Written operating agreements among an LLC’s owners establish procedures for governing the company and explain each owner’s rights, responsibilities and duties. They also describe how decisions are made, who has management authority and how owners will allocate profits and losses. Some agreements specify how new owners are admitted and if penalties are imposed on owners who don’t comply with the agreement. Although not required by state law, operating agreements provide the benefit of allowing owners, rather than the state, to make decisions for the company. According to attorney Rachael Lilienthal Stark, posting on the New Jersey Law Blog, “most provisions of the LLC Act can be pre-empted by the operating agreement.”
New Jersey LLCs must file an annual report with the Department of Revenue informing it of whether the LLC has changed its registered agent or membership. The information becomes a matter of public record and can be used by commercial, financial and legal organizations. Not filing the report places an LLC at risk of losing its active business status or even having its license revoked. The reports are signed by the LLC’s authorized representative. As of 2010, state law requires that the reports be filed online.
If the LLC has hired even one worker, it is considered an employer and needs to comply with employer responsibilities. New Jersey employers must withhold income from employee wages, file periodic reports on wages and withholding and purchase workers’ compensation, unemployment and disability insurance policies. They must also provide a safe working environment by adhering to federal and state Occupational Safety & Health Administration (OSHA) mandates.
Licenses and Permits
LLCs that perform special services must obtain licenses, certifications or permits. Examples of special services include providing child care, building and improving homes, transporting solid waste and operating restaurants, employment agencies and taxi companies. Owners should contact their municipal and county governments to find out if other local regulations apply. They can also contact the Division of Consumer Affairs for a list of services that require licensing.
Once they are formed, LLCs must register with the New Jersey Department of the Treasury, Division of Revenue. LLC owners will then receive forms and information allowing them to comply with New Jersey tax laws. In particular, LLCs that sell taxable goods and services must report state sales and use taxes. Owners can contact the Division of Taxation for a guide that lists specific taxes. LLCs must also obtain a permit to collect these taxes and display the permit at their business location. Also, since the IRS classifies LLCs as partnerships for federal income tax purposes, LLC owners must follow the same guidelines for filing federal income taxes as partnerships do.
Owner Rights and Responsibilities
Sources of an owner’s rights and responsibilities are state law and the LLC’s own operating agreement, if any. The statutes give owners the right to demand information regarding business status, financial condition, company tax returns, lists of current owners and copies of executed operating agreements. The statutes also limit each owner’s personal liability for debts and obligations incurred by the company and by each owner acting individually. That means one owner is not liable if the company defaults on a commercial loan or if another owner does not pay his home mortgage. While the statutes provide certain rights and liabilities, an operating agreement can override those provisions as long as it does not conflict with state law. Operating agreements can go so far as to shield owners from bad agreements entered into by a non-owner who is permitted to manage the LLC’s finances.