For many freelancers and entrepreneurs, the LLC might seem like a no-brainer decision. But, before you take action, there are a few things you should know about starting an LLC in New Jersey.
There are two types of limited liability companies- operating and nonoperating.
An operating company is one that carries on a trade or business, while a nonoperating company does not carry on any trade or business.
A key benefit of starting your business as an LLC, instead of another business entity, is that you are not required to file an annual report or pay a fee with the New Jersey Division of Revenue.
However, you still have to comply with all other requirements for your LLC.
The process of starting an LLC in New Jersey is easy and requires little paperwork.
The 5 Steps to Form an LLC in New Jersey:
The following is a step-by-step guide to starting an LLC in New Jersey.
Step 1: Name your New Jersey LLC
Your LLC name must include a term or abbreviation that indicates it is an LLC. Your name cannot be similar to those of existing businesses.
Key points when choosing the name:
- The name of your LLC should be suitable and distinctive. Corporate names are not accepted.
- Use a minimum of 3 letters.
- The last name must be different from all other New Jersey business names.
- Your corporate name cannot include the words “limited liability,” “incorporated,” “corporation,” or “company.”
- Your corporate name must contain no more than 25 digits (with spaces).
Step 2: Appoint a registered agent in New Jersey
The registered agent is an individual or company that agrees to accept legal documents, like subpoenas and summons, on behalf of the LLC.
The registered address is the only address that can be used to serve legal documents to your LLC.
Key points when choosing the registered agent service:
- You can appoint more than one agent to serve as the registered agent for your LLC. The registered agent cannot be an individual who is also a member of the LLC.
- The registered agent cannot be an individual or company that is also affiliated with the LLC.
- The New Jersey Office of Secretary of State will provide a list of registered agents in New Jersey.
- For purposes of avoiding confusion, you must choose different names for each registered agent.
Step 3: File New Jersey Certificate of Formation
The New Jersey Certificate of Formation is similar to the LLC’s operating agreement. You must file the New Jersey Certificate of Formation with the New Jersey Secretary of State.
What you should remember when preparing your certificate of formation:
- You must be a resident in New Jersey.
- You cannot use an existing business entity or a business name that is similar to those already registered in New Jersey or elsewhere as your LLC’s name.
- Your certificate of formation should include all information required by the statute.
- Your certificate of formation can only be filed electronically.
Step 4: Create an operating agreement
The LLC operating agreement is the document that governs how the LLC will operate and provide management services to its LLC members. Key points when creating your operating agreement:
- The operating agreement must be prepared by a person who has been authorized to do so in writing and signed by all members of the LLC.
- Your operating agreement must include a list of members and be acknowledged by all members.
- The number of founders must be stated on your certificate of formation.
- The operating agreement must be filed with the New Jersey Secretary of State.
Step 5: Apply for an EIN
Every LLC must apply for an EIN (Employer Identification Number) from the IRS by filing IRS Form SS-4. You must be sure to submit your complete personal and business tax returns in order to receive a valid EIN.
Key points when applying for an EIN:
- Delays can occur at the US Social Security Administration’s tax reporting center in order to obtain a valid EIN, which can take up to 90 days, depending on your location.
- You will need the LLC’s employer’s identification number for all business returns.
- You cannot use an SSN, or an EIN from a corporation, partnership, or another LLC as your own.
Type of Business Entity
The LLC is the most common business entity used by independent contractors and freelancers. Unlike corporations, LLCs do not separate owners’ personal and business assets.
Unlike sole proprietorships, LLCs are considered to be separate legal business entities for tax purposes. An LLC can act as a corporation, limited partnership, or limited liability partnership.
You sign as the “responsible person” and the LLC itself when filing your annual LLC tax returns.
As a sole proprietor, you are both the owner and employee. You report all of your business earnings on your income tax return and pay self-employment taxes (Social Security and Medicare taxes).
Sole proprietorships do not require an EIN (Employer Identification Number), however, you must register with your state to collect sales tax.
An S-corporation is the most common type of corporation. This type of corporation can be owned by one individual, two individuals, or a group and is taxed as a partnership.
S-corporations can refer to corporations with up to 100 shareholders.
