What is a New Jersey LLC?

This is the topic that many entrepreneurs in New Jersey want to learn more about. An LLC refers to a hybrid entity that is flexible and can be treated as a corporation, a sole proprietorship, or a partnership (when it comes to taxes), depending on the number of owners or members as well as what the owners decide to do. 

LLCs are treated as corporations or partnerships if they have multiple owners or as sole proprietorships if there is only one member. In any case, LLCs offer limited liability protection to all owners.

When it comes to federal taxes, LLCs are pass-through entities like partnerships and sole proprietorships. This means that taxes only apply to income and losses at the member rather than company level.

Every member of an LLC enjoys limited liability when it comes to the claims and debts against the LLC. The same is true for the shareholders of S corporations. A perk of LLCs is that members aren't personally liable for the debts and claims of the company as a whole.

Advantages of LLC

The primary advantage of LLC is that it has no restrictions on ownership, unlike small business corporations, or subchapter S corporations.

An LLC can have more than 100 owners or just one owner. The interests of an LLC can be held by partnerships, corporations, charitable organizations, pension plans, trusts, and non-resident aliens. An LLC is able to make allocations and can own more than 80 percent of a corporation's stock. Therefore, LLCs can become a member of a group that is affiliated. 

The owners of an LLC become members of the company by contributing capital to the company. This is called a capital contribution. In exchange, the member receives membership interest in the form of a percentage. Capital contribution can take several forms:

  • Real estate
  • Future service
  • Money
  • Equipment

If the capital contribution is not money, it needs to be given a value. The members need to agree upon the value assigned. For example, if two people want to create a company and one individual agrees to spend 60 hours a week on the company, both individuals can decide that working 60 hours every week has a value of $75,000. 

Under the law of New Jersey, LLCs enjoy ease of operation and tax treatment similar to sole proprietorships. The difference is that LLCs protect the personal assets of the owners if the company ends up facing financial or legal problems.

The managers operate the LLC by handling the daily activities of the company. All members can also be managers. Only some of the members could be managers. A manager of the company can also be an individual or entity who possesses zero ownership interest in the company.

A manager, who is not a member, will not get any of the profits or losses of the company. Instead, he will receive a commission or salary, which will likely be specified in the management agreement.

An LLC that is taxed as a disregarded entity or partnership may enjoy tax benefits of subchapter S corporations when it comes to the amount of losses that are deductible. 

The amount of the deductible losses of a subchapter S corporation shareholder depends on the basis of a shareholder when it comes to stock and loans. A partner is able to deduct his losses in the amount that is the sum of the partnership interest basis, the allocated partnership income, and allocated partnership debt.

How to Start An LLC in NJ

The steps for forming an LLC in New Jersey are as follows:

  1. Choose a business name for the LLC.
  2. Check the name for availability in New Jersey's LLC name database.
  3. Reserve the name if you aren't ready to form the LLC immediately.
  4. File the Public Records Filing for New Business Entity in the state of New Jersey.
  5. Pay the Public Records filing fee.
  6. Choose a business or individual to serve as the LLC's registered agent.
  7. Create an LLC operating agreement (optional).
  8. Get an EIN from the IRS.
  9. Create a management agreement between the managers of the LLC and the owners.

If you need help with how to start an LLC in NJ, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.