Some of the key steps in starting a business in New Jersey include:
Prepare a business plan
Choose a name for the business and do a search of name availability
Choose the type of business entity (proprietorship, limited liability company, corporation)
Register the business with the New Jersey Division of Revenue & Enterprise Services
Obtain a Federal Employer/Tax and NJ Tax ID number (EIN Number)
Register with the New Jersey Division of Taxation
- Business Plan Although many business founders retain attorneys to assist in forming their business and filing necessary documents, there is no legal requirement to do so. In recent years, online services, such as LegalZoom.com, Incorporate.com, ZenBusiness.com and several others, have emerged to become major providers of business formation services in New Jersey and other states. Entrepreneurs also may obtain free or low-cost advice from government and non-profit organizations in taking the needed steps to establish a business.
While also not legally required, most analysts suggest that an initial step for entrepreneurs or others considering starting a business is to prepare a business plan. The plan can be a useful tool in helping to focus the goals of the business; its needs to insure its success; and a benchmark to measure progress. The plan also may serve as a document available to potential investors, lenders, suppliers and distributors to help evaluate the business. Suggested components of a business plan include:
What is the principal product or service of the business?
Who will run the company and what makes them qualified through experience or education to do so?
What problem or need does the product or service address which is not currently met?
What is the size of the existing or future customer market?
How will the company promote and sell its products or services?
What is the cost of starting and operating the business in relation to current startup capital and future revenues?
Who are the competitors and how will the company maintain a competitive advantage?
What are the risks and threats confronting the business in such areas as regulation, litigation, technological change or other issues?
Perhaps the most important component of the business plan is the financial profile, both in its startup phase and subsequent continuing operations. This should outline projected expenses and profits, including the costs of employees, inventory, and equipment; sources and amount of startup and operating revenue; and whether it will be necessary to seek additional funding from investors or lenders. Studies of new business formations often point to mistaken estimates of the extent and sources of capital and operating revenues as the most common reason for business failures.
Availability of a name for a new limited liability company or corporation can be checked online by viewing names already in existence at the New Jersey Department of the Treasury. If a name is available, LLCs and corporations may register the name (or reserve it for a limited period for possible future use after incorporation) by filing with the New Jersey Department of Treasury. For sole proprietorships and partnerships, trade name search and registration is done at the local county clerk's office. Businesses formed outside the state (designated as "foreign businesses" even if formed in another US state) must use the same name that they are registered under in their home state. If the business name is already in use, the foreign business must establish a name under which it is ‘doing business as" or "DBA" name in New Jersey. Foreign businesses are the only ones that can use a DBA. Business names also can be reserved before filing for their formation. The amount of time that the name can be reserved depends on the business type.
In addition to the legal registered name of the business, there also may be reasons to register a different "trade name," typically a shorter, more-appealing name for marketing purposes (eg "Campbell Soup Company" trade names include "Campbell's"). New Jersey requires that such names, called trade names or alternate names, first be approved by and registered with the state.
Even if the business name is available as a result of the New Jersey search, it should be noted that this is limited protection which does not extend to protecting the name for other purposes such as that provided through trademarks or allow the name to be used to do business in states outside New Jersey, Analysts suggest a search on Google or other online tools may discover potential similar names which could create confusion and might be avoided, even if they are legally acceptable in New Jersey. Businesses also should consider whether the name and brands of the business and its products or services should also seek broader protections through application for trademarks or copyrights. Another area to explore is whether the name is available as a URL on the Internet; if duplicate or similar names are already in use, it may be worthwhile to register another name which is less likely to create confusion.
