Forming your business as a Limited Liability Company (LLC) in the United States wreaths it with many benefits that the status of a conventional corporation, sole proprietorship and partnership cannot individually offer as an LLC possesses a unique hybrid make-up that merges the defining features of these traditional business structures with one another.
To illustrate, an LLC offers the flexibility of sole proprietorships and partnerships as it is free from most of the formalities and paperwork necessitated with corporations, and yet it also provides the limited liability inherent to a corporation, offering liability protection to you and your personal assets if you are faced with a lawsuit. Its hybrid structure also crucially bestows upon you your taxation of choice.
Anyone can form an LLC in the United States – even foreign citizens and companies. However, the requirements for forming an LLC varies slightly from state to state.
In this article, we will be looking at how to set up an LLC in the state of New Jersey. The state ranks third nationally in terms of fastest start-growth and fourth nationally in terms of job creation. As the owner of one of the largest economies in the United States, New Jersey increases its LLC numbers by 55,000 every year.
Steps To Setting Up an LLC in New Jersey
STEP 1: Name of the LLC
First and foremost, you would have to pick a unique name for your LLC that complies with New Jersey’s naming requirements:
- The name must contain either the words “Limited Liability Company” or one of its abbreviations, “LLC”, “L.L.C.”, “Ltd. Liability Co.”, “Limited Liability Co.” or “Ltd Liability Company”.
- The name cannot insinuate that it is a business entity other than an LLC.
- The name cannot contain words that may associate the LLC with a government agency.
- The name cannot contain prohibited words, if it contains restricted words it would need to go through additional paperwork and it may necessitate a licensed person whose profession respectively correlates to those restricted words being a part of the LLC.
- The name must be unique, distinguishable from the names of pre-existing business entities in New Jersey. Adding a variation may suffice.
You may reserve the name you have envisioned for 120 days by filing an Application for Reservation of Name (UNRR-1) to the New Jersey Division of Revenue & Enterprise Services. The filing fee is $50 and it must be done through the New Jersey’s Business Charter Amendment Service website.
You should also check if your LLC’s name is available as a web domain name. You may preemptively buy the URL in order to ensure that the web domain name matches your LLC’s name.
Though you are not required to register an “Alternate Name” for your LLC in New Jersey, you may want to do so if you intend on operating under a name other than your LLC’s filed legal name. To do so you must file for a Registration of Alternate Name (Form C-150G) with the New Jersey Division of Revenue & Enterprise Services.
STEP 2: Appointment of Registered Agent
Prior to filing the Certificate of Formation, you are required by the New Jersey Division of Revenue to nominate a designated Registered Agent for your LLC.
A Registered Agent is a business entity or an individual that acts as the LLC’s point of contact with the state, being responsible for receiving on the behalf of the LLC any tax forms, notices from the New Jersey Division of Revenue and even legal documents from lawsuits. The Registered Agent also keeps the LLC afloat by ensuring that the proper paperwork is updated and correct.
One of the requirements of being a Registered Agent in New Jersey is that the agent must either be a resident of New Jersey or a corporation present within the state with authorised Commercial Registered Agent services. The Registered Agent must have a physical street address within New Jersey, the state where the business of the LLC is to be conducted and where the documents are to be sent. Additionally, the Registered Agent must always be available during business hours to receive Service of Process when necessary.
Anyone within the LLC who is over the age of 18 and has a physical address could suffice, even friends and family who satisfies all the above could also suffice. You could also appoint yourself as the Registered Agent if need be, as the business owner you are not barred from having a dual position.
Nevertheless, though it will cost you some additional expenses, it is suggested that you hire a professional Registered Agent service as it greatly cuts down the risks of mistakes that a mere amateurish individual would make, therefore avoiding the accumulation of even more expenses over time.
The service provides you with the luxury of privacy whereby the service’s address will be listed in public records instead of yours, moreover, if you do get into a lawsuit, the service will immediately and discretely inform you, allowing you to avoid being served those documents in public. It will also shoulder the burden of being up to date with the necessary legal documents and free up your schedule as it is no longer a necessity to be on-site at all business hours.
