In today’s day and age, anyone looking to start a business must decide on the structure. An LLC can be an excellent choice for the business you are trying to form as it enjoys tax breaks and also gives you great operational flexibility.
New Jersey has its own rules and regulations for forming an LLC. You would not want to waste time and money (in non-refundable fees), trying to repeatedly form a company and having your application rejected by the State. Missing your annual report deadlines could put you at risk of losing your authority to conduct your business in the State.
Let us look at New Jersey’s procedure for forming an LLC so that you are well-prepared to start your company in the State.
Name Your New Jersey LLC
Every business must start by choosing a name for itself. Naming your LLC is the first step in setting it up in New Jersey. A good name will help your LLC to have brand value in the market. So, make sure that you have a unique name that appeals to your potential customer base.
While you are at liberty to choose a name you like for your business, you are mandatorily required to follow the naming guidelines issued by New Jersey.
§ 42:2C-8 of the New Jersey Revised Statutes lay down the naming guidelines for the LLCs in the State. The very first requirement is that the name should include any of the following words or phrases: “limited liability company” or the abbreviation “L.L.C.” or “LLC.” You may abbreviate “Limited” as “Ltd.” and “company” as “Co.”.
Another requirement is that the name should be distinguishable from the entities incorporated, organized, or authorized to transact business in New Jersey. Distinguishable here means that the name you propose to use should not be materially or deceptively similar to that of another entity already registered with the State.
Using slightly different spellings, letterings, or marks, would also not be allowed. For example, names like Te-amo, LLC and Tea-amo LLC are not distinguishable.
However, you can use a pre-existing name under two conditions: first, that the entity currently using the name consents in writing to allow you to use it and change its name to a different name; and second, a court order authorizing you to use the name.
Additionally, the name should not use any word or phrase or any abbreviation or derivative that a statute has prohibited, for example, words, phrases, or abbreviations that indicate affiliation with a State agency. Therefore, you cannot use terms like “F.B.I.” or “Treasury.”
Similarly, usage of certain words, like “Bank” or “University,” is restricted and involves obtaining the written consent of concerned authorities and additional paperwork and compliance requirements.
Does Your Business Require a DBA?
DBA stands for “Doing Business As.” In New Jersey, it is called an ‘alternate name.’ The law does not mandate you to have a DBA. It is an optional choice. However, DBA becomes essential for businesses who want to change their business name and start conducting business with a different and more relevant name that represents their business better.
DBA is best used for branding purposes. You may enter new market areas or decide to sell new products. Your name currently for your LLC may not suit this new product or business area. In such cases, it would be better for you to operate under a new name that is more apt for your new product line or business area. This is where a DBA name comes into play. One such example is the Nike brand. The company was initially named Blue Ribbons Sports.
New Jersey allows you to use a DBA for 5 years, after which you have to apply for its renewal.
Option 1: Apply for an Alternate Name OnlineApply online – OR –
Option 2: Apply for an Alternate Name by MailDownload form
New Jersey Division of Revenue
PO Box 308
Trenton, New Jersey 08646
br>NJ Division of Revenue
33 West State Street, 5th Fl.
Trenton, NJ 08608
Doing a Name Search and Name Reservation
To ensure that you choose a name that another entity has not used, the State provides a repository of names and mandates you to conduct a Business Name Search. You should properly check the name selected for your LLC to avoid rejection later on.
To ensure that the name you have chosen does not get taken up, you can reserve the name for 120 days.
Registering your Business Domain
You might not have immediate plans to take your business online, but due to the rising demand for e-commerce, you might think of this in the future. The address of your website is how customers find you online. So before you select a name for your LLC, it is recommended that you ensure that the domain name you need is also available.
You can check currently available domain names.
Choose a Registered Agent in New Jersey
A registered agent is responsible for receiving all communications addressed to your LLC by the State authorities.
The registered agent shall also receive any process service concerning a lawsuit against your company. New Jersey law mandates that your company have a registered agent.
Who Can Be a Registered Agent?
New Jersey has a few rules for who you can choose as your LLC’s registered agent. The agent you select for your LLC must be:
- An individual State resident (above 18 years) or
- A business entity that has obtained authorization to conduct business in the State.
You are free to appoint anyone who meets these requirements. You could appoint yourself, friends/family, members of your LLC, or even a legal entity like a registered agent service. The registered agent should be available during business hours on all working days.
Individual Registered Agent v. Commercial Registered Agent
While you can appoint yourself as the registered agent, it may not be advisable for all businesses. Registered agent services have a lot of benefits.
Registered agent services are professionals who ensure that you don’t fail to duly respond to any notice or other communication that the State may have sent to your LLC. If you unknowingly miss a filing deadline, your LLC might suffer badly. The registered agent’s address is available for the public to access on the concerned websites. So if you work out of your home or a private office, having a professional registered agent service will help you maintain privacy.