LLC (Limited Liability Company):
An LLC is the most common business entity used by independent contractors and freelancers in New Jersey and many other states. LLCs do not separate owners’ personal and business assets.
An LLC can function as a corporation, limited partnership, or limited liability partnership. You sign as the “responsible person” and the LLC itself when filing your annual LLC tax returns.
A C-corporation is a corporation that is taxed like a sole proprietorship or partnership. C-corporations are required to pay corporate taxes on their profits.
Tasks After Forming Your LLC
Once your LLC is formed, you may be able to use it for several important tasks. You can:
- Issue LLC membership interests
- Make distributions to members
- Pay employee salaries and wages
- Make salary and wage payments on behalf of its members
- Buy or sell assets
- Sell, transfer, or otherwise dispose of the LLC’s interest in the assets of the business
- Lend money to your business and charge interest
- Make payments for its members’ expenses, such as for medical benefits and reimbursements
- Open bank accounts in the name of your LLC
Get Business Insurance
To get business insurance, you may be required to include the LLC as an additional insured.
There are several types of insurance you might need for your LLC:
- Business Owners Policy (BOP): A policy that covers losses due to fire, explosion, pollution, storm damage, theft, or vandalism. It also covers losses due to earthquakes and other natural disasters.
- Premiums must be paid annually in equal monthly installments. The deductibles and limits can vary depending on the type of business and coverage you get
- Business income: A policy that covers losses due to the interruption of the income of a business. You can purchase coverage up to 100% of your net business income (gross income minus profit). Business interruption cannot be included in a commercial auto policy or homeowners insurance policy.
Advantages of Business Owners Policy (BOP):
- A BOP provides coverage for workers’ compensation but not a general liability.
- You can get a BOP with an annual limit of $50,000 per occurrence per person.
- The BOP contains a $1,000,000 aggregate limit for all business owners’ losses.
- The BOP covers the business owner and all employees of the business. It does not cover any employees’ personal liability and does not cover the personal assets of an employee who is also a business owner or director.
- The BOP will pay for losses up to the BOP’s limits.
- You can get a BOP that covers liability only (excluding workers’ compensation and property).
- You can get a BOP with an annual limit of $50,000 per occurrence and $1,000,000 aggregate.
- You may be able to get a policy with a cash value component. In this case, your policy will pay for losses up to the policy’s limits based on the value of the cash contributed.
- You can get a BOP with different limits based on coverage types, such as liability with or without workers’ compensation.
- Property and casualty insurance typically has two separate coverages: a commercial auto policy, which covers business vehicles (including SUVs) and driving in New Jersey; and a homeowners insurance policy, which covers personal property inside your home or apartment.
- You can get a BOP with an annual limit of $100,000 per occurrence and $1,000,000 aggregate or less.
- Coverage for your business must be based on the type of business and the number of employees.
- There is no limit on the amount of commercial or noncommercial property you can insure.
- The BOP will pay for losses up to the BOP’s limits.
- The BOP will pay for losses due to the theft of or from your business.
- The BOP will cover your business’ personal property inside your home or apartment and may have an option to purchase additional liability coverage.
How much does it cost to start an LLC in New Jersey?
The cost involved in starting an LLC depends on whether your company is classified as a nonoperating or operating LLC. The prices are also different for registering a foreign LLC in New Jersey.
- Nonoperating New Jersey LLC: $200
- Operating New Jersey LLC: $120
- New Jersey Foreign LLC Registration: $500 (if the company is already registered with the Secretary of State as a Foreign Limited Liability Company) http://www.forum.citizensinfo.
What are the advantages of an LLC in New Jersey?
- Protect your business interests with limited liability.
- Limit the amount of taxes that you pay.
- Choose from multiple management styles.
- Avoid double taxation.
- Protect your assets from any business debts, claims, and liabilities.
What are the disadvantages of an LLC in New Jersey?
One of the main disadvantages of T forming your business as an LLC is that you need to pay taxes for each member on the member’s share of the earnings.
However, when a company files as a sole proprietorship, all profits and losses are merged into that member’s tax filings.
Operating an LLC poses some additional difficulties than operating a corporation or a C Corporation.
