What do you need to do to set up an LLC?
Single member LLC or a 2-or-more member LLC. I think the filing fee is $125 to form the LLC, unless it has increased recently. Then, each year there is a $50 annual report fee.
You can form an LLC online via the State's website at: www.nj.gov/njbgs
* An LLC can be more than a single member or partnership. An LLC can also be an S Corp and even a C Corp. Each of the entities has pros and cons. Entity selection is a big decision that when done right need only be done once. We do a lot of start up consulting with clients, both in and out of SJI.
* There is still more work to do. Once your company is open comes obtaining an EIN from the Internal Revenue Service, completing the NJ registration form NJ REG for taxation purposes, opening a bank account using your new Fed ID # and setting up your financial record keeping software. I provide all those services as well.
* For the record, I paid an attorney to create my entities and to complete the operating agreements as well. Boilerplate stuff may not meet all your needs.
One key is the Operating Agreement. For example, if you have a multi-member LLC, here is some language from an LLC template which is woefully inadequate. I added my comments in red square brackets (sorry, my E-mail software is not responding to my forcing changes in font size) at the appropriate parts of the language of the template so you can see where just some of the problems may lie.
Management.The general policies[What Policies?] of the Company shall be established and enacted by the Members. [HOW?] The Members will carry-out said policies and conduct the day-to-day business and affairs of the Company.[WHO & HOW?] The Members shall direct, manage and control the business of the Company to the best of their ability. The Members shall have full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the Company's business. [WHO & HOW?] At any time when there is more than one Member, any one Member may take any action permitted to be taken by the Members, unless the approval of more than one of the Members is expressly required pursuant to this Operating Agreement or the Act.[Ya? think this needs clarification?]
Here are some more questions that I came up with to be resolved BEFORE setrting up a multi-member LLC for real estate:
decision to buy a property and for how much & terms
unanimous vote? 2/3?documentation?
decision to sell a property and for how much & terms
unanimous vote? 2/3?
deciding rehab standards for a given property
decision for additional capital contribution
What if not everyone has more capital?
If unequal, adjust voting rights?
Per member? Per % capital?
DISTRIBUTE OR REINVEST
writing checks for more than $5,000? $50,000?
choosing vendors, contractors and professionals (accountant, lawyer) - delegate to 2 members?
authorizing emergency actions when the members cannot be convened quickly
Here is one way to test your Operating Agreement. Assume that your teenage kid gets into an accident and you are sued personally and sued for your assets that include the LLC membership. Does your Operating Agreement and your LLC maintenance activities and non-mixing of personal funds with business funds provide you with the liability protection of being a separate entity from yourself if the plaintiff has a really sharp attorney? If so, that is good. If not, then the point of having the LLC for liability protection may not be as strong as Charmin extra strong.
By the way, an LLC can also be taxed as a sole proprietor. I think Jim meant to say that an LLC can be taxed as an S-Corp, C-Corp, etc. Obviously an LLC cannot actually be an S-Corp, C-Corp, etc.
You can form an LLC online via the State's website at: www.nj.gov/njbgs
* An LLC can be more than a single member or partnership. An LLC can also be an S Corp and even a C Corp. Each of the entities has pros and cons. Entity selection is a big decision that when done right need only be done once. We do a lot of start up consulting with clients, both in and out of SJI.
* There is still more work to do. Once your company is open comes obtaining an EIN from the Internal Revenue Service, completing the NJ registration form NJ REG for taxation purposes, opening a bank account using your new Fed ID # and setting up your financial record keeping software. I provide all those services as well.
* For the record, I paid an attorney to create my entities and to complete the operating agreements as well. Boilerplate stuff may not meet all your needs.
One key is the Operating Agreement. For example, if you have a multi-member LLC, here is some language from an LLC template which is woefully inadequate. I added my comments in red square brackets (sorry, my E-mail software is not responding to my forcing changes in font size) at the appropriate parts of the language of the template so you can see where just some of the problems may lie.
Management.The general policies[What Policies?] of the Company shall be established and enacted by the Members. [HOW?] The Members will carry-out said policies and conduct the day-to-day business and affairs of the Company.[WHO & HOW?] The Members shall direct, manage and control the business of the Company to the best of their ability. The Members shall have full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the Company's business. [WHO & HOW?] At any time when there is more than one Member, any one Member may take any action permitted to be taken by the Members, unless the approval of more than one of the Members is expressly required pursuant to this Operating Agreement or the Act.[Ya? think this needs clarification?]
Here are some more questions that I came up with to be resolved BEFORE setrting up a multi-member LLC for real estate:
decision to buy a property and for how much & terms
unanimous vote? 2/3?documentation?
decision to sell a property and for how much & terms
unanimous vote? 2/3?
deciding rehab standards for a given property
decision for additional capital contribution
What if not everyone has more capital?
If unequal, adjust voting rights?
Per member? Per % capital?
DISTRIBUTE OR REINVEST
writing checks for more than $5,000? $50,000?
choosing vendors, contractors and professionals (accountant, lawyer) - delegate to 2 members?
authorizing emergency actions when the members cannot be convened quickly
Here is one way to test your Operating Agreement. Assume that your teenage kid gets into an accident and you are sued personally and sued for your assets that include the LLC membership. Does your Operating Agreement and your LLC maintenance activities and non-mixing of personal funds with business funds provide you with the liability protection of being a separate entity from yourself if the plaintiff has a really sharp attorney? If so, that is good. If not, then the point of having the LLC for liability protection may not be as strong as Charmin extra strong.
By the way, an LLC can also be taxed as a sole proprietor. I think Jim meant to say that an LLC can be taxed as an S-Corp, C-Corp, etc. Obviously an LLC cannot actually be an S-Corp, C-Corp, etc.