arrangement offers the municipality or other public entity some “cost certainty” for budgeting its repair/ maintenance costs during present and perhaps a number of future fiscal years.

Thus, a “requirements” contract can be a mutually beneficial arrangement to both the Contractor and public end user.

Potential Pitfalls of Requirements Contracts in NJ

However, the Contractor should be extremely careful to understand whether it will bear the entire risk of significant price fluctuations for those materials it will need to procure in order to meet its obligations under a “requirements” contract throughout its duration.

A recently decided, but unreported New Jersey Appellate Division case upheld the dismissal of a contractor’s claim for an equitable adjustment in its compensation under a road paving “requirements” contract, despite the fact that the price for procuring the asphalt material which the contractor was required to utilize for these projects had more than doubled during the term of the agreement. The Contractor had entered into a “requirements” contract to perform road paving projects on an as-needed basis for a number of municipalities who were members within a consortium over a several year period. The contract set specific unit prices for asphalt and other materials for the entire duration of the contract, regardless of how many purchase orders for road paving work were issued by one or more of the member municipalities. During the term of the contract, the Contractor’s acquisition price for asphalt more than doubled, causing the Contractor to lose substantial sums on those projects affected by this significant price escalation.

In essence, the New Jersey Appellate Division determined that the Contractor bore the entire risk of price fluctuations for asphalt throughout the duration of the parties’ arrangement, pursuant to the express terms of the contract. Therefore, despite the fact that the Contractor had sustained millions of dollars in losses by performing these projects at the unit price for asphalt agreed upon in the “requirements” contract, the Contractor was nevertheless bound to perform thereunder and was not entitled to an adjustment in its compensation from the member municipalities who had projects performed by the Contractor pursuant to the agreement.

Accordingly, if a Contractor is considering entering into a “requirements” contract of any kind, (whether with a public or private entity), it is incumbent to engage experienced legal counsel in this area of the law to negotiate terms which, at the very least, will fairly allocate the risk of significant cost fluctuations in labor and/or materials among the parties to the agreement, as well as other contractual provisions which can better assure the Contractor that its performance under a “requirements” contract will be a benefit to its business, rather than potentially putting the Contractor out of business.

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