Everything you need to know to start your business in New Jersey
There are several types of business structures to available, choosing the best one for your startup can be a very daunting process.
In this post we will introduce you to each business structure and walk you through the process of establishing them in the State of New Jersey.
Prior to launching a business in any location, it's important for you to have an understanding of its startup ecosystem.
Have a look at some of the key startup stats for New Jersey:
Planning your business in New Jersey
Before commencing any other business operations, you need to validate the demand for your business solution with high quality market research
. There is no point in setting up a business if there isn't a sustainable market for it.
With your business solution validated, the next step is to craft a business plan.
A business plan clearly defines your business solution and your strategy to grow your business into a success.
A well written business plan could be your ticket for securing precious investor funding and bank loans, so it is important for you to curate it effectively.
The typical business plan consists of the following components:
Sales and marketing
Thankfully, we've written an in-depth guide to crafting a winning business plan
Structuring and registering your business in New Jersey
There are 6 main business structures, and all are applicable to both brick and mortar businesses and e-commerce businesses:
Limited Liability Company (LLC)
Procedures for all business types
Regardless which the business structure you choose, you'll need to follow a few key steps:
Get your EIN
An Employer Identification Number is a mandatory requirement if you will be hiring employees as a Sole Proprietor or a Partnership.
An EIN is required to register higher business structures such as LLC's and Corporations.
Register business entity with the State of New Jersey
All new business in New Jersey must register with the Division of Revenue and Enterprise Services for taxation purposes. This can be done online
or by mailing this form
Detailed instructions on how to register your business with the State can be found here
Select a name for your business
If you'll be trading under a business name that differs from your given name, you'll need to register it.
Sole proprietors and General Partnerships need to register their name with their local county clerk
Get your licenses and zoning permits
Some businesses require a license
in order to transact in New Jersey. Certain locations also require a zoning permit
in order to be used commercially. Check with your county office if your business location requires a zoning permit. This is especially important if you plan tol run your business from home.
Open business banking accounts
This isn't necessarily a requirement, but it's important to keep business transactions separate from personal transactions.
Submit New Hire Reports
All new employees need to be reported to both the IRS
and the state of New Jersey
Tax details for all businesses in New Jersey
You can access details of all of the taxes applicable to businesses in New Jersey from the State of New Jersey Department of Taxation
Domestic or Foreign business in New Jersey?
To ensure you're accessing the correct business forms, it's important to understand the difference between a "foreign" business and a "local" business.
A business in New Jersey is classified as "foreign" if its headquarters are based outside of New Jersey. A domestic business is headquartered in New Jersey.
Now let's discuss the processes of establishing each individual business structure.
How to start a Sole Proprietorship in New Jersey
A Sole Proprietorship is the simplest of all business structures. Most entrepreneurs that start a business alone launch as a Sole Proprietorship and then upgrade to a higher structure when they reach a certain growth milestone.
Sole Proprietors share their personal assets with the business, so in a failed lawsuit a Sole Proprietor could potentially lose all of their possessions.
To mitigate this risk, all Sole Proprietors should protect themselves with the appropriate insurance cover
If your business solution poses a particularly high risk
of financial loss to your customers, you should consider launching with a business structure that offers more protection to your personal assets (such as an LLC or Corporation).
If you have followed all of the general steps we outlined above, there is nothing more you need to do to launch a Sole Proprietorship in New Jersey.
How to start a Partnership in New Jersey
If you are launching a business with another founder, a Partnership is the simplest structure you can choose
Just like Sole Proprietors, Partnership members share all business liability, risking all of their personal assets in the process
There are three different forms of Partnerships available in New Jersey:
General Partnership (GP)
This is the standard form of partnership. All general members share the liability of the business and are directly involved with the day to day decisions of the business.
Limited Partnership (LP)
Limited partners enjoy the benefits of personal liability protection at the price of not having jurisdiction over business decisions. The liability of these partners is limited to their investment amount.
Limited Liability Partnership (LLP)
In a Limited Liability Partnership structure, each member is not held responsible for any negligence or fraud committed by other members.