Trademarks and service marks--a distinctive word, phrase, or symbol that designates a product or service--may be obtained through registration with either the federal United States Patent and Trademark Office or state government, which in New Jersey is processed through the state Division of Revenue & Enterprise Services. Registering a trademark federally offers more legal protection by providing the right to use the mark exclusively throughout the nation while the state registration only covers protection within the territory of the state. The ® symbol may only be used if a federal registration has been obtained. Federal registration, however, generally can take up to a year or more to complete. * Business Name Availability, NJ Department of the Treasury * Reserve a Business Name, NJ Department of the Treasury * US Patent & Trademark Office * Register/Renew New Jersey State Trade and Service Marks
-- Employer Identification Number
An "Employer Identification Number" (EIN) is used to identify a business entity for federal and state tax and other regulatory purposes. Sole proprietorships may, however, choose to use a personal social security number for filing purposes, but must obtain an EIN if the business will have employees; wishes to open a bank account or credit line; or registers a company vehicle. In addition to the Federal Employer Identification Number (FEIN) obtained from the Internal Revenue Service or an existing individual social security number, a business also will be assigned a 12-digit New Jersey Taxpayer Identification Number that corresponds with the FEIN/SSN, followed by a three-digit suffix of "000". The respective numbers should be included on all federal and state returns, payments, and other correspondence with relevant agencies. * Apply for a Federal Tax ID in New Jersey, Internal Revenue Service * Employer Identification Number, Internal Revenue Service * Application for Employer Identification Number, Form SS-4, Internal Revenue Service
-- Form of Business
The options for forming a business entity in New Jersey are 1) a proprietorship or partnership; 2) a limited liability company (LLC); and 3) a corporation.
Sole Proprietorship- A Sole Proprietorship is the simplest form of doing business, which describes businesses begun by an individual, either alone or with partners, to operate a business without forming a new legal entity. A partnership functions in much the same way, except the founder and others are owners together and equally liable. Legally, the individual or individuals and the business are treated as one person. The major disadvantage of the sole proprietorship is that the owners are held legally responsible and personally liable for any business activity, debt or wrongdoing. It also may be more difficult for businesses operated as proprietorships or partnerships to obtain financing or enter agreements with other business entities such as suppliers or distributors.
While proprietorships and partnerships do not need approval before commencing operations, the founders are still required o register the trade name of the business with the state or their county of operation; file the business’s formation documents with the New Jersey Division of Revenue; and ensure that its operation complies with any other requirements, such as professional licensing or local land use and zoning regulations. New Jersey sole proprietorships or partnerships do not have to register with the New Jersey Division of Revenue since they do not create a distinct legal structure, but they are required to register with the New Jersey Division of Taxation. If the founder wishes to conduct business under a name that is different from their first and last name (or any partner’s first and last name), a Registration of Alternate Name (Form C-150G) must be filed with the state Division of Revenue.
Limited Liability Company (LLC)-
Unlike a sole proprietorship or partnership, a Limited Liability Company (LLC) is a separate entity which provides personal liability protection for its owners (shareholders). It requires designating a legal structure with a board of directors, corporate officers, and shareholders. An LLC in New Jersey is a hybrid entity that combines the benefits of a sole proprietorship (and a partnership) and a Corporation. Unlike a sole proprietorship and a partnership, a New Jersey LLC’s assets are separate and distinct from personal assets of its owners; consequently, if the LLC is held liable for debts or wrongdoing in a lawsuit or government action, personal assets are protected. For tax purposes, any profits or losses of the LLC are passed through to its owners for reporting on their personal tax returns. This tax treatment differs from that of the corporation, where the corporate entity is taxed on its revenue and its shareholders only responsible to report income received from any dividends or other distributions.
Corporation-
Corporations, sometimes referred to as "C" corporations, are the structure chosen by most larger businesses, particularly those looking to raise capital investment beyond the resources of its founders such as through a stock offering. Like the LLC, the corporation provides protection from personal legal liability of its owners. Unlike the LLC, however, for tax purposes it is taxed at the corporate level and its shareholders are also taxed on the basis of any dividends or other distributions of profits, thus resulting in double taxation. The names of corporations are required to contain the word "corporation," "company," "incorporated," or shall contain an abbreviation of one of those words. A corporation also must file an Annual Report identifying its board of directors and designating a New Jersey registered agent, who has a physical location in the state and is available during business hours to receive legal notices, such as service of process of a lawsuit on behalf of the business.