For example, if you need to change the management business structure, you must fill out a dissolution. On the other hand, corporations do not require filing with the Secretary of State.
Formational documents and filing state fees:
You will need to prepare the following documents to start your LLC in NJ:
- Articles of organization
- Minutes of the organizational meeting
- Operating agreement
- Certificate of formation
- Certificate of Incorporation by Reference with the Secretary of State
- Articles of organization and certificate must be filed together under a cover letter signed by the applicant, we will prepare that letter for you.
- The filing fee is $350
- If the LLC is foreign, a letter to that effect must be executed by the member and filed with the secretary of state
- If you are performing any type of business (foreign or domestic) in NJ prior to filing, you will need an EIN from the IRS and a tax ID from the DOR.
Additional legal obligations:
- File an annual report with the corporate division of the New Jersey Department of State – (takes around $100 for a C corp)
- File an annual report with the IRS – (around $200 for a C corp)
- If you are performing any type of business in NJ before filing, you will need to register your business with the DOR using form EIN and pay applicable fees (around $100 for a C corp)
- File a combined tax-paying standing certificate with the DOR and IRS on Form PA-1 (around $150)
- Complete and file an annual report with the IRS showing the name of your LLC and its members as well as any changes to the membership roster or operating agreement. (just needs to be filed every three years)
- Register your business with the Division of Revenue enterprise services if you are performing any type of business in NJ.
Tips on filing the annual report:
To file the annual report, you will need to fill in a form called “Return of Organization Exempt from Income Tax” (Form 990), which is a yearly tax return filed by nonprofits.
Form 990 can be found here: https://forms.irs.gov/app/pickByPickList.aspx?pick=928<br>
The great thing about filing the annual report is that you will not need to include your LLC’s income and expenses, or any legal liabilities of the LLC.
How do I open a bank account for my New Jersey LLC?
You can open a bank account and cash a check for your LLC with any local bank, credit union, or savings institution in New Jersey.
You’ll need to open an account with a bank that accepts LLCs and then submit the following documents to that bank:
- $1,000 for an operating account
- Certificate of formation
You will need to pay all insurance costs on behalf of your LLC. These can include property insurance, workers’ compensation insurance, and health insurance for employees.
How to Apply for a Business Credit Card
The application process depends on the business credit card company.
There are also several things that you will need to go over your application and make sure that it is accepted:
- Your business’s EIN.
- Checking account information for your business.
- A business’s bank account history, such as checking and savings statements.
- Business-related documents such as company registration forms, articles of incorporation, or tax records.
- Proof of your business’s creditworthiness.
- Employment information for yourself and your employees.
The application process involves filling out forms and gathering information that is needed to be submitted.
The following are the different types of business cards that you may be eligible to apply for:
- Personal or Business Visa Card – Varies by the company according to their business program.
- Business Card – This is a Visa or Mastercard that can be used at any company with a Visa or Mastercard logo on the business card.
- Corporate Card – This is a corporate credit card that can be used on the business’s standard line of credit.
- Business Platinum Card – This is a card that gives special privileges to high-net-worth individuals.
New Jersey Business Permits & Licenses
New Jersey does not require a permit or business license for any type of LLC.
- You will need to obtain all licenses that you would need for a normal, in-state corporation.
- You can also obtain a liquor license but will need to file for annual license renewal.
- For a Limited Liability Company (LLC) that will be operating in New Jersey for more than one year, you will need to file for annual license renewal with the New Jersey Division of Taxation. They can be found at www.tax.nj.gov.
You will receive an EIN if you are registering as a Domestic Corporation or Foreign Corporation in NJ, which can then be used on all federal tax filings.
New Jersey LLC Tax Filing Requirements
- The tax year runs from January 1st to December 31st – You can choose to file an annual tax return when filing your annual report or you can file every quarter.
- NYS and NYS LLCs are exempt from paying the New Jersey gross receipts or sales tax and court fees. This means that if you have a business in New Jersey, it is best to register as a New Jersey LLC.
- LLCs are not required to pay New Jersey corporate tax. Instead, you can report your LLC income and expenses on a Schedule C of your personal income tax return.
