Starting a business is an exciting endeavor - and one that requires careful planning and research. If you've decided that forming an S corporation (S-corp) is the right choice for your business in New Jersey, it's essential to understand the necessary steps and legal requirements. In this guide, we will take you through the process of starting an S-corp in New Jersey, from formation to ongoing compliance.
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What is an S-Corp?
Before we dive into the specifics of starting an S-corp in New Jersey, it's vital to understand what an S-corp is and whether it's the right legal structure for your business. An S-corp is a corporation that has elected a special tax status with the Internal Revenue Service (IRS).
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The primary advantage of forming an S-corp is the avoidance of double taxation. Instead of being taxed at both the corporate and individual levels, an S-corp's profits and losses pass through to the shareholders' personal tax returns. This can provide substantial tax savings for small business owners.
Step 1: Choose a Name and Confirm Availability
Choosing a unique and meaningful name for your S-corp is the first step towards establishing your business identity. New Jersey law requires your business name to include a corporate designator like "Corporation," "Incorporated," or an appropriate abbreviation such as "Corp" or "Inc."
To ensure that your chosen name is available, search the New Jersey Secretary of State's business name database. If the name is already in use or too similar to an existing entity, you'll need to brainstorm alternative options.
Step 2: Appoint Directors and Officers
S-corps require directors and officers to run the company. The directors are responsible for making strategic decisions and holding corporate meetings, while officers handle day-to-day operations. New Jersey law mandates a minimum of one director, but an S-corp may have more if desired.
As an S-corp, you need to specify the roles of your corporate directors and officers in your articles of incorporation - a legal document that establishes the existence of your corporation.
Step 3: File Articles of Incorporation
To legally form your S-corp in New Jersey, you must file Articles of Incorporation with the New Jersey Division of Revenue and Enterprise Services. The articles typically require the following information:
- The S-corp's name and address
- The registered agent's name and address
- The number of authorized shares of stock
- The purpose of the corporation
- The names and addresses of the initial directors
You can file the articles online or by mail. Be sure to pay the appropriate filing fee and include any required supporting documents. After the successful filing, you will receive a Certificate of Incorporation, officially establishing your S-corp.
Step 4: Obtain an EIN and Register for Taxes
An Employer Identification Number (EIN) is crucial for establishing your S-corp's tax identity. You will need an EIN to open a bank account, hire employees, and file tax returns.
Apply for an EIN through the IRS website or by filling out Form SS-4. Once you have obtained your EIN, you must register your S-corp with the New Jersey Division of Revenue and Enterprise Services for state tax purposes.
Step 5: Create Corporate Bylaws and Hold Initial Meetings
All corporations, including S-corps, should have bylaws in place to outline the internal rules and regulations of the company. Bylaws establish guidelines for things like voting, shareholder meetings, and operational procedures.
Hold an initial meeting of the board of directors to draft and adopt the bylaws, elect officers, and handle other essential matters. Document the meeting minutes and keep them in your corporate records book.
Step 6: Obtain Necessary Licenses and Permits
Depending on the nature of your business, you may need to obtain licenses and permits to operate legally in New Jersey. The requirements can vary significantly based on your industry. You can consult the New Jersey Business Action Center or utilize their "Business Wizard" tool to determine the specific licenses and permits you need.
Ensure that you have all the necessary permits and licenses before starting your business operations to avoid potential legal issues.
Step 7: Meet Ongoing Compliance Requirements
As an S-corp in New Jersey, you must meet specific compliance requirements to maintain your legal status:
1. Annual Reports: File an Annual Report with the New Jersey Division of Revenue and Enterprise Services by the due date, which includes basic business information and must be accompanied by a filing fee.
2. Tax Payment and Filings: Comply with all federal, state, and local tax obligations. This includes filing an annual tax return, paying applicable taxes, and maintaining proper records for at least three years.
3. Shareholder and Director Meetings: Hold regular shareholder and director meetings in accordance with your corporate bylaws, recording the minutes of each meeting.
4. Monitoring Corporate Formalities: Avoid commingling personal and business funds, as well as adhering to other corporate formalities to maintain the liability protection offered by an S-corp.
By consistently meeting these compliance requirements, your S-corp will remain compliant with state laws and eligible for the tax benefits associated with its legal structure.
In conclusion, starting an S-corp in New Jersey involves several legal and administrative steps. From choosing a name to meeting ongoing compliance obligations, following these steps can help you establish and maintain your S-corp successfully. It's always wise to consult with an attorney or professional who specializes in business law to ensure you navigate the process seamlessly and efficiently.
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