Submit Public Records Filing
This step is only applicable to Limited Partnership and Limited Liability Partnerships. This process forms a Partnership and, once approved, it becomes your official Certificate of Formation.
Form your LP or LLP
In the State of New Jersey, business entities need to be both 'formed' and 'registered'.
Limited Partnerships and Limited Liability Partnerships can be formed online
Register your LP or LLP
After your Limited Partnership or Limited Liability Partnership has been formed, and with your EIN handy, you will need to register it
Create a Partnership Agreement
This is highly recommended to keep all Partnership members aligned with the vision of the business.
A partnership agreement should contain all of the rules and procedures that will govern business operations such as:
Roles of each member
Distribution of profits
Contract signing procedures
A Partnership Agreement is not an obligatory requirement in New Jersey so you are free to draft it any way you like. To save time, you can also utilise a template
After these procedures are completed, and you have received a certified stamped copy of your paperwork from the Secretary of State, you can commence operations as a Partnership.
How to form an LLC in New Jersey
Any personal or company globally can be an LLC member in the State of New Jersey. An LLC can either be comprised of one owner (Single Member LLC) or multiple owners (Multiple Member LLC).
There are four main advantages to choosing an LLC structure in New Jersey:
Limited Personal Liability
LLC's are considered separate entities from their members limit their personal asset liability in any lawsuit.
LLC's are considered a 'pass-through-entity' so they are are only taxed once at each member's personal income level.
Compared to Corporations, LLCs have much less paperwork and compliance requirements.
LLC's in New Jersey can have unlimited members (or owners) unless they are taxed as an S-Corporation, in which case they are limited to 100 members.
Naming an LLC in New Jersey
The business names of LLC's in New Jersey need to be appended with any of the following designators in order to readily identify the entity as an LLC:
LTD Liability Co
LTD Liability Company
Limited Liability Co
Limited Liability Company
Appoint a Registered Agent in New Jersey
A registered agent is a mandatory requirement for LLCs in New Jersey in order to guarantee the acceptance of all business mail.
A Registered Agent is a third party that accepts mail on behalf of the business and forwards it it's respective members.
All registered agents in New Jersey must meet the following criteria:
Be located in the state of New Jersey
Accept mail via a residential or business address (not via a PO BOX).
Guarantee availability during business hours.
Guarantee the timely forwarding of all accepted mail to respective business owners.
Should you be your own Registered Agent in New Jersey?
You are permitted to appoint yourself or a cofounder as a registered agent but it is not recommended since, as a busy business owners, you cannot guarantee your availability to accept mail during business hours.
Alternatively you could appoint a friend, relative or any of the following professional registered agents in New Jersey:
Obtain Certificate of Formation
Form your New Jersey LLC online
Register your LP or LLP
Create an operating agreement
LLCs in New Jersey should create an Operating Agreement in order to ensure uninterrupted collaboration between members.
Think of an Operating Agreement as a contract all members sign to demonstrate their agreement with how the business is to be run.
An Operating Agreement provides LLCs with a sense of order and control which is very appealing to potential investors.
If you don't know how to structure an Operating Agreement, have a look at this template
Submit New Jersey LLC annual reports
LLCs in New Jersey must file a report
every year to ensure the State holds the most up to date record of their business.
Tax Details for LLC's in New Jersey
The default IRS taxation classifications of LLCs in New Jersey are as follows:
SIngle member LLCs owned by an individual are taxed like a Sole Proprietor.
SIngle Member LLCs owned by a company are taxed like a division of a parent company.
Multiple member LLCs are taxed like a partnership.
If you wish to deviate from these default classifications, you can elect for your LLC to be taxed like a Corporation.
If you elect an S-Corporation status, you will also need to submit Form CBT-2553
to the State of New Jersey.
The Taxation rates of C and S Corporations in New Jersey can be found on the New Jersey Division of Taxation
Foreign LLCs in New Jersey
How to form a Corporation in New Jersey
A Corporation is the most advanced business structure available in New Jersey.