- You can incorporate as an LLC in NJ if you will be performing any type of business done in New Jersey.
- If your LLC is formed as a foreign entity and you will be doing business in NJ, then you will need to file Annual Reports with the IRS and New Jersey Division of Taxation.
New Jersey Sales Tax
As a New Jersey LLC, you are not required to pay sales tax on any of the products/services that you sell.
New Jersey Corporate Tax
The corporate income tax rate in New Jersey is 7.98%.
There are NO federal taxes for corporations. All federal taxes must be paid through your personal income tax filings.
New Jersey Employer Taxes
New Jersey does not require LLCs to withhold any income taxes or employer-related taxes.
You will need to file business tax certificates annually with the New Jersey Division of Revenue.
You can find this form here: http://www.state.nj.us/treasury/revenue/forms/index.
Federal LLC Tax Filing Requirements
You will need to get an EIN from the IRS within a few days of forming your LLC. You can find the form here: http://www.irs.gov/pub/irs-pdf/fw7.pdf
You will then need to file a Form SS-4 with the IRS through their website to report your business name and address as well as any additional information your company requires on Form SS-4 online here: https://sa1.www4.irsnet.gov/irs/efile/start.do
Use the EIN that you have obtained earlier to obtain a Federal Employer Identification Number (FEIN) from the IRS in order to report all taxable wages of your workers.
- You will need to file an informational return each year with a Form 1065, which reports any income your LLC has earned that was not taxed earlier. The form 1065 can be found here: http://www.irs.gov/pub/irs-pdf/f1065.pdf
- Use 1065 to calculate any state income taxes as well as your federal income taxes.
New Jersey Excise Taxes
The New Jersey Department of Treasury lists all of the excise taxes that will be collected by the Division of Taxation.
You can find this list here: http://www.state.nj.us/treasury/revenue/forms/index.
Hiring Employees in New Jersey
To hire an employee in New Jersey, you will need to file a new hire form that is called Form NJ-7.
This form will need to be filed with the State of New Jersey Division of Taxation.
You can find this form here: http://www.state.nj.us/treasury/revenue/forms/index.html#newhired
Pros and cons
When hiring employees, you will be required to withhold social security and Medicare taxes from their paycheck.
These are commonly referred to as FIT and SECA taxes. This will be the responsibility of the employer.
- Employees will be treated as self-employed and not as regular employees and are taxed at their own rate.
- If the employee has the right to sell goods or services, they will be required to report all income made on the form W2.
- If an employee belongs to a union, they must be covered by the union contract, which can cost a lot of money if you are not doing work that requires union labor.
- If the employee is required to work outside of the state, you are responsible to pay for all expenses incurred during this time.
What is a foreign New Jersey LLC?
A foreign New Jersey LLC is a foreign entity that has been formed in another state.
The foreign entity files with the IRS and then registers with the State of New Jersey Division of Taxation, which will allow them to do business in New Jersey.
How can I get a New Jersey phone number for my LLC?
You can obtain a phone number for your new LLC by contacting New Jersey’s Centralized Telephone Service (CTS). You can find the contact information here: http://www.state.nj.us/treasury/revenue/cts/
You can order your LLC formation service from the following website: https://www.njllc.org/new-jersey-llc-formation
When do I need to hire an attorney to form a New Jersey LLC?
There is no real required time frame for hiring attorneys to help you form a New Jersey LLC. It is suggested that you discover how many members are in your LLC and what the distribution of shares will be.
This will help you make an informed decision when choosing between hiring an attorney or not. An attorney will be able to help you draft all of the business documents needed to form your New Jersey LLC.
How can I submit the New Jersey LLC Public Records Filing?
When your LLC is formed, the Division of Taxation will send you a Public Records Request Form for you to fill out.
- If you are filing an annual report, use this form: http://www.state.nj.us/treasury/revenue/forms/index.html#form101
- If you are submitting a quarterly return, use this form: http://www.state.nj.us/treasury/revenue/forms/index.html#form120
- If you are filing a half-year report, use this form: http://www.state.nj.us/treasury/revenue/forms/index.html#form121
How to Build Business Credit
To build business credit, you need:
- A steady source of cash flow: In many cases, this is a loan from your own business, which will impact other aspects of your personal finances. -Building a FICO score to demonstrate that you are able to meet the payment schedule of the loan.
