How to Incorporate in New Jersey vs. How to Start a New Jersey LLC
A Guide to Choosing the Best Business Entity in New Jersey
Think you have the perfect idea for a business in New Jersey, but you’re not sure if you should form an LLC or a corporation. Let Active Filings be your guide. We’ll walk you through the advantages and disadvantages of incorporating or forming an LLC in New Jersey. Throughout this state-specific corporation and LLC formation guide, you’ll discover exactly how to form either an LLC or corporation in New Jersey, and learn the disadvantages and advantages of each business type.
Once you’ve decided which business structure best meets your needs, you can hire Active Filings and have our professionals streamline your incorporation process. At Active Filings we offer our customers peace-of-mind by establishing their companies fast, efficiently and at an affordable price. When you work with Active Filings, we’re confident that you’ll find out in no time why we are America’s most reliable business incorporation service.
LLCs vs. Corporations
People looking to start a business often ask whether they should set up an LLC or incorporate for their new venture. Like everything else in life, the answer depends. Below you’ll find the three factors we think will help you make an informed decision.
- Ease of maintenance
LLCs are simply easier to maintain compared to corporations. Both offer solid liability protection from lawsuits, but a corporation has so many moving parts. Corporations have to hold shareholder meetings, elect directors, create bylaws, and keep notes from all the meetings. Tedius to say the least, but worth it if you are looking to grow your business big. For the rest of us, the LLC is perfect. You form it. You manage it, or higher someone to manage it for you. File your annual report. Boom. Easy.
- Desired tax structure
By default an LLC is a pass-through tax entity, meaning that the income is not taxed at the company level. The income or loss as shown on this return is ‘passed through’ the business entity to the individual members, and is reported on their individual tax returns. Less paperwork. More straightforward. A corporation is a separately taxable entity, and pays tax on the income prior to any dividend distributions to shareholders. If and when corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders. Complicated. Paperwork. The Colorado LLC wins this one.
When it comes to investing in a company, most investors feel most comfortable investing their hard earned money into corporations. The biggest reason investors prefer corporations is their favorable taxation rules. Unlike LLCs, a corporation’s shareholders are not taxed on company profits unless profits are distributed, which means the dividends paid from the corporation can be structured to take advantage of the best tax scenario for the shareholders. If you plan to grow your small business into a larger entity and attract investors, forming a corporation is your best bet.
Let’s not forget or downplay the idea of prestige. While “Uncle Joe’s Plumbing Service, LLC” is a fine upstanding company, it just doesn’t slap as hard as Nike, Inc. When you hear the word corporation, many people think of Amazon, Apple, and Walmart. While the LLC is perfect for the small to medium-sized business, it doesn’t carry the same cache as the corporation. While LLCs first came into being in the late 1970s, the corporation is the oldest recognized business entity in the US, and thus they carry with them an aura of prestige.
NJ LLCs vs. NJ Corporations
Let’s take a look at what make New Jersey LLCs and corporations unique to the state, and what advantages or disadvantages you may run into when forming either entity.
- Taxes Taxes Taxes
New Jersey has an effective property tax rate of 2.44%, the highest in the nation. The state’s income tax ranges from 1.40% up to 10.75%, one of the highest top rates in the country. Not to pile on, but according to a 2019 report from the Tax Foundation, New Jersey is ranked as the 45th worst state for taxes. High taxes hurt consumers and businesses alike. Consumers need money in their pocket to buy that local coffee or hire the local plumber, but when they’re taxed over and over again, they’re likely to shut their wallets. Same goes for businesses who not only have to buy high taxed goods, but then sell them and pay taxes on profits.
- Urban Enterprise Zones
This policy was specifically designed to help local retailers compete with neighboring Delaware, which doesn’t have a sales tax. Businesses that sign new leases or purchase property in one of the 32 communities in New Jersey with Urban Enterprise Zones may qualify for a state sales tax exemption on qualified purchases. These businesses, after being certified by the state, may purchase many tangible goods and services exempt from sales tax. In addition, qualifying retailers may apply for certification allowing them to charge 50% of the current sales tax rate of 6.625%, or 3.3125%.
- Low Cost Annual Report
For a state that loves taxing it’s residents, you’d figure they’d charge a bundle to file the state’s annual report. But at an affordable $75 for all business entities (Non-profits pay $30), it is right in line with other lower cost states.
