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Giants, Eagles, and Jets fans may not be able to agree on much, but everyone can agree that an LLC is the best way to protect your personal assets from the liabilities of your New Jersey business.

4 EASY STEPS TO FORMING A NEW JERSEY LLC

1: Pick a Name

Every New Jersey LLC’s name needs to contain “limited liability company,” “LLC,” or “L.L.C.” It also must be differentiable from the name of any business entity that has either been formed or qualified to do business in New Jersey.  Additionally, the name cannot contain the words “banking,” “little league,” “realtor,” “cemetery,” “Olympia,” “Olympic,” “trust” or “insurance.”

2: File with the State

To become an official business entity, an authorized person needs to file the LLC’s certificate of formation with the Secretary of State. This must include the name of the LLC, the name and address of the Registered Agent, whether the LLC is perpetual or has a date of dissolution, and any other provisions the organizer decides to include. The Certificate of Formation also requires a $125 filing fee.

3: Execute an Operating Agreement

New Jersey currently defines an operating agreement as a “written, verbal or oral” agreement for multi-member LLCs. This document will govern the internal relationships and actions of the LLC. For recommendations on operating agreements, visit our operating agreement page.

4: Keep Your LLC in Existence

EIN: Multi-member LLCs, or those that employ anybody, will need to get an EIN from the I.R.S. This can be done directly, or an incorporation service like Incnow can do it for you.

Annual Report: Every New Jersey LLC must file an annual report with the Secretary of State. This must contain the name of the company, the name and address of the registered agent, and the names and addresses of managers or managing members. This must be accompanied by a $50 fee sent to the State Treasurer.

WHY FORM AN LLC IN NEW JERSEY?

The Benefits and Advantages of Creating a New Jersey LLC

Introduction

New Jersey has a large and growing economy. Each year, New Jersey forms over 55,000 new LLCs.  New Jersey has over 259,000 active LLCs.  New Jersey has the seventh largest state gross domestic product, and it is ranked fourth for job creation.

Advantages of Forming a New Jersey LLC

The New Jersey LLC Act explicitly states it should be interpreted “to give the maximum effect to the principle of freedom of contract and to the enforceability of operating agreements.”  The Act gives LLC members contractual freedom to customize their capital contributions and their shares of profits and losses.  An LLC’s members can designate a method for allocating profits and losses in an LLC Agreement that is greater or lesser than their percentage of capital contributions.  This gives members contractual flexibility to adapt their income streams and risks of loss to further their broader asset management plans.

The LLC Act enables members to create classes of membership.  An LLC agreement may establish classes of membership interests with different rights, powers, and duties, including voting and non-voting interests.  This facilitates everything from complex, high-dollar-volume transactions to succession planning in family businesses and estate planning by gifts of non-voting interests.

Formation

The New Jersey LLC Act does not require filing of members’ names.  A person may sign an LLC’s certificate of formation, and the person does not need to be a member of the LLC.  A manager or whoever files the certificate of formation does not need to be a member or a natural person.  An LLC’s members may therefore have an entity or person who is not a member file the LLC’s certificate of formation with the New Jersey Secretary of State.

Duration

The LLC Act provides for an LLC’s unlimited life.  It specifically states “[a] limited liability company has perpetual duration.”  An LLC’s existence can therefore outlive its members’ lifetimes.

Dealing with Business Partners

The New Jersey LLC Act gives members contractual freedom to customize the duties each party to an LLC’s operating agreement owes to the other parties.  It provides that an LLC agreement cannot “eliminate the duty of loyalty, the duty of care, or any other fiduciary duty.”  But an LLC agreement may reasonably (1) “identify specific types or categories of activities that do not violate the duty of loyalty”; (2) “alter the duty of care, except to authorize intentional misconduct or knowing violation of law”; or (3) “alter any other fiduciary duty, including eliminating particular aspects of that duty.”

In addition, an LLC agreement may “specify the method by which a specific act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified by one or more disinterested and independent persons after full disclosure of all material facts.”  The result is the LLC Act gives parties to the LLC agreement power to choose the level of protection they want and the ability to take advantage of mutually beneficial opportunities.

Preventing Unwanted Business Partners

The New Jersey LLC Act allows members to protect their control of the LLC.  Under the Act, if a member of a member-managed LLC either (1) becomes a debtor in bankruptcy; (2) executes an assignment for the benefit of creditors; or (3) acquiesces in the appointment of a trustee, receiver, or liquidator of the person or of all or substantially all of the person’s property then the person is dissociated from being a member in the LLC.  Dissociation terminates “the person’s right to participate as a member in the management and conduct of the company’s activities.”

Creditors Only Get Passive Rights, Not Control Rights

If a judgment creditor obtains a charging order against a member’s membership interest, it “constitutes a lien on a judgment debtor’s transferable interest and requires the limited liability company to pay over to the person to which the charging order was issued any distribution that would otherwise be paid to the judgment debtor.”  If the judgment creditor forecloses on the membership interest, the purchaser at the foreclosure sale “only obtains the transferable interest, does not thereby become a member.”  The obligations of an LLC and its members to a transferee or dissociated member are governed by the operating agreement.  These provisions are the “exclusive remedy by which a person seeking to enforce a judgment against a member or transferee may, in the capacity of judgment creditor, satisfy the judgment from the judgment debtor’s transferable interest.”  This enables members to protect their control of an LLC.

