In terms of entrepreneurship opportunities, the state of New Jersey often gets eclipsed by its more popular neighbor, New York. However, NJ is home to over 850,000 small businesses and has thriving life sciences, financial services, manufacturing, and transportation sectors. One of the first choices you’ll need to make when starting a business in NJ is to choose a business entity type.
There are several different types of business structures, but the limited liability company (LLC) is one of the most popular. The LLC is a hybrid between a partnership and corporation. Like corporations, members of an LLC aren’t personally liable for business debts. But like partnerships, an LLC is relatively easy to form and maintain. In this guide, we’ll explain everything you need to know to successfully form an LLC in NJ.
Forming an LLC in NJ: Step-by-Step Instructions
In order to create an LLC in NJ, you’ll need to register your LLC with the NJ Division of Revenue. This agency sets the requirements and filing fees for forming an LLC in NJ. This is also the agency you’ll register with if you created an LLC in another state but would like to operate in NJ.
Here are step-by-step instructions for forming an LLC in NJ:
Step 1: Choose a Name for Your NJ LLC
When forming an LLC in NJ, you’ll first need to choose a business name. Under NJ law, the name you choose has to be different from the names of other business entities that are on file with the Division of Revenue. This requirement helps ensure that customers and members of the public don’t confuse your business with another.
The name for your NJ LLC has to end with “Limited Liability Company,” “LLC,” or “L.L.C.” You can use the abbreviations “Ltd.” or “Co.” The use of certain words in your business names, such as “bank” or “insurance,” requires special permission from state agencies.
In order to ensure that your LLC’s name is available, you should do a preliminary name check on NJ’s Business Name Database. If the name is available, you’ll be able to reserve it for up to 120 days using an Application for Reservation of Name. This reservation holds the name until you’re able to file your certificate of formation (see step 4). Keep in mind that the Division of Revenue doesn’t check names for trademark compliance. It’s ultimately up to you and your business attorney to ensure that your LLC’s name doesn’t infringe on any other company’s rights.
Step 2: Choose a Registered Agent in NJ
Every LLC that operates in New Jersey must name a registered agent that will accept legal and official mail on the LLC’s behalf. A registered agent for an NJ LLC can be either an individual or company. The registered agent will be among the first to notify you if your business gets sued or receives an official notice from the government.
When forming an LLC in NJ, an individual can serve as a registered agent as long as they are a state resident. This includes a member or manager of the LLC. Alternatively, a company that’s authorized to operate in NJ can serve as the registered agent for a business. The registered agent of your NJ LLC must have a physical address in New Jersey (P.O. boxes are not sufficient), which is called the registered office.
Many businesses opt to use an online legal service as their registered agent. We suggest IncFile, which is licensed to provide registered agent services in all 50 states. If you form your LLC on IncFile, they’ll include one year of free registered agent service.
Step 3: Obtain an NJ Business License
Companies in select industries need a business license to operate in NJ. Most of these companies are in skilled or heavily regulated sectors, such as construction, food service, and childcare. NJ’s Business Action Center maintains a list of industries that require licenses, so you can check if any requirements apply to your small business when forming an LLC in NJ.
If your business uses a trade name that’s different from the company’s legal name, you must register the trade name with the Division of Revenue. New Jersey calls such trade names “alternate names.” Other states use the term “fictitious business name” or “DBA” (“doing business as” name). The fee to register an alternate name is $50, and the process can be completed online, by mail, or over the counter at the Division of Revenue’s Trenton, NJ office.
Businesses in NJ that sell taxable goods or services must register to collect sales tax with the Division of Revenue. After registering, you’ll need to file quarterly returns and send in quarterly payments of the sales tax. Some high-volume sellers have to file monthly returns and make monthly payments.
Step 4: File Your Certificate of Formation
The next step—and the most important one—when forming an LLC in NJ is to file your certificate of formation with the NJ Division of Revenue. The certificate of formation, sometimes referred to as the articles of organization, officially establishes your authority to operate as a New Jersey LLC. Although you can request a paper copy of the form, the quickest option is to file your certificate of formation online. The filing fee for the certificate of formation $125.
You’ll need the following information to complete the certificate of formation:
- The LLC’s name, purpose, and date of formation
- Registered agent’s name, email, and New Jersey street address (P.O. boxes not acceptable)
- Dissolution date (if your LLC will terminate on a specific date)
- Signature of the member or authorized person completing the form
Along with the above items of information, foreign LLCs—those that are formed in another state but want to operate in NJ—must include a certificate of good standing from their home state when filing their certificate of formation. Foreign LLCs pay the same filing fee of $125.
If you file your certificate of formation online, you’ll receive instant online confirmation of your filing and a printable certificate. The state will also mail a filing notification to your registered agent’s address within three to 10 business days after filing. Certificates of formation that are mailed in will take a few extra days to process.
Step 5: Draft an LLC Operating Agreement
Unlike the neighboring state of New York, NJ LLCs aren’t required to have an LLC operating agreement. That said, even though it isn’t legally required, we recommend that every LLC adopt a written operating agreement. When forming an LLC in NJ, the operating agreement sets the blueprint for your LLC’s day-to-day operations and prevents conflicts among co-owners.
