by LawInc Staff
December 5, 2014
Before starting a business in New Jersey, it is important to consider what steps must be taken to not only maximize business success but to ensure compliance with New Jersey and Federal laws.
Once you have drafted your New Jersey business plan and come to the conclusion that your business idea has a good chance of succeeding, consider the following checklist to ensure you are starting your business the right way.
Choose a Business Name
Before diving into a business, make sure the business name is available locally and nationally. The more unique the name, the better.
Too many business owners fail to properly research name availability before starting.
Hire an attorney to ensure that a comprehensive name search is conducted. You do not want to invest time and money into a business that can be later plagued by claims of trademark infringement.
Once you have confirmed availability, register the name with the United States Patent and Trademark Office to ensure it is protected.
New Jersey Corporation or LLC?
It is important that you use a legal entity like a corporation or LLC to protect yourself and your business in case of a lawsuit. The reality is that successful businesses are subject to lawsuits, whether or not the business has done something wrong.
Without a New Jersey corporation or LLC, the business owner can be held personally liable for the actions of the business. By forming a legal entity, and using it in connection with all business transactions, the owner receives protection.
When determining whether a New Jersey corporation or LLC is better for your business, consider tax savings. Sometimes, New Jersey S corporations can provide savings on “self-employment taxes.” The potential savings varies depending on how much the business earns.
If your business will not be making a lot of money during the start-up phase, consider whether an LLC may be the wiser choice. LLCs are extremely flexible and simple to operate and can always make an S corporation election in the future. This allows them to effectively be subject to the same tax benefits associated with regular S corporations.
Make sure you form your New Jersey corporation or LLC the right way. If you form an LLC, make sure an operating agreement is executed. If forming a corporation, ensure that all corporate records, like minutes, bylaws and stock certificates are properly drafted. Also make sure you are complying with applicable securities laws.
Failure to properly form an entity can lead to liability issues in case of a lawsuit or audit.
Moreover, after the entity is formed, make sure you are complying with all annual state and federal requirements. One missed renewal payment or tax filing can result in an entity becoming invalidated, leaving you vulnerable in case of a lawsuit.
Obtain a Tax ID Number
A federal Taxpayer Identification Number (Tax ID Number), also known as an Employer Identification Number (EIN), should also be obtained. The Tax ID Number should be used when opening the business bank account and paying taxes.
Although the IRS will allow an LLC with one owner to use the owner’s Social Security Number, it is typically better to avoid doing so and obtain a separate Tax ID Number. Doing so will provide more flexibility in the future.
LLCs with more than one owner or are taxed like corporations are required to obtain a Tax ID Number.
Open Your Business Bank Account
It is extremely important that you keep business funds separate from personal funds. Commingling of business and personal funds complicates accounting and tax filings and can lead to personal liability in case of a lawsuit.
Don’t treat the business account like your personal piggy bank. Follow proper protocols when depositing and withdrawing funds from the business account.
Work carefully with a qualified accountant to ensure you are doing things properly and complying with tax laws.
Register With the New Jersey Division of Revenue
New Jersey business are required to register with the New Jersey Division of Revenue by completing Form NJ-REG within 60 days of business formation. If the business will be collecting sales tax, it must be filed at least fifteen days prior to the first sale date. NJ-REG can be filed online or you can download the paper forms the NJ Business Registration Packet.
Do not forget this important New Jersey tax requirement.
Permits and Licenses
Make sure your New Jersey business is not required to file a special registration or obtain a special license or certification.
For more information, review the New Jersey License and Certification Guide.
In addition to state requirements, also determine whether any local, municipal and county license and permit requirements apply to your business.
Comply With Employee Related Requirements
If your New Jersey business will have employees, it is extremely important to comply with all applicable laws and regulations.
Unemployment insurance is required if your business will have at least one employee. For more information, visit the Division of Employer Accounts, New Jersey Department of Labor and Workforce Development website.
Workers’ Compensation Insurance may also be required. Visit the Division of Workers Compensation, New Jersey Department of Labor and Workforce Development website and speak with an insurance agent about this requirement.
Visit the IRS website to determine what employee related requirements apply to your business.
Your accountant should be notified every time an employee is hired to ensure you are complying with payroll requirements.
Also make sure your employees are signing attorney-drafted contracts to ensure a fair, professional and legal employer-employee relationship.
Consult With a Professional
Work closely with professionals, before and after business formation, to ensure you are complying with all legal requirements associated with your business.
Consult with an attorney and accountant, in your state. Proper guidance is key to the success of your business.