Additionally, having a registered agent service enables you to focus on growing your business by focusing your energy and time on core business areas. Most registered agent services have an established office in many States. This can prove helpful when you want to expand your LLC’s business beyond New Jersey.
File the Certificate of Formation with New Jersey
The Certificate of Formation is a legal document needed to officially form and legally incorporate your LLC. It is to be filed with the office of the Secretary of State. It contains essential details about your LLC and is the most crucial document, as filing it will officially register your LLC with New Jersey.
The information asked for in the Certificate of Formation includes:
- the LLC’s name
- the New Jersey three-letter code for domestic LLCs–“LLC.”
- the LLC’s business purpose
- the LLC’s dissolution date, if any
- the name and address of the LLC’s registered agent, and
- the signature of any authorized representative.
New Jersey offers options for expedited services for over-the-counter transactions. The cost per filling is $25. The expedited fee (only fax filings) for same-day processing is $50. There are also options for two hours processing and one-hour processing. The fee per document is $500 and $1000, respectively.
Publish Notice of Formation
The state of New Jersey does not mandate LLCs to publish a notice of their formation.
Create an Operating Agreement for your New Jersey LLC
An Operating Agreement is the blueprint of LLCs internal operations. It contains rules set by you and agreed on by members that will govern the functioning of your LLC. It also contains the rights and duties of the members and their relationship with the LLC.
Although New Jersey does not mandate your LLC to have an operating agreement, it is highly recommended that you have one in place.
This offers credibility to your enterprise. You will need an operating agreement for opening an account with the bank. More importantly, it helps protect the LLC’s limited liability status by reinforcing it.
There are no prescribed templates for an operating agreement, and you may draft one according to the needs of your business. However, irrespective of the nature of your business, it shall be advisable for your operating agreement to cover the following matters:
- Organization Details
- Duties of Members and Managers
- Management and Voting
- Capital Contributions
- Division of Profit and Losses
- Bookkeeping Procedures
- Procedure for adding new members
- Requirements concerning Meetings and Procedures thereof
Writing The Operating Agreement Yourself vs. Hiring a Service
You can create your operating agreement, or you can purchase templates that you can customize to draft the operating agreement of your LLC. As this document governs the day-to-day functioning, it is essential that the language is clear and all the necessary things go into it.
By writing it yourself, you might miss out on points that might become a bone of contention later. Moreover, courts rely upon the language of the operating agreement in case of disputes between member(s) and the LLC.
Suppose you are not comfortable drafting the operating agreement yourself or feel your LLC would require a complex operating agreement. In that case, you can always ask an attorney or a professional to draft it.
Experts in the laws of New Jersey, these attorneys or professionals will help you draft an operating agreement that suits the needs specific to your business model.
Limits of the Operating Agreement
§ 42:2C-11 of New Jersey Revised Statutes lays down the limits of an operating agreement. The law prohibits an LLC from putting in clauses overruling the law.
In other words, if specific provisions govern certain aspects of the LLC exist, the operating agreement cannot contain clauses contrary to those provisions. For example, the agreement cannot change the LLC’s capacity to sue or be sued under its name or change the applicable law under § 42:2C-6.
Obtaining an EIN for your New Jersey LLC
EIN stands for Employer Identification Number. It is a 9-digit number allotted by the Internal Revenue Service and used for taxing companies. EIN is also required for opening a bank account, credit card, business loans, and other business licenses in the LLC’s name. It is also required for legally hiring employees.
The IRS issues an EIN, and you can apply for it online or through the mail.
File Annual Reports in New Jersey
An annual report is a document used by the authorities to get the latest and updated information about all the business entities operating in the State. Under §42:2C-26, your LLC is required to file an annual report. The annual report contains the following details of the LLC:
- The name and address of your LLC
- Details of your registered agent,
- Details of your LLC’s managing members or managers.
The due date for filing your annual return would be before the end of November. It is to be filed annually by the end of the month your LLC was formed. For example, if your LLC was incorporated on 10th November 2021.
If you fail to file your annual reports for two consecutive years, you risk voiding your charter or permission to conduct your business in the State.
However, the State provides a facility for revoked businesses or on the inactive list to reinstate themselves using the online reinstatement service. A reinstatement fee shall be applicable. You can read the Reinstatement Fee Schedule to get details.
You can file your annual reports using the New Jersey Division of Revenue’s online portal. The fee applicable is $75.
Tax Liability For Your New Jersey LLC
The way your LLC will be taxed depends upon the number of members in your LLC. There are four ways in which LLC will be taxed:
- Sole proprietorship: a business owned by a single person
- Partnership: a business owned by multiple people
- C – Corporation: income is split or segregated for taxation
- S – Corporation: tax liability is split between the business and its owners
Federal Tax Liability
Federal tax liability is fixed and dealt with by the IRS. The IRS does not have a separate taxing structure for LLCs.