- The LLC Partner Tax
If your New Jersey LLC plans to have more than one member, you’ll be subject to a yearly “LLC Partner Tax. For New Jersey tax purposes, every LLC that has income from sources in the state, or has a New Jersey resident partner, must file the New Jersey Partnership Return (Form NJ-1065). LLCs with more than two partners and income or loss from New Jersey sources may be subject to a $150 filing fee for each partner ($250,000 maximum for each). For example, if your two member LLC adds two other members, you’ll be looking at adding an extra $300 per year to your annual filings with the state.
New Jersey LLC or Corporation? Our Final Answer.
For fees and tax purposes, the LLC is probably your best choice. Your LLC will only get taxed once, in the form of personal income taxes for each member. A corporation in New Jersey will be subject to double taxation: first through a state corporate tax, and second on the individual tax returns of shareholders. All that said, the answer to whether the New Jersey LLC or the corporation is better really comes down to whether you plan to operate a small business or intend to grow your business into something much larger. If you plan to go big with your business, and can handle some additional paperwork and tedium of organizational meetings, choose a corporation. If you’re just trying to gain some limited liability protections for your small business, the LLC will fit you perfectly.
How to Incorporate in New Jersey
To start a corporation in New Jersey, you must file a Public Records Filing with the New Jersey Division of Revenue. The Public Records Filing costs $125 to file.You can file the document online, by mail or by fax. Once filed with the state, this document formally creates your New Jersey corporation. Hire Active Filings and we’ll file your corporation for you, so you can sit by the pool with a cold drink.
Your name must include “Corporation,” “Company,” “Incorporated” or an abbreviation for one of these words, such as “Corp” or “Inc.” The state also has quite a few words you can’t use as well, including some surprising ones like “blind,” “cemetery,” “mail,” “Olympic” and “urban renewal.”
New Jersey for-profit corporations automatically have a general purpose and can skip this section.
List the number of shares you wish to create. You must create at least one share.
Want your corporation to continue indefinitely? Skip this section. You can add an expiration date with regards to how many years you would like your corporation to exist.
Your registered agent must have a business address in New Jersey. You can act as your own registered agent or you can hire Active Filings as your registered agent and we’ll intercept all the junk mail and telemarketer calls, so you can focus on what matters, your business.
This New Jersey street address is where your agent will be available to accept legal notifications. This address must be a physical street address and not a P.O. Box. When you hire Active Filings to incorporate your company, we provide our office address.
This is your main business address. You’re allowed to use our registered office as your principal office address.
List the names and addresses of the directors on your board of directors. For-profit corporations must list at least one director.
Your incorporator signs and submits your Public Records Filing. You need at least one incorporator, who is often a director or officer but doesn’t have to be anyone in your corporation. Incorporators must include their names and addresses. Active Filings will be your incorporator when you hire us to form your New Jersey corporation.
How to Start an LLC in New Jersey
To start an LLC in New Jersey, you must file a Public Records Filing with the New Jersey Division of Revenue. You can file the document online, by mail, or by fax. The Public Records Filing costs $125 to file. Once filed with the state, this document formally creates your New Jersey LLC.
You must include “Limited Liability Company” or an abbreviation like “LLC.” Example: Soprano’s Ice Cream Shoppe, LLC. Of note, there’s a long list of words you can’t use as well, including some odd ones like “blind,” “cemetery,” “mail,” “Olympic” and “urban renewal.”
What does your LLC do? Most businesses include a general purpose that explains the LLC is organized to engage in any lawful activity in New Jersey. You can also go online and choose the NAICS code that best matches your business activities. Soprano’s Ice Cream Shoppe, LLC would fall under NAICS Code 722515 (Snack and Nonalcoholic Beverage Bars).
Have an end date in mind for your business? Enter the date you want your business to stop existing. Want your business to continue indefinitely? Skip this section.
A Registered agent is a person or business who lives in the state and receives service of process from the government on behalf of a business. Hey look, Active Filings has an address in New Jersey! Oh, and we’re awesome at being registered agents!
This New Jersey street address will become a part of the permanent record of your LLC. When you hire Active Filings, our address goes here.
This is your main business address. Avoid having to check and update multiple addresses by hiring Active Filings.
This is the person who signs and submits your New Jersey LLC’s Public Records Filing. It doesn’t have to be anyone in the LLC. Hire Active Filings, and we’ll be your authorized representative.
NJ Annual Report Requirements
Filing your New Jersey Annual Report is part of keeping your business in good standing with the state. At it’s most basic, the state wants to know if your business has made any changes with regards to members, directors, addresses, and so on. If you don’t file your annual report or don’t meet the filing deadline, you run the risk of losing your business’s good standing and will have to pay penalties, fees, and possibly even interest to reinstate it. Don’t run this risk. Hire Active Filings and never miss a filing deadline.