At a minimum, the LLC operating agreement should include this information:
- The purpose of the LLC, including products or services offered
- The names and addresses of each member (and the manager, if there is one)
- Each member’s financial contributions to the LLC
- Each member’s ownership stake in the company, voting rights, and profit share
- The procedure for admitting new members to the LLC
- The procedure for electing a manager if the LLC is manager-managed
- The LLC’s meeting schedule and voting procedures
- Dissolution procedures
All members should be given an opportunity to review and sign the operating agreement. At that point, you can store the agreement with other business records. Should you need some extra help in drafting your operating agreement, we suggest using IncFile to form your LLC. As part of the formation process, they can draft a custom operating agreement for your business.
Step 6: Comply With NJ Employer Obligations
In addition to the steps listed above, NJ LLCs with employees have additional obligations, including the following:
- Employee Reporting – Under both state and federal law, employers must report new employees within 20 days of their hire date to the New Jersey New Hire Reporting Center.
- Pay Unemployment Taxes – In NJ, most employers have to start paying unemployment insurance taxes once their payroll reaches $1,000.
- Employer Withholding – NJ employers must withhold state and federal income taxes and payroll taxes from their employees’ wages.
- Purchase Workers Compensation Insurance – All businesses in NJ with employees need to purchase adequate workers compensation insurance. LLC members do not count as employees.
There could be additional employer obligations when you create an LLC in NJ, such as observing the minimum wage law. We recommend hiring a business attorney who’s experienced in NJ employment law to help you stay in compliance.
Step 7: Pay NJ LLC Taxes, and File Annual Report
For tax purposes, NJ treats LLCs as pass-through entities. This means that the LLC doesn’t pay any NJ state taxes of its own. Instead, the members report their share of the business’s income and losses on their personal tax return. There’s no additional LLC tax in NJ.
An LLC can elect to be taxed as a C-corporation or S-corporation. An S-corporation is a pass-through entity, and owners report income on their personal tax returns. However, if you choose for your LLC to be taxed as a C-corporation, then you’ll be subject to NJ’s corporation business tax.
NJ LLCs also have to file an annual report, accompanied by a filing fee of $50 to $75. The report is due on the last day of the anniversary month of the business’s formation in NJ. For example, if you filed your certificate of formation on March 3, your annual report would be due by March 31 of the successive year and each following year. The annual report keeps your business’s information, such as your registered agent’s name and address, up to date with the state.
Step 8: Comply With Federal Requirements
The next step in forming an LLC in NJ is to comply with federal requirements. At the federal level, LLCs are treated as pass-through businesses, so members pay personal income taxes on their share of the business’s income. As at the state level, you can elect for your LLC to be taxed as a C-corp or S-corp for federal tax purposes. If you elect for your LLC taxed as a C-corporation for federal tax purposes, then your business will be subject to the 21% federal corporate tax rate.
In order to file federal taxes, your LLC might need an employer identification number (EIN). An EIN is required for LLCs with employees or multiple owners, as well as those taxed as corporations for federal tax purposes.
After taking care of income tax obligations, LLC members must also pay 15.3% in federal self-employment taxes to cover social security and medicare obligations. For any employees that you have, you must withhold federal social security and medicare taxes from their wages. There’s also an employer share of social security and medicare taxes. Finally, there’s a federal unemployment tax in addition to NJ unemployment insurance taxes.
Step 9: Maintain Your NJ LLC
Once you create an LLC in NJ, it’s important to maintain the business in good standing. Owners of an LLC are not personally liable for business debts, but this limited liability isn’t guaranteed. To preserve limited liability, you must keep your personal and business finances separate.
Here are some steps to take to keep your business finances separate:
- Open a business bank account that you use exclusively for business
- Get a business credit card exclusively for business use
- Use the money from business loans exclusively for business purposes
Along with these steps, hold regular member meetings. And whenever a member or manager makes an important decision on behalf of the LLC, document it in writing.
Benefits and Drawbacks of Forming an LLC in NJ
There are many factors that go into choosing a business structure. If you’re thinking about creating an LLC in NJ, you need to consider tax treatment, liability, startup costs, and opportunities to raise capital. LLCs have both advantages and disadvantages. On the one hand, LLCs are relatively easy and inexpensive to form and maintain, especially when compared to corporations. On the other hand, LLCs aren’t always the best option from a tax or fundraising standpoint.
- Members of an LLC are not personally liable for business debts and lawsuits (as long as separation is maintained between business and personal finances)
- LLCs have fewer recordkeeping requirements than corporations
- LLC members can choose their business’s tax treatment.
- By default, LLCs are pass-through entities for tax purposes and avoid the double taxation of C-corporations.
- LLC members must pay high federal self-employment taxes
- Corporations are better suited than LLCs for raising money from outside investors.
- LLC members can’t take a salary, and all draws from the business are subject to income taxes
An LLC is just one of many different business structures. Sole proprietorships and partnerships are the easiest and quickest types of businesses to start, but they offer little liability protection for owners. And as mentioned above, a C-corporation or S-corporation is best if you’re planning to raise money from outside investors.
Forming an LLC in NJ: The Bottom Line
Forming an LLC in NJ can be a great choice for entrepreneurs. LLCs promise limited liability, the ease of pass-through taxation, and management flexibility. It’s also relatively easy to start and maintain an LLC in NJ by following the nine steps included above. When you’re ready to form your NJ LLC, we recommend you get started with IncFile, who’ll include a year of free registered agent service.