Limited Liability Company Formations and Planning in New Jersey

Once you have the initial idea for your new business, formally establishing the business entity is an important step in protecting both your business idea and your assets.  Under New Jersey law, a business owner can choose from several business types, such as a partnership, an S or C corporation, or a limited liability company.  The type of the entity will determine the tax responsibilities and consequences, establish rules governing the owners of the business, and set forth the extent of personal liability that the owners may be responsible for as a result of business debts.  

Many new business owners instinctively tend towards setting up a corporation because this is one of the most well known types of business entities.  However, the growing trend is to form limited liability companies (LLCs) – and with good reason.  While there may be advantages associated with each business type, the LLC is often the best structure for most businesses since an LLC combines the advantages of corporations, which shield owners from personal liability, and partnerships, which eliminate income tax at the business level.  As long as it meets the requisite qualifications, an LLC may elect to be taxed as a sole proprietor, partnership, C corporation, or S corporation, which means it may be able to avoid the double taxation of a C corporation where both the owners and the company are taxed.  

Also, in many instances under New Jersey limited liability company law, LLC owners – called “members” – are insulated from personal liability for the company’s debts the way a corporation is protected. LLCs also have fewer required formalities than corporations.  Although they may have different classes of members, there is no requirement for a board of directors.  Also, LLC’s may have anywhere between one and an unlimited number of members, who may be people or other businesses.  

Once the LLC business entity is chosen, formation documents must be drafted (such as registrations with the State and Federal government, operating agreements, employment contracts, resolutions, and alternate name or “DBA” registrations, etc.).  Depending on the type of business, there may also be additional licenses or registrations that must be obtained before the business can begin operating.  Our business formation attorneys are experienced with handling all such matters for LLC members.  

While our lawyers are experienced in LLC formation and planning, we work alongside LLC members to ensure that they structure their business to meet their specific needs and goals.  We assist in negotiating financing agreements and closing loans, leasing or purchasing properties and equipment, and negotiating and drafting the contracts which the business needs to operate.  We also work with existing businesses to achieve their goals by amending business structures.  

Further, we not only help people structure new ventures, but can also negotiate agreements between owners.  The agreement between the members is among the most important documents for any new LLC because it sets the rules governing the relations among the members.  In an LLC, this document is called the “operating agreement.”   The operating agreement governs many details including what the owners’ functions will be, how the business is managed, how ownership interests can be transferred, and how to proceed in the case of disputes between owners.  While members almost always begin a new business together as friends or sometimes even family, many business disputes could be avoided by simply putting procedures in place for how to deal with unanticipated events or disagreements.

Still, the LLC is a relative new form of business entity (as opposed to the corporation) and the Legislature continues to revise its statutes on LLCs as the entity type evolves and business owners’ needs change.   For instance the New Jersey Revised Uniform Limited Liability Company Act – scheduled to go into effect in March of 2013 – includes many revisions and additions to New Jersey’s prior LLC laws.  These revisions included changes to rules of the duration of an LLC, the status of an LLC as a not-for-profit, the duties of members or other individuals in trusted positions in the LLC, indemnification of members, operating agreements, and numerous other aspects of the LLC.  Our attorneys closely following the evolution of LLC laws to ensure that our clients adhere to required standards and laws of the state.

To schedule a consultation with McLaughlin & Nardi’s New Jersey business formation attorneys, e-mail us or call (973) 890-0004.