New Jersey Registered Agent

A New Jersey LLC must continuously maintain a New Jersey registered address.  A commercial registered agent service may act as a New Jersey registered agent and office.

How to Keep a New Jersey LLC in Good Standing

The New Jersey LLC Act requires LLCs to file annual reports.  If an LLC does not file a report for two consecutive years, then “the certificate of a domestic limited liability company shall be transferred to an inactive list” by the Department of State.  The name of an LLC on the inactive list is “available for use by any other limited liability company, including a newly-formed limited liability company.”  The fee for filing the report is $50.

Conclusion

Because of the advantages of forming an LLC in New Jersey, over 55,000 new LLCs are formed in the state each year. Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in New Jersey.  What are the advantages of a Delaware LLC?  (Delaware LLC Advantages).  We can then help you file an application for registration to do business in New Jersey with your Delaware LLC (Form Delaware LLC).

New Jersey Revised Uniform Limited Liability Company Act Statutory References
§ 42:2C-2“Definitions”
§ 42:2C-4“Nature, Purposes and Duration of Limited Liability Company”
§ 42:2C-11“Operating Agreement; Scope, Function, and Limitations”
§ 42:2C-13“Operating Agreement; Effect on Third Parties and Relationship to Records Effective on Behalf of Limited Liability Company”
§ 42:2C-14“Office and Agent for Service of Process”
§ 42:2C-18“Formation of Limited Liability Company; Certificate of Formation”
§ 42:2C-26“Annual Report for Filing Office”
§ 42:2C-31“Becoming a Member”
§ 42:2C-37“Management of Limited Liability Company”
§ 42:2C-39“Standards of Conduct for Members and Managers”
§ 42:2C-42“Transfer of Transferable Interest”
§ 42:2C-43“Charging Order”
§ 42:2C-46“Events Causing Dissociation”
§ 42:2C-53“Administrative Action”
§ 42:2C-54“Reinstatement Following Administrative Dissolution”
§ 42:2C-58“Application for Certificate of Authority; Amendments to Certificate of Authority”
§ 42:2C-62“Revocation of Certificate of Authority”
Governor Christie signed a Revised Uniform LLC Act on September 19, 2012

P.L. 2012, c. 50, N.J.S.A. 42:2C-1 et seq.

The new act takes effect on March 18, 2013, for limited liability companies formed after that date and on April 1, 2014, for LLCs already in existence.

The new act repeals and replaces the existing New Jersey Limited Liability Company Act originally enacted in 1993.

Formation Changes

The current act states that an LLC may carry on any lawful business, purpose, or activity. The new act has clarified and expanded the purpose of an LLC, stating that an LLC “may have any lawful purpose, regardless of whether for profit.” Although not explicitly stated, the clear implication is that LLCs may carry on nonprofit-type activities.

The current act provides that unless an LLC’s certificate of formation specifies the LLC is to have a perpetual duration, the duration of such LLC is either the period specified in the LLC’s operating agreement or, if no such period is specified, 30 years from the date of formation of such LLC. The new act, however, makes the default duration of an LLC perpetual, unless otherwise limited by the LLC’s operating agreement. This change corresponds to the default perpetual duration for New Jersey corporations.

Increased Flexibility in Operating Agreements

The current act defines “operating agreement” as “a written agreement among the members…as to the affairs of a limited liability company and the conduct of its business.”

The new act instead allows an operating agreement to be oral, written, or implied based on the way an LLC has operated, which is consistent with the vast majority of other states’ LLC statutes. This benefits smaller New Jersey LLCs that may not have written operating agreements but instead use oral or implied agreements between members to guide how they do business.

In addition, and different from the current act, the new act provides that an operating agreement may specify that an amendment to such operating agreement may require the approval of a person who is not a party to the operating agreement or the satisfaction of a condition in order to be effective.

Statement of Authority

The current act states that each member in a member-managed LLC, unless otherwise provided in the operating agreement, has the authority to bind the LLC. That provision does not appear in the new act.

The new act incorporates the concept, not provided in the current act, of filing a Statement of Authority, allowing a specific person to act on behalf of the LLC. This provision clarifies that a member is not an agent of an LLC solely by reason of membership and recognizes the use of a publicly filed document to provide third parties with reliable documentation of the authority of a specific person to enter into transactions on behalf of an LLC (e.g., executing an instrument to transfer real property or otherwise entering into transactions that bind the LLC).

Resignation Rights

The current act entitles resigning members to receive the fair value of their LLC interest upon resignation from the LLC.

Under the new act, however, a resigning member is no longer entitled to receive the fair value of such member’s LLC interest as of the date of resignation. Instead, upon resignation, a resigning member is dissociated as a member and retains only the rights of an economic interest holder.

Domestication of Non-New Jersey LLCs and Conversion of Non-LLC Entities

Unlike the current act, the new act provides procedures for the domestication of an LLC formed under the laws of another state to become a New Jersey LLC, as well as procedures for the conversion of a different corporate entity (e.g., a corporation) to become a New Jersey LLC. This change is in line with other business-friendly states’ statutes, like those of Delaware and Nevada.