If your LLC has more than one member, it will be taxed as a ‘partnership’ by default. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information in the K-1 of each partner.
State Tax Liability
Once the LLC has been formed, you must register with the New Jersey Division of Revenue and Enterprise Services within 60 days. The State will provide you with a Tax Identification Number to ensure you receive all your LLC’s returns and notices in time.
You will have to register for a seller’s permit if you sell physical products. It allows you to charge sales tax from the consumers and pass it to the government. The sale of physical property like furniture, home appliances, and motor vehicles is subject to sales tax. Medicines, groceries, and gasoline are exempt from sales tax.
It would be best to look at New Jersey’s comprehensive list of products and how they are taxed. However, if you purchase the products for resale, you do not need to pay the sales tax. You can produce your resale certificate during such purchases.
Charging taxes is a prerogative of the sellers. It is their responsibility to collect the correct amount of taxes. Otherwise, they can be subject to penalties. Therefore, you must evaluate tax under the following three heads:
- Store sales: If your business sells goods from a local store in New Jersey, you will charge tax as per the applicable rates of New Jersey and respective counties and cities.
- In-state sales: As New Jersey has a destination-based tax system, the in-state sales tax will be calculated based on the taxes prevailing in the city and county where the object is being delivered.
- Out-of-state sales: tax on out-of-state sales is only charged if you have a nexus in the shipping state. Nexus could be having an employee, a physical location like an office, drop shipping facility in that State.
You must calculate and file your taxes due to New Jersey. If your business collects sales tax of less than $500 per month, you should file quarterly returns. You should file the return monthly if you collect a tax of more than $500 per month.
For annual filing, the deadline is 22nd January of the year following. For monthly filing, the due date is the 20th or the next business day from the 20th of the following month. The deadlines for quarterly filings are 20th April, 20th July, 22nd October, and 22nd January for the previous quarters, respectively.
The State charges a penalty for late filing at the rate of $100 + 5% per month and up to a value of 25% of the total tax to be returned. It also charges a 5% penalty on the tax amount not paid if the return has at least been filed. So, for example, if the amount of tax was $200, and you filed the return for only $150, you will be liable to pay a 5% penalty of the left amount, i.e., $50.
Miscellaneous Tax Liability
If you’re an employer, you must register for Unemployment Insurance Tax with the Department of Labor and Industrial Relations. You will also need to register for Employee Withholding Tax on your employees’ behalf.
Permits & Licenses
Depending on the nature of your LLC’s business and its location, you might be required to register for certain permits and licenses. Accordingly, your business will be subject to three licensing jurisdictions: Federal, State and Local.
Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.
Some business activities requiring Federal Licenses and Permits are:
- Alcoholic beverages
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
- Transportation and logistics.
In New Jersey, your LLC will be required to obtain a Business Registration Certificate. Additionally, if your business intends to sell or lease taxable goods or services, you must also obtain a seller’s permit (known as a Certificate of Authority in the State). You may visit the Department of Treasury website to obtain both these certificates.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. In Newark, a number of businesses are required to have a specific city license. Get in touch with your county or municipal government office to know more about local licensing requirements.
For more information regarding;
- Federal Permits and License
- Division of Revenue and Enterprise Services website
- The State of New Jersey’s Business Portal
Business Bank Account & Phone Number
While running your business, you will have to make multiple transactions every day. Your personal assets will get mixed with the company’s transactions if you have a single account. This might be a problem while auditing your LLC’s accounts and paying its taxes.
Also, mixing the assets might not be advisable for your personal holdings if and when your company is under litigation, and you might be asked to pay damages or fines. To avoid this hassle, you should maintain a different business account for your LLC. Your bank will require some information from your LLC, one being its EIN. The court might attach your personal assets as well.
With your business up and running, you might receive and have to make hundreds of calls daily. It is advisable to have a separate business phone number that can be handled by you or the other members of your LLC. Using your phone number in this process will expose it to all callers and customers.
Another option could be having a virtual phone number. The virtual phone number will receive calls, record voice mails, forward calls to your number if they fit specific criteria, etc. Most network providers offer virtual phone numbers and business/enterprise network plans. Choose the one that best suits your LLC’s business.
New Jersey is famously called the “Crossroads of the East.” The State has a booming economy with a conducive regulatory framework to help new and small businesses.
Depending on the type of business, LLCs in the State may be eligible for various business incentive programs such as the Sales and Use Tax Exemption (STX) Program, Premier Lender Program, and the Garden State Growth Zone Business Lease Incentive.
Get in touch with your local county or city government office to determine if your LLC is eligible for any of these schemes.
On completing the above steps, your LLC is legally incorporated and ready to do business. Please double-check all the documents before filing them with the State. We wish you and your LLC the best of luck growing its New Jersey business!