There are two different types of Corporations:
The is the standard form of Corporation structure. C-Corporations can issue all classes of stock and can have an unlimited number of members.
The main disadvantage of C-Corporations is double taxation. These entities are taxed at both the corporate level and personal income level of each member.
In order to elect an S-Corporation status, members need to file Form 2553
with the IRS.
S-Corporation members are only taxed once at a personal income tax level because they are classified as a "pass-through entity,"
They also share the same benefits of C-Corporations, with the following exceptions:
S-Corporations are limited to only 100 shareholders.
Stockholders can only include individuals, estates and trusts
They can only issue one class of stock.
Corporation naming guidelines in New Jersey
Corporation in New Jersey must append the end of their business name with any of the following:
Obtain Certificate of Formation
Form your New Jersey Corporation online
Register your Corporation online
Elect a Registered agent in New Jersey
The process of electing a Registered Agent for Corporations in New Jersey is the same as the process for LLCs.
Create a corporate records book
A corporate records book is comprised of important Corporation documents such as:
High value transactions
You are free to fill your corporate records book with whatever documentation you see fit, just make sure you store it in your primary business location so that it is readily accessible to all members.
Host initial corporate meeting
This meeting is an opportunity for all members to address any important preliminary business duties such as .
Curation of laws that will govern the business (Bylaws)
Distribution of Stock Certificates
Appointment of initial term directors
Opening of business banking accounts
Development of a profit distribution plan
Description of each member's role and expectations
Submit annual reporting
It is the duty of all Corporations in New Jersey to ensure the state holds an up to date record of their business by filing an annual report
Tax details for Corporations in New Jersey
The Taxation rates of Corporations in New Jersey can be found on the New Jersey Division of Taxation
Foreign Corporations in New Jersey
How to form a Nonprofit in New Jersey
A Nonprofit is a form of Corporation that is focused on aiding the community rather than funneling profits to its members. They are exempt from certain taxation obligations in order to strengthen their charitable efforts
Naming your nonprofit
Nonprofits in New Jersey need to append any of the following to the end of their business name:
A New Jersey Nonprofit Corporation
Obtain Certificate of Formation
Elect a Registered agent in New Jersey
The process of electing a Registered Agent for Nonprofits in New Jersey is the same as the process for LLCs.
Form your New Jersey Nonprofit online
Create a Corporate Records book
This binder should aggregate all of the important documentation pertaining to your nonprofits such as
Notable Transactions / purchases
It should be readily accessible to all non profit members in your primary office location.
Host initial corporate meeting
This is an opportunity for all members to complete any preliminary business duties such as:
Appointing initial term directors
Opening corporate bank accounts
Taxation details for Nonprofits in New Jersey
Nonprofits in New Jersey that wish to apply for a tax exemption status, must do so at both a Federal and State level.
Federal tax exemption
To obtain a tax exemption with the IRS. you will need to file Form 1023
. Smaller nonprofits may be eligible to submit the much simpler Form 1023-EZ
New Jersey State tax exemption
After being granted a 501(c)(3) tax exemption status with the IRS, you must register for tax exemption
with the State of New Jersey.
Register for fundraising activities
Protecting your business in New Jersey
Some recommended insurance policies for your startup in New Jersey are:
Business owners policy (BOP)
This policy combines business property insurance with business liability insurance. By signing up to this policy you will be protected from any loss of income resulting from theft, natural disasters or fire.
Commercial property insurance
Secure all of your business inventory and general business belonging with this policy.
General liability insurance
This policy protects your business from property damage, copyright infringements in advertising campaigns, personal injuries and more.
Business income insurance
This insurance policy supplements any lost income while your business recovers from disruptive damage.
Workers compensation insurance
This policy compensates employees for any work related injuries.
A gateway to all taxation and business registrations as well as general business setup resources
New business registrations and tax return filings
This is a great resource for small business news, tips and advice, market research and industry-specific links.
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Our own guide to launching your startup will walk you through every step of starting a business, from concept to execution.