Corporations may elect different kinds of taxation. An "S corporation" under the federal income tax, while often mistakenly viewed as a different type of corporation, is in fact a closely held "C corporation" (or, in some cases, a limited liability company LLC or a partnership) that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. Smaller firms that might traditionally have been run as partnerships or sole proprietorships are often run as corporations with a small number of shareholders in order to take advantage of the corporate form in its protection from personal liability but with taxation of S corporations resembling that of partnerships with profits and losses passed through to shareholders. An S corporation that meets specific Internal Revenue Code requirements may pass income (along with other credits, deductions, and losses) directly to shareholders, without having to pay federal corporate taxes. The shareholders must then report the income or loss on their own individual income tax returns. Unlike C corporation shareholders, S corporation shareholders are allowed to offset other income by including their share of the corporation’s losses on their personal tax returns provided, however, they cannot deduct corporate losses in excess of their "basis" in their stock–the amount of their investment in the company--with a few adjustments. It also should be noted that no more than 25% of an S corporation’s gross corporate income may be derived from passive income.
While an S corporation's pass-through taxation is similar to an LLC or sole proprietorship, shareholders are not subject to self-employment taxes which can result in substantial tax savings. Unlike a C corporation, an S corporation is not eligible for a dividends received deduction. Also, unlike a C corporation, an S corporation is not subject to the 10% of taxable income limitation applicable to charitable contribution deductions.
A corporation is "eligible" to become an S corporation if it: 1) has no more than 100 shareholders; 2) has shareholders who are all individuals (exceptions are made for various tax-exempt organizations, estates, and trusts); 3) has no nonresident as shareholders, and 4) has only one class of stock with its profits and losses allocated to shareholders proportionately to each one's interest in the business.. A limited liability company is eligible to be taxed as an S corporation even if it has first elected to be taxed as a corporation for tax purposes; but subsequently decides to seek approval as an S corporation. The S corporation election must typically be made by the fifteenth day of the third month of the tax year for which the election is intended to be effective, or at any time during the year immediately preceding the tax year. * .Business Structures, Internal Revenue Service * S Corporations, Internal Revenue Service * About Form 2553, Election by a Small Business Corporation, Internal Revenue Service * File an Annual Report, NJ Department of the Treasury
Founders personal investment-Most startup businesses are financed through use of the own money of its founder or founders. This financing, however, is obviously constrained by the amount of personal money available, and many founders supplement their investment through such methods as obtaining personal loans through a home equity line of credit, retirement plans, insurance policies or a line of credit on a credit card. If the business fails, however, there is a risk that all personal assets may be lost, a risk demonstrated by research finding that most small businesses fail in the first five years of operation, thus jeopardizing the personal financial viability of its founder or founders.
In many cases, founders also resort to seeking help from others, often friends or family members, to raise additional money. These arrangements, while frequently commenced informally on the basis of the good will forged by personal relationships, may later become divisive as disputes arise over the terms of the financing, such as whether it was intended as a loan or equity investment or whether the money also was intended to allow participation in decisions related to management or sale of the business. Business analysts strongly advise that the terms of these financing arrangements, even among close personal contacts, be detailed in documents reviewed by attorneys representing the respective parties.
Banks and other commercial lenders-For startup businesses, it is usually extremely difficult to obtain business loans and lines of credit from a bank since banks normally wish to review the cash flow of a business in decisions to extend credit. Bank financing thus is generally limited to ongoing businesses which are generating cash and can identify substantial assets as collateral. Banks and other commercial lenders also typically request personal guarantees by business founders or principals as a condition of extending credit.
For more information on other financing options typically more available to existing business, including factoring, equipment leasing, angel investors, venture capital and crowdfunding, see Financing a Business. andNew Jersey Venture Capital Firms.
- Government financing
Government financing generally also is limited to firms with some history of operations, but in some cases may be available to finance startups and early-stage growth and expansion. The most frequent sources for potential assistance are the federal government's US Small Business Administration, which maintains a New Jersey District Office in Newark, and the New Jersey Economic Development Authority, a state government agency based in Trenton. In addition to their ongoing financing programs, both the federal and state governments enacted emergency programs responding to the COVID-19 economic disruption to assist businesses with lockdowns and loss of income from the pandemic.
