Guide to Starting an LLC in New Jersey
Starting a business can be daunting, but with the proper advice, it can be a lot less scary. In this blog post, we’ll walk you through the process of starting an LLC in New Jersey. We’ll cover everything from what an LLC is to what paperwork you need to file. So if you’re ready to take the plunge into entrepreneurship, keep reading!
Why choose an LLC?
The Limited Liability Company (LLC) is a popular entity structure for businesses starting in the state of New Jersey. The LLC provides personal liability protection and has the potential to save money on taxes.
Unlike a sole proprietorship or partnership where the small business owner can be held personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting the business owner’s personal assets.
Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.
Steps to Form a New Jersey LLC
Let’s break down the steps to complete the New Jersey LLC formation process.
Total Time: 10 minutes
Step 1: Choose a Name for the LLC
The first step in forming a New Jersey Limited Liability Company is to make sure the name you want is available.
It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of New Jersey. The New Jersey Division of Revenue & Enterprise Services makes it easy to search and verify if your LLC name is available. Here is more information on how to do a New Jersey LLC name search.
In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:
– Limited Liability Company
– Limited Liability Co.
– Ltd. Liability Company
– Ltd. Liability Co.
A comma may be used after the business name and before the designator. “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.
There are a few other naming guidelines, such as not including words in the name that refer to a federal or state agency, or words related to banking, trust, insurance, Olympic, Little League, realtor, unless the LLC is approved to do so.
If there is a name you want, but are not ready to register the LLC, you can file an Application for Name Reservation. The name reservation filing fee is $50 and will hold a name for up to 120 days.
Before settling on a name, you may want to see if a domain name is also available to match your business name and website address.
Step 2: Appoint a New Jersey Registered Agent
Every LLC in New Jersey is required to have a Registered Agent. A Registered Agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.
The basic requirements to be a Registered Agent in New Jersey include:
– The agent must be a New Jersey resident at least 18 years of age or a commercial Registered Agent service with a registered office in the state.
– The agent must have a physical address in the state (PO Boxes aren’t allowed).
– The agent must generally be available during normal business hours at the address provided to receive service of process.
Learn more about the requirements for a Registered Agent in New Jersey
Any individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed. Hiring a commercial Registered Agent service like Northwest Registered Agent will help keep the owner’s names from being publicly listed.
Step 3: File the New Jersey New Business Entity Form
To form a Limited Liability Company in New Jersey, file the New Business Entity Form with the New Jersey Division of Revenue & Enterprise Services.
After the New Jersey Division of Revenue & Enterprise Services approves the LLC paperwork, a Certificate of Formation will be issued.
When filling out the New Business Entity Form, there are a few sections and terms that can be confusing. Let’s go over a few of these sections to help get your LLC started right.
Employer Identification Number – This is optional, but you can enter the EIN of the LLC here. If you don’t have an EIN, a link is available to the IRS to file one. See our guide on filing an LLC EIN.
NAICS Code – This section is optional and asks for information regarding the business’s activities. To do that, there is a number called NAICS (North American Industrial Classification System). This code is a six-digit number that classifies and categorizes the different businesses. This information is used in reporting statistical data for each of the industries in the U.S. Remember this number as you will need it when filing annual tax returns. Learn more about how to search for a NAICS number.
Duration – If you intend the business to exist forever, which most businesses do, enter “Perpetual” or leave blank, as all LLCs are set up with a perpetual duration by default. If you have a specific end date in mind (typically used for investment-related businesses), choose a dissolution date.
Effective Date – If you want the LLC to start immediately, leave today’s date in the box. Otherwise, choose a date in the future that you want the LLC to start. The main reason for delaying the LLC start date is when the filer is close to the end of a calendar year, and the business isn’t going to have any activity. By delaying until the following year, they will reduce the number of end-of-year filings.
Business Purpose – Provide some basic information about what the business does. If you want to keep the business purpose more open-ended, you can just have “Any lawful business activity for which a Limited Liability Company may be organized in New Jersey.”
Related: How to Answer the Business Purpose Statement.
Main Business Address – In this section, enter the street address, city, state, and zip code of the initial principal office to receive mail from the state. This address can be the LLC’s physical address, or it can be the address where the business records are stored. The address does not have to be located in New Jersey, but you may not use a PO Box.
Members / Managers – Enter the names of up to 10 Members and Managers.
– Member-Managed LLCs have an active involvement in the management of the LLC.
– Manager-Managed LLCs are hired by the members to run the LLC, similar to a CEO of a corporation.
At least the name and address of one LLC member or manager must be entered.
Estimated Cost: 125 USD
IncAuthority and IncFile are currently running a special where you only pay state fees for your LLC formation and they do the rest!
You have a New Jersey LLC! Now what??
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare a New Jersey LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.
Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Federal Tax Identification Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, build business credit, register for business licenses and permits, file federal and state taxes, and more.
How much does an EIN cost in New Jersey?
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
Related: How to Apply for an EIN
Elect the LLC’s Form of Federal Income Taxation
One of the significant benefits of the Limited Liability Company is the tax flexibility it provides. When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:
- Sole proprietorship
While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.
Related: How can an LLC be taxed?
By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.
Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.
Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.
In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership is that the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership. As a result, the owner will pay self-employment taxes on all business profits. As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes. Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.
Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you. Some tax elections, such as the C corporation, may be detrimental for some people due to double taxation.
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original business formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- Occasionally, the bank will request a Good Standing Certificate to prove the LLC is active and in good standing with the state.
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting your business. Some common registrations include:
- Business Registration Application – Every LLC is required to file the Business Registration Application (also referred to as the New Jersey LLC Registration for Taxes or Business Registration Certificate) Form NJ-REG with the New Jersey Division of Revenue and Enterprise Services within 60 days of formation. This application combines several business registrations such as the sales tax permit and employee withholding with the Division of Taxation.
- Local Business License – Some cities required businesses to obtain licensing.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
File the Annual Report
LLCs are required to file an annual report with the New Jersey Department of Treasury. The annual report fee is $75 each year and is due on the last day of the LLC’s anniversary month. For example, if the LLC were formed on November 1st, 2021, the annual report would be due on November 31st, 2022.
Common Questions To Starting An LLC In New Jersey
How much does it cost to start an LLC in New Jersey?
To start an LLC in New Jersey, a filing fee of $125 will be paid to the New Jersey State Division of Revenue & Enterprise Services.
How long does it take to start an LLC in New Jersey?
It typically takes under an hour for a new LLC to be approved in New Jersey when filing online versus 2-3 weeks when filing by mail.
What is the total expected cost of operating an LLC in New Jersey?
Each year, an annual report must be filed along with a $75 annual fee.
When is a Registered Agent needed in New Jersey?
All LLCs in New Jersey are required to have an active Registered Agent.
Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state, and are generally available to receive documents during normal business hours.
Does an LLC need a business license in New Jersey?
It’s sometimes thought that the LLC and business license are the same in New Jersey, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.
What is a Foreign Limited Liability Company?
A New Jersey foreign LLC isn’t a special type of LLC. Instead, it’s an LLC that was formed in another state but wants to physically operate in New Jersey. Physically operating means having a presence, such as having an office or hiring an employee.
Related: What is the difference between a domestic New Jersey LLC and a foreign LLC?