What business structure should I choose to start my business?
The Limited Liability Company (or “LLC”) is the business entity of choice for new business in New Jersey. The owners (called “members”) get the same protections against liability for debt or injury as do shareholders in a Sub Chapter S or Chapter C corporation.
Your operating agreement can be more flexible and simple as well. You get the same tax benefits as if you were in a sole proprietorship or partnership (not incorporated) since profits or losses go directly to your personal tax returns although an LLC return should be filed. Your accountants can give you more details.
Should my Limited Liability Company have an operating agreement or bylaws?
Yes. The operating agreement sets the rules for how you will operate the company, who can become an owner and what each will contribute in money, cash or other services.
You establish a managing member, identify general members and can assign each duties (such as finances, taking care of governmental filings, sales, management, providing services) and also how to end the relationship if there is a dispute that cannot be resolved.
The bylaws can be separate but often we suggest that the bylaws are simply covered in the operating agreement.
You can issue shares called membership certificates and each member votes their respective number of shares. You must provide for an annual meeting, hold elections and file an annual report with the State of New Jersey.
Unlike a corporation, the members must agree on allowing another to become a member.
What is the Uniform Commercial Code?
The Uniform Commercial Code (or “UCC”) is a group of laws designed to have the same laws in each of the states. New Jersey has made the Uniform Commercial Code its law. This makes doing business in another state more predictable and generally easier.
The UCC does not apply to real estate.
The UCC applies to sales of goods, leases of goods, promissory notes, checks and banking, transfers of money between banks and letters of credit liquidation and sales of all of the assets of a business, storage and lending of goods, investment securities and transactions secured as against property that is collateral for the payment of a debt and contracts.
There are small differences between each state. Louisiana and Puerto Rico have not adopted the UCC.
Because commercial transactions may move across state lines the lawyers and judges who drafted the UCC try to make these laws simple and predictable to reduce the need for more formal contracts, supply missing terms that business operators may have left out, and to make sure there is fairness between buyer, seller, shippers and banks whether in one state or where the transaction is in many states.
For example, goods could be manufactured in New Jersey, warehoused in Pennsylvania sold from a sales office in Maryland and delivered to a customer in Virginia. UCC laws can apply to this set of facts.
How can I collect money from a business that has filed bankruptcy?
If you receive a bankruptcy notice, you should read it carefully and have an experienced bankruptcy lawyer explain what to do next before taking any action to try to collect a debt.
Trying to collect money from any one under the protection of the Bankruptcy Court is illegal. Once you learn of the bankruptcy filing you must stop collection efforts.
If there are no assets, the notice from the Court will tell you in the notice mailed to you. . If there are assets and you want to see if you can get some money, you must file a form called a proof of claim. These are available on the Bankruptcy Court's website. It often makes sense to file a proof of claim since money may be available to distribute to creditors such as your company.
What contracts should my Business have?
An operating agreement (or partnership agreement if you have partners).
An agreement between your partners or members providing for the value of the business to be established by agreement in case one decides to buy the other out or decides to leave the business. A provision in the agreement to mediate or arbitrate disputes can help you avoid the expenses of a lawsuit between your partners.
An agreement that says how profits and losses are to be shared.
A sales agreement for the products or services you provide to the public or other businesses.
If you have employees and have information you do not want released to the public (perhaps about your business methods, customer lists, pricing or other confidential information that would hurt your competitive advantage if it were known) non-disclosure agreements are a good idea.
Under the proper circumstances, you can ask a judge to order certain information be recovered or not disclosed.
What should I do if I am having a dispute with my business partner over the operation of our business?
When you have reached the point of being unable to resolve the dispute, a neutral third party such as a mediator or arbitrator can be very helpful. Both sides must agree to this. If not, then a judge will do so after a lawsuit is filed. If the dispute cannot be resolved, your attorney can try to negotiate for you especially if the emotions are running too hot.
How do I buy out my partner's interest?
Sometimes, it's easy. Especially if you and other owners have signed a “Buy-Sell” agreement. This establishes a fixed price and payment terms each year for what the business is worth. You can then pay the leaving member's percentage of the agreed upon amount.
Sometimes, it's not so simple. The business value can be agreed up between the members or partners or a neutral business appraiser can set a price. Then one buys out the other for cash or for a stream of payments backed up by a promissory note and cash.
Sometimes, it's even more difficult. A court may appoint a business appraiser or each side may hire one and a judge will need to decide what the value is, who will be bought out and on what terms and for what amount of money.
How can I protect my personal assets from liability while running my business?
The first step is to form a limited liability company and/ or incorporate the business. Then obtain good liability, business operations and workers compensation insurance in case you or an employee injures someone (or is themselves hurt while working in the business).
When borrowing money, signing a lease or other contract be sure you are not personally guaranteeing the payments. Be sure you make everyone aware you are signing for the business and not for yourself. Sometimes, a personal guaranty of payment is unavoidable.
Remember that if you do business as a sole proprietor, do not form a corporation or limited liability company or allow these important protections to lapse by not filing the required annual reports or ignore the operating requirements, you could find your personal assets at risk.
What are the advantages of forming a Limited Liability Company in New Jersey?
You get the protections and flexibility described above in the other FAQs. Plus by filing in one state alone, you avoid the need for a second filing in another state with additional tax and reporting requirements unless you will operate in another state as well. If you decide to close your business LLC, then the dissolution process involves only one state and not multiple states.