How to Form an LLC in New Jersey
A Limited Liability Company (LLC) is a business entity that many small businesses choose as a way to organize themselves when they are just getting started. An LLC has a few advantages for small businesses but may not be appropriate for larger ventures or startups that are seeking investors. In addition, LLCs have a unique business structure that can get very technical.
You should look closely at other business entities like partnerships and S Corporations, before launching a New Jersey LLC.
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Advantages of LLCs in New Jersey:
- Limited personal liability for members for business debts and lawsuits.
- Fewer reporting and recordkeeping requirements than other kinds of entities, including corporations.
- Avoiding the double taxation—business and personal-- of corporations if taxed as a pass-through entity.
- New Jersey LLCs do not pay an annual fee or file an annual report.
Disadvantages of LLCs:
- An LLC is not a good investment vehicle for outside investors.
- LLCs and corporations pay commercial activity taxes, unlike sole proprietorships and partnerships.
- LLC owners may pay self-employment taxes.
Step-By-Step: Forming a New Jersey Limited Liability Company
With all of that, you have decided to form an LLC in New Jersey. You have your members, your business plan, and a little startup capital, and you are on your way.
Here is a step-by-step guide for how to create a fully operational New Jersey LLC.
Step I: Name Your LLC
Creating a legally proper LLC name and then protecting it is one of the first actions in LLC formation. This is a process that can be complex and time-consuming, but the LLC needs to operate legally in New Jersey.
The first thing you have to do is create a great name (that's up to you). New Jersey law requires that the business name be unique and different from any other company's name.
So your first task will be to search the New Jersey Business Record Service Name Database to check for name conflicts and to make sure that the name that you have chosen is not in use by any other New Jersey company.
Once you have a unique business name, file an Application for Reservation of Name with the Division of Revenue and Enterprise Services Central Forms Repository. Along with a fee, you can file the form online or via mail.
Step II: Appoint a Registered Agent
The State of New Jersey requires an LLC to appoint a registered agent for service of process before formally filing with the state. A registered agent is designated to receive process (legal documents) on behalf of the LLC. A New Jersey registered agent can be an individual or a company but must have a physical New Jersey street address. A forming LLC will often choose a professional registered agent service, or may choose the company lawyer.
Step III: Legally Protect Your Business Name
Next, make sure that no one else can use it in business or on the internet. This means that you have to make sure that no one else is using that name. You do this by doing a name search to make sure that the Internet Domain Name is available. If it is available, grab it immediately (that will only cost a few dollars).
If you want to do business nationally, or you want to operate in several other states, you should trademark the nonprofit's name with the United States Patent and Trademark Office (USPTO). This process takes some time and money. The name is still protected as a common law trademark while that application is pending.
Once you receive your federal trademark, apply to the New Jersey Secretary of State to register it as a New Jersey Trademark or Service Mark. You may also trademark the name with just the state, without a federal trademark.
Now that name is yours, you can keep anyone else from using it, and it conforms to New Jersey law.
Step IV: Structure the Business
An LLC has a particular, unique business structure.
To begin with, the stakeholders of an LLC are called “members." There is no stock issued, so they cannot be “stockholders." This is the primary reason that an LLC is not a good investment vehicle for either the founders or potential investors.
There is no number of members required. You can have a single-member LLC-- say, for a one-person office. There are also professional LLCs, called a PLLC, that are structured for professional offices like lawyers, doctors, accountants, etc.
Secondly, an LLC can be (and should be) governed by an “Operating Agreement." This is similar to but different from “bylaws," “charters," or other forms of corporate organization. New Jersey does not require an Operating Agreement, but most LLCs will have one.
The LLC operating agreement is a private business formation contract among the members/business owners. It is not filed with the state, but it is an important part of forming an LLC. It should include the following points, according to the Small Business Administration:
- Percentage of members' ownership
- Voting rights and responsibilities
- Powers and duties of members and managers
- Distribution of profits and loses
- Holding meetings
- Buyout and buy-sell rules (procedures for transferring interest or in the event of a death)
An LLC may be managed by the members, or it may hire an outside manager.
Step V: Write and File Your Certificate of Formation With the State
You are now ready to compose and file your Certificate of Formation business registration with the New Jersey Secretary of State.
Your Certificate of Formation documents will contain the following information:
- LLC name. You must have the suffix “LLC" or “Limited Liability Corporation" in the name.
- LLC purpose
- LLC date of formation.
- Registered agent's name, email, and New Jersey street address (P.O. Boxes are not acceptable).
- Dissolution date if your LLC will terminate on a specific date. Otherwise, leave this blank and the LLC will continue into the future.
- Signature of the member or authorized person completing the form.
- If the LLC is a foreign (non-New Jersey corporation), the application must include a certificate of good standing in its home state.
- Filing fee of $125
The Certificate of Formation is filed either by mail or online. If filed online, you will receive a copy of your certificate immediately, as well as a mailed copy in about ten days.
After You File Your Certificate of Formation
You will have numerous state and federal requirements for your new LLC after you file with the state.
Annual Reporting Requirement
After you have formed your New Jersey LLC, you must file an annual report as part of the maintenance of the LLC. The report must be filed each year on the anniversary month of the LLC's formation.
State Business Licenses
Certain kinds of businesses must be licensed with the State of New Jersey. The New Jersey Business Action Center has a list of these. Check with local authorities about local business licensing.
State Employer Filing Requirements
Your LLC will be subject to state rules if it has employees—even if the employees are also members.
First, all employees must be registered with the New Jersey Child Support Employer Services Portal within 20 days of hire.
Next, you must register and pay for New Jersey Workers' Compensation Insurance.
And last, you must establish an unemployment insurance account with the New Jersey Department of Labor and Workforce Development.
Taxation for LLCs
You will be subject to both state taxes and federal income taxes. This is a job for your accountant, but here is a brief outline of your tax obligations.
All New Jersey LLCs and foreign LLCs authorized to do business in New Jersey must register with the New Jersey Division of Revenue for tax purposes.
You will need to register to pay appropriate sales tax and use taxes.
You will be subject to both federal withholding tax if you have employees and, of course, to business income taxation.
You must file to receive an IRS Federal Employer Identification Number (FEIN) on the Internal Revenue Service website if you will have employees. You must also apply for your FEIN if the LLC has more than one member. You will be subject to all withholding rules.
In addition, because of the structure of an LLC (versus a corporation), you will be paying federal self-employment income taxes, unless you choose to be taxed as a corporation.
LLCs also have very specific requirements for filing taxes. If you choose to be taxed as a pass-through organization, then the individual members file individual taxes. If you choose to be taxed as a corporation, then you will be subject to New Jersey's corporation business tax and federal corporate taxation.
Help Is Available
Any new business venture, including an LLC, will need legal help. Fortunately, forming an LLC can be a straightforward process with FindLaw’s Business Formation Service. Contact a New Jersey business and commercial lawyer if you need further assistance. And enjoy your New Jersey LLC!
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