You may nominate your Registered Agent via the New Jersey Division of Revenue website while you are filing your formation documents or by mailing a physical copy of the Business Registration Packet to the postal address of the New Jersey Division of Revenue.
It is also possible to change your nominated Registered Agent, simply do so via the New Jersey Division of Revenue website. The fees shall be $25.
Registered Agent services in New Jersey includes:
- Northwest registered agent
- New Jersey Registered Agent
STEP 3: Filing the formation documents
An LLC in New Jersey may be formed once a Public Record Filings for New Business Entity is filed and either personally delivered or mailed to the Division of Revenue and Enterprise Services.
Alternatively, you could also form an LLC in New Jersey by opting for the more convenient route of filing online through the Division of Revenue Business Formation web portal. Just navigate through the dropdown and select the “NJ Domestic Limited Liability Company” option and fill it up accordingly.
Regardless of the available routes chosen, the filing must include these necessary details of the LLC:
- Business Purpose (it needs to be short and concise, no thorough details are needed);
- Business Designator;
- Dissolution Date (only if the LLC has a definite end date, leave it blank otherwise);
- Registered Agent Name;
- Registered Agent Address, and;
- The signature of an authorized representative.
The filing fee for all routes shall be $125, a one-time fee.
Before you submit the document, do ensure that you have reviewed it thoroughly to affirm that there are no mistakes made, these mistakes could carry on and even affect the business if they are as glaring as a misspelling of the LLC’s name.
Once the formation document is submitted and approved, usually within 30 minutes if transacted through the virtual route, it will now be referred to as the “Certificate of Formation” and it shall be accordingly provided to you. Now your LLC in New Jersey is officially formed.
STEP 4: Register the Business for Tax and Regulatory Requirements
Once you have formed your LLC, you would have to register the business for tax filings with the New Jersey Division of Revenue and Enterprise Services within 60 days in order to carry on as a business entity. The registration must be carried out at least 15 days before the LLC could engage in any business transactions. Without this step, you could not even hire employees!
You could register the business through virtual means or physical mailing. Simply file a Business Application Registration, “Form NJ-REG”, with the Division of Revenue. A reminder that you would need to have obtained the Certificate of Formation before you could proceed with this application.
The filing fee for all routes is $125, additionally, a New Jersey LLC must pay a yearly minimum state tax of $125 for every single member of the LLC.
After you have registered your LLC, the business would obtain a New Jersey tax identification number, providing you with the opportunity to receive all its proper returns and notices.
Additionally, you may also be required to apply for additional licenses if the business nature of your LLC would demand so under New Jersey’s purview which varies from city to city and industry to industry. In general, you could browse through the New Jersey Online License & Certification website in order to check if the location and industry your LLC is in would bring along additional requirements.
STEP 5: Prepare an Operating Agreement
Albeit of the fact that having an Operating Agreement is not compulsory within the state of New Jersey in order for an LLC to function, it still highly suggested that you prepare one for your business as it plays a vital part in determining the dynamics within the LLC and how it is run.
An Operating Agreement is a foundational legal document that establishes who owns the LLC, how much of it they own and member terms. It is a comprehensive internal document that also serves as the core of the business by listing out a multitude of crucial information in order to reduce future conflicts. New Jersey’s LLC Law would only affect the internal affairs of the LLC in the absence of an Operating Agreement.
The New Jersey LLC Act has explicitly declared that the principle of the freedom of contract between the members should be upheld through the Operating Agreement. Members are allowed to modify their capital contributions and shares of profits and losses if the necessary provisions are engraved within the Operating Agreement. Even different classes of members could be created if the Operating Agreement wills it.
Amongst the most important structural support it provides to an LLC that you should have within your own Operating Agreement are:
- Its organization of how the ownership of the LLC is divided as mentioned above.
- The verdict on whether the LLC would be managed by managers or by multiple members and if the latter case occurs, how the voting powers are divided amongst the members.
- Records of the capital contributions that each member had invested in the LLC.