US Small Business Administration The SBA microloan program provides business loans, channeled through intermediaries such as banks or local agencies, for up to $50,000 to small businesses. In some cases, the intermediaries also provide management assistance and may require training as a condition for a loan. Generally, intermediaries require some type of collateral as well as the personal guarantee of the business owner. The CDC/504 Loan Program provides long-term, fixed rate financing of up to $5 million for major fixed assets that promote business growth and job creation. 504 loans are available through Certified Development Companies (CDCs), SBA's community-based partners who regulate nonprofits and promote economic development within their communities. CDCs are certified and regulated by the SBA.
New Jersey Economic Development Authority The NJEDA offers small businesses a variety of low-cost financing options including direct loans, loan participations and guarantees, line of credit guarantees and tax-exempt bond financing. Its Micro Business Loan Program makes financing of up to $50,000 available to for-profit businesses legally registered to do business in New Jersey, with a business location in New Jersey, home-based businesses and non-profits in existence and operating for at least two years, who have annual revenues in the most current fiscal year of no greater than $1,500,000, and 10 full-time employees or less at time of application. Startup businesses in existence and operating between 6-12 months are eligible for financing but must provide the Authority with a business plan and five-year projections. Signed into law by Governor Murphy on January 7, 2021, the New Jersey Economic Recovery Act of 2020 (ERA) enacted a package of programs and reforms, partly responding to criticisms that the EDA previously had extended financing aid to firms with ties to politically influential individuals and to applicants which failed to comply with financing conditions demonstrating evidence of required job creation and community reinvestment. The ERA created a package of tax incentive, financing, and grant programs, also addressed the ongoing economic impacts of the COVID-19 pandemic, and included tax credits to promote job creation and capital investment, foster community redevelopment; and encourage investment in the arts, including live performances, film and digital media projects.
If there is at least one employee and wages paid of $1,000 or more in a calendar year, the business is considered as an employer required to register with the Division of Employer Accounts, New Jersey Department of Labor and Workforce Development, for unemployment insurance purposes to insure that employees are protected with unemployment benefits if they are no longer employed and qualify for benefits.
The business may also be subject to the provisions of the Federal Unemployment Tax Act (FUTA) if it had covered employment during some portion of a day in 20 different calendar weeks within the calendar year, or had a quarterly payroll of $1,500 or more.. At that point, the employer must provide quarterly wage reporting through filing Form WR-30, and pay applicable Unemployment (UI), Workforce Development (WF), Temporary Disability (DI) and Family Leave Insurance (FLI) contributions quarterly with Form NJ-927.The business also must have worker's compensation insurance to cover employees who may become injured or disabled due to work-related activities. The business founders also should consider whether private insurance should be obtained to offer supplemental disability or health benefits. (See more information on hiring, training and employees on this site at Operating a Business in New Jersey) * Division of Employer Accounts, New Jersey Department of Labor and Workforce Development * Payroll Taxes and Wage Withholding: Filing, Payment, and Reporting Service, New Jersey Division of Taxation
- Resources for small business . There are a range of government and nonprofit agencies and organizations which provide free or low-cost assistance in forming and managing businesses in the state. The New Jersey Business Action Center was established in 2010 as a resource for business owners in mentoring and counseling entrepreneurs throughout the state. The state government also supports regional Small Business Development Centers, most frequently associated with universities and colleges, to help entrepreneurs draft business plans, comply with legal and tax requirements and identify financing and hiring resources. With its sponsors including the US Small Business Administration, SCORE is a national non-profit organization with regional offices in New Jersey helping emerging and existing small businesses by providing free, confidential, professional business counseling to launch companies and offer advice on management problems. The regional chapters typically provide volunteer mentors comprised of active, semi-retired or retired executives or business owners from small- to mid-size companies.
