BUSINESS FORMATION IN NEW JERSEY With Kathryn Schwartzstein For The Small Business Owner © 2015 KATHRYN SCHWARTZSTEIN

BUSINESS FORMATION IN NEW JERSEY

With Kathryn Schwartzstein

For The Small Business Owner

© 2015 KATHRYN SCHWARTZSTEIN

Kathryn Schwartzstein Boston College, summa cum laude, 1998

Boston College Law School, 2004

GoldenSource Corporation, 2004-2006

The Prudential Insurance Company of America 2006-2008

Founded Smith + Schwartzstein LLC 2009 Review and negotiate contracts

Draft Operating Agreements/ form corporations and business filings

Draft Purchase and Sale Agreements for small business

Advise small business

Civil litigation

Partnership dissolution, contract disputes, collections, affirmative defenses, sexual harassment


Considerations in Selection of Business Entity

1. Type of business

2. Number of partners

3. Personal liability

4. Tax considerations- always check with an accountant

5. Place of business

6. Amount of money for initial contributions


Sole Proprietorships One Owner

Unincorporated business

Unlimited liability

Personal and business assets at risk

No formalities to create

In NJ must file a trade name certificate in the office of the clerk of the county or counties in which the business resides

Need to check that the name is available

No cost to create Taxed as a schedule C- individual files income and expenses

Tax year the same for the sole proprietorship as for the individual


General Partnerships-N.J.S.A. 42:1A-2

Similar to sole proprietorship, but more than one owner Good to have written partnership agreement

Without written agreement each partner has an equal voice in management

Unlimited liability Liability joint and several and;

Not limited by partners capital contributions or percentage interest in the profits and losses

Good for a business with few or no employees

Flexible arrangements for capital contributions, management control and sharing profit and losses

Taxes form 1065- flow through

Easy to form, little or no costs


Limited PartnershipsN.J.S.A. 42:2A-5(g)

Must have at least one general partner and at least one limited partner

General partner- same rights and liabilities as a partner in a general partnership- personal liability for debts and obligations

Limited partner- not personally liable for the obligations

Must file Certificate of Limited Partnership with Office of Treasurer and annual reports

Good idea to have a written agreement

Used frequently for real estate investment or development


Limited Liability PartnershipsN.J.S.A. 42:1A-18(c)

LLPs mostly used for professional practices such as medicine, accounting, engineering and law.

Good idea to have a partnership agreement in writing

Must include “limited liability partnership” or “LLP” in the name

Must have registered office and registered agent

Must file a Certificate with the NJ Office of the Treasury

Protected from the liability of another member

Pass through entity for taxes

Relatively new corporate structure (1995)


Limited Liability PartnershipsN.J.S.A. 42:1A-18(c)

C. An obligation of a partnership incurred while the partnership is a limited liability company, whether arising in contract, tort or otherwise, is solely the obligation of the partnership. A partner is not liable, directly or indirectly by way of contribution or otherwise, for such an obligation solely by reason of being or so acting as a partner.

D. Subsection c. Of this section shall not affect the liability of a partner in a limited liability partnership for his own negligence, omissions, malpractice, wrongful acts, or misconduct, or that of any person under his direct supervision.


Limited Liability CompaniesRevised Uniform Limited Liability Company Act(RULLCA) Hybrid entity

For federal and state tax purposes an LLC is treated as a pass through entity Must chose how the entity is to be taxed (partnership or corporation)

Must obtain Federal Employer Identification Number (FEIN)

Formed by filing a Certificate of Formation with the NJ Office of the Treasurer Must have registered agent and office

Must complete annual filings

Due to revisions, LLC can now have perpetual existence

Series LLC not an option in New Jersey© 2015 KATHRYN SCHWARTZSTEIN

Limited Liability Companies(continued)

Members do not have personal liability for the debts of the company But LLC can be held liable for the debts/obligations of a member

Management is determined by the Operating Agreement Can have any number of owners and different types of owners , i.e.

managing member

High degree of flexibility in structuring management rights and profit and loss allocations


Limited Liability Companies(continued)

In NJ remedy for creditors is a charging order Charging order only allows creditor rights to the profit of the LLC and

not to the assets (different than a corporation)

Good protection for property assets, real estate, etc.

Can be dissolved by: Death of a member

Bankruptcy

Judicial Decision


Subchapter S CorporationN.J.S.A. 14A:1-1

Formed by filing a certificate of incorporation with NJ Treasurer’s Office Must file annual reports

Must follow formalities: Hold meetings

Must have by-laws for meetings of Board of Directors and Officers

Guidelines for issuing stock certificates

Act through officers who function in corporate capacities

Segregate corporate assets from personal assets Failure to do so can affect personal liability

Best way to protect owner from personal liability for debts of corporation Shareholders generally not liable for claims against corporation for amounts

greater than their investment


S Corp.(continued)

Management vested in Board of Directors who are elected by shareholders Board of Directors appoint officers to manage the corporations day to

day business

Only need one director

Same person may act in more than one office

Can have perpetual existence

Not effected by transfer of stock or death or retirement of shareholder

Stocks freely transferrable, subject only to agreement among shareholders, some federal securities laws


S Corp.(continued)

Tax issues: S corporation taxed as a partnership

C corporation dividends taxed as income at the shareholder level- effectively results in double tax

Advantages Limited liability of shareholders for debt and obligation

Centralized management

Freely transferable shares of stock

Perpetual Existence

Ability to raise lots of capital by selling stock


Dissolution

Sole Proprietorship- end contractual relationships, settle outstanding liabilities/debts, file final payroll and taxes

General Partnership- Continues until winding up is finalized. Should have a writing stating that partnership is dissolved, liquidate assets, pay debts, end contractual relationships, file a certificate of dissolution with county clerk (if trade name was filed) LPs- Must file certificate of cancellation with NJ Treasurer’s Office

LLCs- Similar to LP. Must file certificate of cancellation with NJ Treasurer’s Office.

Corporations- more involved Need action from directors and shareholders

File a Certificate of Dissolution, but need a tax clearance certificate from NJ Division of Taxation

Publish a notice in the paper of corporation’s dissolution© 2015 KATHRYN SCHWARTZSTEIN

Questions? and helpful info

www.nj.gov/treasury/revenue

Filing fees $125 for domestic corporation

If you have one employee need employment insurance and worker’s compensation insurance


http://www.nj.gov/treasury/revenue

Documents

BUSINESS FORMATION IN NEW JERSEY With Kathryn Schwartzstein For The Small Business Owner © 2015 KATHRYN SCHWARTZSTEIN