- Business credit is tied to your personal credit report and can only be obtained through a reputable lender.
How to Obtain a Business Credit Report
Obtaining a business credit report requires:
- Business-related information: Name, address, email address, and phone number of the business.
- A legitimate reason for obtaining the report: This could be that you are applying for a large loan or some form of financing.
- The business credit report will list the outstanding debts and liabilities of your company. This in combination with personal credit reports can be used to determine an applicant’s overall ability to handle debt.
Do LLCs have to register with the New Jersey Department Of Revenue?
Yes, New Jersey LLCs are required to file an annual report with the Division of Taxation at the New Jersey Department Of Treasury. The filing is due by April 15th of every year.
Can I hire employees from foreign countries?
Yes, if you are an LLC that is formed outside of the United States, you will need to go through the proper channels in order for your workers to be employed as employees in New Jersey.
- Before hiring a foreign national, you will need to obtain a federal and state tax identification number for that person.
- You will need to file a new hire form each time you hire a new foreign national and send it to New Jersey.
- You will then need to send Form NJ7, the new hire form, with their personal information and any required documents to the Division of Taxation.
- They will also need an Individual Taxpayer Identification Number (ITIN).
- You can find ITINs here: http://www.visaforu.com/getitin/
How do I determine how much to withhold from an employee’s paycheck?
You will need to determine what is considered reasonable in your business.
These factors include salary, benefits, overtime, and other items that employees receive.
You should also take into consideration any tax credits and deductions that are being claimed on an employee’s income tax return.
- If you do not know the amount to withhold, you can use the IRS withholding tables located here: http://www.irs.gov/publications/p17/ch04.html
How do I file an employee’s final wage payment?
To file a final wage payment, you will need to report the wages for the period of employment and any taxable benefits that you have provided to the employee.
These payments must be reported on Form W-2 which can be found here: http://www.irs.gov/pub/irs-pdf/fw2.pdf.
You will also need to complete Form NJ-9 which can be found here: http://www.state.nj.us/treasury/revenue/forms/index.html#99a
Can I use a payroll service?
Yes, but you will still need to make sure that you are filing the proper federal and state forms that are required for your workers in NJ. Your payroll service will need to provide you with the proper 1099 forms.
You can find this information here: http://www.dol.gov/dol/topic/tax_reporting/requesting_1099s-c.htm
They will also be able to provide you with the annual New Jersey 1040s that are required and must be filed with the state each year.
How do I file a payroll tax return?
You will need to file a federal tax return and any state tax returns that are required by the IRS in order to file a payroll tax return.
If you have employees that live in New Jersey, you will need to file a separate payroll tax return for your workers. You can find this information here: http://www.irs.gov/pub/irs-pdf/fw1.pdf
You can also find more information about managing the payroll process here: http://www.njdol.org/branch/forms/payroll_state_employer
What are the required annual Forms W-2, Form NJ-9, and Form 1065?
You will need to provide your workers with a Form W-2 for each full year that they worked for you. You can find this form here: http://www.irs.gov/pub/irs-pdf/fw2.pdf
- You will also need to provide a Form NJ-9 for each full calendar year. You can find this form here: http://www.state.nj.us/treasury/revenue/forms/index.html#99a
- You will also need to provide a Form 1065 for your workers if they worked in New Jersey for more than one year during the calendar year. You can find this form here: http://www.irs.gov/pub/irs-pdf/f1065.pdf
- You should also provide Form NJ-1095 or W-4 with each of your workers to file if they are not exempt from withholding. You can find this form here: http://www.state.nj.us/treasury/revenue/forms/index.html#99b
There you have it, the lowdown on how to form an LLC in New Jersey. For more information, please read more about LLCs here: http://www.newjerseybusinesslaw.com/llc-formation-nj.php
New Jersey has a very strict LLC law, so be sure to read through this entire article before beginning your formation process.
The New Jersey Limited Liability Company Act was created to protect members of LLCs. It does not protect members in all cases, but it is very helpful to use in case of an issue that may arise with your company.