How do I file?
Head over to New Jersey’s business portal.
You’ll need to enter your Business ID Number (don’t remember your number? Search for it here)
How much does the report cost?
$75 for all businesses, except Non-Profits which pay $25.
When do I need to file?
New Jersey’s Annual Report is due by the end of the month in which the LLC was formed. For example, if you formed your New Jersey business in June 7th of 2019, your first annual report would be due by the end of June 2020.
New Jersey Business Taxes
Paying taxes is like going to the dentist. No one wants to do it. Taxes are, however, an integral part of successfully doing business in America. While we’re not tax professionals, we definitely will do our best to try and explain what kind of taxes your business will be expected to pay.
How will my corporation be taxed?
Corporations face “double taxation.” First they pay taxes on net profits from the business, and then get hit a second time when taxed on the dividends they receive from those earnings. Dividends are taxed at the shareholder’s personal tax rate. An LLC doesn’t have this problem, which means anyone looking to form a corporation should take note of a state’s corporate income tax and personal income tax. One way of avoiding double taxation may be to elect for your corporation to be taxed as an S Corp. By filing IRS Form 2553 (Election by a Small Business Corporation), a corporation with 100 or fewer shareholders can elect to be taxed as an S Corp. Of course, if a corporation chooses S Corp status, they’ll have to jump through a few extra hoops and meet certain requirements required by the IRS.
How will my LLC be taxed?
Single member LLCs, meaning it’s just you running your business, are treated like sole proprietorships by the IRS. This means that any profits or losses your LLC experiences, will pass-through to you as the single owner. All you have to do is file a Schedule C, which reports profits or loss from your business, with your personal tax return (IRS Form 1040). It should be noted that an LLC can elect to be taxed as a corporation under Subchapter C, by filing IRS Form 8832 (Entity Classification Election), or as a corporation under Subchapter S by filing IRS Form 2553 (Election by a Small Business Corporation).
What if my LLC has more than one member?
As with a single member LLC, the IRS will view your multi-member LLC as a partnership. The LLC will retain it’s pass-through tax status, with a few wrinkles with regards to paperwork. Instead of one member filing a 1040, instead each member will have to file a Return of Partnership Income form (IRS Form 1065). This document lets the IRS check and make sure each owner is reporting their income properly. Beyond that, each LLC owner will attach a Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc.) to their Form 1040. This form shows the IRS each member’s share of the LLC’s profits and losses.
Here’s a tip: If your LLC is going to have more than one member, it would be a good idea to draw up a simple operating agreement. Most states don’t require an LLC to have one, but with so many cooks in the kitchen, you’ll want clear documentation with regards to ownership percentage, voting rights, distribution of profits and losses, as well as rules for buying out a member. You won’t be require to file the agreement, but it should be signed by each member and kept with the LLC’s important documents.
Beyond the basic information you’ll also need:
• payroll documents
• bank and credit card statements
• accounting documents
• partnership agreements
• depreciation schedules
• gross receipts
• checking and savings account interest
What tax forms do I need to file?
Corporations: Form CBT-100
Partnerships: Form NJ-1065
LLCs: Form NJ-1040
What’s the New Jersey corporate income tax rate?
New Jersey hits corporations with a flat tax of 9%.
Also, it should be noted that Assembly Bill 4202, enacted in July 2018, established an additional tax rate for taxpayers paying the Corporation Business Tax with taxable New Jersey net income above $1 million. This rate was previously 2.5% for 2018 and 2019, but has now dropped to 1.5% for 2020 and 2021, bringing the top rate to 10.5 percent, still higher than the 9% ordinary top marginal rate. Basically the $1 you make above $1 million will be taxed at 10.5%, and all subsequent earnings will be taxed at that rate.
What’s the personal income tax rate in New Jersey?
$0 – $20,000 1.400%
$20,000 – $35,000 1.750%
$35,000 – $40,000 3.500%
$40,000 – $75,000 5.525%
$75,000 – $500,000 6.370%
$500,000 – $5,000,000 8.970%
When are my tax returns due?
New Jersey personal and corporate income tax returns are due by April 15th.
What if I need an extension?
A New Jersey tax extension will give you 6 more months to file, moving the deadline to October 15th (for calendar year taxpayers). Remember that this is not an extension of time to pay. Your New Jersey tax liability must be paid by the original due date, or interest and penalties will apply.