Formation of Corporations
Sole proprietorships and general partnerships do not need to file organizational documents in New Jersey. However, if you are planning to form a corporation, you will need to file organizational documents with the state. There are several reasons why business owners might decide to form a corporation, including tax consequences and protection from liability. New Jersey business lawyer Raymond A. Grimes can advise and guide you in the formation of a corporation.Why Form a Corporation?
One major reason why business owners may elect to form a corporation is to protect their personal assets from the business' debts and obligations. Another important reason to form a New Jersey corporation is to shield oneself from personal liability in case the business is sued. Shareholders have limited liability for a judgment against the corporation. However, there are some disadvantages to a corporation. Generally, the process of incorporating is more expensive and time-consuming than structuring the business in other ways. In general, corporations have more paperwork to do to comply with federal, state, and local regulations. In some cases, incorporating results in higher taxes.First Steps in the Formation of a Corporation
One of the first steps in forming a corporation is choosing a business name. You will need to check whether your preferred name is available. Under New Jersey law, a corporation's name needs to include the word "corporation," "incorporated," or "company," or an abbreviation of these. The corporation's name must be distinct from other names on file with the State of New Jersey.
In New Jersey, a corporation needs to have a minimum of one director who is at least 18 years old. The director only needs to be a state resident or shareholder of the corporation if the bylaws or certificate of incorporation requires that. The corporation's certificate of incorporation needs to set out the number of directors who will make up the first board, as well as their names and addresses.
Next, you will need to get a certificate of incorporation ready and file it with the Division of Revenue. Bylaws must also be prepared. Bylaws are internal rules and procedures of the corporation. They should specify the size of the board, the obligations of any corporate officers, the manner whereby the directors will be elected, the timing of shareholder and board meetings, and how the board will function, among other things. The corporate bylaws need to be kept at your principal place of business, but they do not need to be filed with the state. A business lawyer can help you set up bylaws that meet all of the appropriate requirements.
An organizational meeting must be held. Shares can be issued to the owners in return for capital contributions that constitute the original operating capital for the business. The board of directors sets the price that shareholders must pay for the shares. The corporation must record how many shares were issued and to whom they were issued, as well as the money paid.
Stock certificates can be issued. They certify ownership of a certain number of shares in the corporation. When stock is issued, federal and state securities laws are implicated. However, if the corporation issues shares to at most 10 people who will participate in running the corporation, the corporation is eligible for exemptions to the securities registration requirements.After a Corporation is Formed
There are numerous laws and ordinances that may need to be followed after the formation of a corporation, depending on the nature of the corporation's business. Among other things, it will be necessary to obtain a business license. You also will need to obtain a state employer identification number for tax purposes and open a business bank account.Seek Advice from a New Jersey Attorney When Forming a Business
If you are interested in forming a corporation in New Jersey, you should retain a knowledgeable business attorney. It is important to understand and follow all of the applicable formalities to ensure that the corporation stays distinct from its founders. At the Grimes Law Firm, we represent business owners in Somerville, Neshanic Station, and throughout Somerset County, as well as across the tri-state area. Call us at (908) 371-1066 or contact us via our online form to set up an appointment.