- The calculation of how the profits and losses of the LLC are to be divided amongst the members. The most regular route entails that the profits and losses are to be divided equally.
- The regulation of how members are introduced into the LLC and how members could leave the LLC.
- The outlines for a potential dissolution in the scenario where the members of the LLC have decided that the business should cease to exist.
Moreover, it serves the fundamental role of preserving your shield of limited liability by aiding you in proving that your LLC truly does stand as itself, a separate legal entity from you.
STEP 6: Obtain an EIN
An EIN, or “Employer Identification Number” could be seen as a 9-digit “social security number” that is assigned by the Internal Revenue Service (IRS) to a business in order for the IRS to clearly identify it for tax and filing purposes. The EIN may also be referred to as the Federal Employer Identification Number (FEIN) or a Federal Tax ID Number, nevertheless, they are just different names as they are essentially the exact same thing as an EIN.
It is required for you to obtain an EIN from the IRS for your LLC if you:
- Own an LLC that has more than one member, even if there are no employees hired.
- Intend on hiring employees for your LLC.
- Intend on filing and managing Federal and State taxes.
- Intend on opening a bank account for your LLC.
- Intend on having the LLC taxed as a corporation.
- Intend on applying for specific business licenses that would require it.
Additionally, an EIN also serves the functions of maintaining the shield of limited liability as it once again enforces that your LLC exists as a separate legal entity and strengthening your position against identity theft as it is less probable that someone could intrude into your accounts when you separate your personal and business finances.
Evidently, due to the wide ambit it covers, an EIN is functionally compulsory for your business to run. The only way for you to justifiably refuse to obtain an EIN is if your LLC has only one member, no employees and its business structure is akin and taxed like a sole proprietorship.
Getting an EIN is also the stage where you are offered to pick one of the variations of taxation options available to an LLC. As mentioned above, most would pick a “pass-through” taxation option, the default, however, if you wish for the LLC to be taxed as an S Corporation or even a C Corporation you could file certain forms to do so once you have obtained your LLC’s EIN.
You could obtain an EIN by applying for it through the IRS website or by physically mailing it to the IRS with a “Form SS-4”, Application for EIN.
STEP 7: Annual Report for Annual Renewal
Finally, once you have done all the groundworks to set up an LLC, you will have to ensure that its upkeep goes swellingly as well. It would be distressing to watch all the work poured into the LLC go to waste just after a year and just because of inadequate maintenance of paperwork.
Like many other states, New Jersey dictates that all LLCs within it must file an annual report as a means to renew their applications and remain in compliance and good standing with the state laws. As indicated by the name, this report must be filed once every year – without fail.
Though the New Jersey’s Division of Revenue would courteously remind your Registered Agent through mail approximately 2 months before it is due, it is still your responsibility to do so in the event that they do not.
The annual report must be filed by the anniversary month of your LLC’s formation, no later than the last day of the month itself. If you have forgotten what was the month your LLC was formed, the exact date could be found in the approved Certificate of Formation. You could also do a business name search on New Jersey’s Division of Revenue website. Just perform a simple search for your LLC and look for the “incorporated date”.
In order to file an annual report simply do it online through the New Jersey’s Division of Revenue website. This would be the only route available. Once you have filed your annual report, you would receive a filed copy from the confirmation page that you could download. The filing fee shall be $75, it is non-refundable.
The content of an annual report must include just a few details, namely:
- The name and address of the LLC;
- The name and address of the registered agent; and
- The name and address of either the managing members or the sole manager, whichever the case may be.
Though you would not be charged for filing the annual report late, if you have missed your annual deadline for two consecutive years, the state will revoke your LLC.
Additional Information on Opening An LLC in NJ
With all the above carried out, your LLC would be up and running and hopefully flourishing. They are the compulsory components that you would have to perform for your business to even begin and continue on as an LLC.
Nevertheless, there are additional considerations that you may want to weigh your options on in order for your LLC to succeed even further:
Opening a Bank Account
If you possess an EIN you could open up a bank account for your LLC which is highly suggested for the smooth sailing of your business. The bank account need not be in the same state as the LLC.
A business bank account will ease transactions with other businesses in the United States and crucially, maintain your personal liability protection. Allowing your own personal bank account to be involved with the business could lead to confusions concerning what assets belong to who. This would lead to personal liability issues.
Knowing which Taxation Variant you are opting for
The principal utility of an LLC is that it provides you with your taxation of choice at a federal level. As an LLC you could choose to be taxed as a:
- Sole Proprietorship, if the business is a single-member LLC;
- Partnership, if the business is a multi-member LLC; or
- Corporation (either S Corporation or C Corporation).
Most companies will fall into the default, the former two on the list, which is what they prefer as the LLC will be treated as a “pass-through” entity, allowing you to be taxed directly and as such, avoid double taxation. They are considered the main tax benefit of having an LLC.
Opting to be taxed as an S Corporation would also allow you to avoid double taxation, however, the IRS imposes certain restrictions to limit the kind of businesses that could choose an S Corporation status. The LLC would need less than 100 allowable shareholders and have only one class of stock.
Opting to be taxed as a C Corporation would incur double taxation upon you, however, the upside to it is that you are allowed to have an unlimited amount of shareholders.
To change your LLC from the tax default of a Sole Proprietorship or Partnership, you need to file Form 8832 and Form 2553 with the IRS to be taxed as a C Corporation and an S Corporation respectively.
Deciding if the LLC should be Member-managed or Manager-managed
If the LLC is rather small and the members are on board with managing the day to day operations of the business then the LLC could pursue a “member-managed” structure. If the LLC is rather large with copious amounts of members and the majority of them are not keen on running the day to day operations of the business, then the LLC could pursue a “centralized management” system and focus its organizational roles onto one or more managers selected.
List of Necessary Addresses for the purposes of setting up the LLC
New Jersey Division of Revenue’s Postal Address:
New Jersey Division of Revenue
PO Box 252
Trenton, NJ 08646
New Jersey Division of Revenue’s Office Address:
New Jersey Division of Revenue
33 West State Street
Trenton, NJ 08608
Internal Revenue Service’s Mailing Address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Frequently Asked Questions (FAQs)
How much does it cost to open an LLC in New Jersey?
In order to first form your LLC, you would have to fork out $125 to acquire the all so necessary Certificate of Formation, without it, naturally your LLC cannot be formed. Furthermore, you are also mandated to pay for its upkeep, a $75 fee every year so as to keep the LLC compliant with state laws. Without these payments, your LLC would not be allowed to operate.
Can a foreign LLC conduct its business in New Jersey?
Yes, a foreign LLC may. However, all foreign LLCs are required to register with the New Jersey Division of Revenue prior to doing so. The registration could be done through filing a Public Records Filing for New Business Entity through its website or by mailing it to the postal address.
Do keep in mind that you would also need a Registered Agent present within the state of New Jersey itself and that you must obtain a certificate of good standing or an equivalent from the LLC’s home state.
What is the minimum wage for workers in New Jersey and are there any regulations on how often I would have to pay them?
The minimum wage in Alaska is $12 per hour for non-seasonal businesses or businesses with 6 or more employees, and $11.10 for seasonal businesses or businesses with 5 or lesser employees.
How do I dissolve my LLC in New Jersey?
You would need to close your LLC’s tax accounts and submit an Articles of Dissolution form to the State of New Jersey Business portal. Once it is accepted and approved, your LLC will be dissolved.
What Is The Differences Between a Domestic New Jersey LLC and A Foreign LLC?
Limited liability company LLC is referred to as a “domestic LLC” when it conducts business in the state where it was formed. For instance, a domestically formed business New Jersey is a form of LLC. Meanwhile, a foreign limited liability company LLC is commonly formed when an existing LLC looking forward to form an LLC elsewhere in another state which requires business licenses and permits.
Starting a business correctly doesn’t have to be difficult. With over 15 years of experience consulting new businesses and start ups, Matthew is probably the best person to help you set a strong foundation for your business.