New Jersey Corporations Attorneys
Choosing the Right Type of Business Entity
New Jersey law allows for a many types of corporate entities with different levels of tax implications, the most typical of which are the following:
- C Corporations: The C corporation is the standard corporation, insulating the shareholders from personal liability for corporate debts. C corporations have no restrictions on ownership. A C corporation is a separate taxable entity. It files a corporate tax return and pays taxes at the corporate level. Tax on corporate income is paid first at the corporate level, and then again at the individual level on dividends. This is what is often referred to as the “double taxation” of C corporations. C corporations can have multiple classes of stock issued, and that may be set up as a For Profit Corporation or a Non-Profit Corporation.
- S Corporations: The S corporation is also a corporation, but its organizers have elected to apply to the IRS for its special tax status. It gets its name because it is defined in Subchapter S of the Internal Revenue Code. To elect S corporation status when forming a corporation, Form 2553 must be filed with the IRS and all S corporation guidelines must be met. This election should be accomplished within 75 days of the formation of the entity. A S corporation is a “pass-through” tax entity. It files an informational federal return (Form 1120S), but no income tax is paid at the corporate level. The profits/losses of the business are instead passed through the business and reported on each owner’s personal tax returns. Any tax due is paid at the individual level by the owners. S corporations are restricted to no more than 100 shareholders, and shareholders must be US citizens/residents. Also, S corporations cannot be owned by C corporations, other S corporations, LLCs, partnerships or many trusts. Lastly, S corporations can have only one class of stock.
- Limited Liability Company (LLC):A limited liability company is a business structure that is similar to a corporation, but less formal. Business owners form LLCs to protect themselves from being personally liable for business debts. LLCs typically combine the pass through taxation of a partnership or sole proprietorship with the limited liability protection of a corporation. Income “passes through” the LLC to the LLC owners, and the owners report their respective share of the business’ income on their personal income tax returns. The LLC itself is not a separate taxable entity. Through the adoption of an Operating Agreement, the owners of the LLC can spell out in detail how the business will operate, while enjoying the flexibility and ease to change its provisions as the needs of the Company change in the future.
Judgment Liens & Collecting Upon Judgments
You had to go to Court to recover money from someone who is indebted to you, or who caused you to suffer monetary damages, and you finally obtained a Judgment against them from the Court. So, the war is over and your money is in the bank, right? Not so fast. Yes, you have a Judgment, but unfortunately that does not automatically translate into money in your pocket. Now you must begin the process of trying to collect upon your Judgment.
Under New Jersey law, if you obtain a Judgment for money in the Superior Court against someone, you acquire a Judgment lien. Judgment liens from the Superior Court are automatically recorded against any real estate located in New Jersey owned by the judgment debtor, in whole or in part. For those cases that were filed in the Special Civil Part (where the amount in controversy is $15,000 or less), including those in the Small Claims Court, there is one additional step that needs to be taken before a Judgment entered in those courts becomes a lien against real estate in New Jersey. It is a process known as “docketing the judgment”. However, once Judgment liens are recorded and/or properly docketed, should the judgment debtor attempt to sell his or her New Jersey real estate or seek to (re)finance it, the judgment lien will appear on the record of title and will likely have to be satisfied for that transaction to go forward. Judgments also enable a creditor to levy upon the debtor’s personal property and/or bank accounts with the assistance of the court’s officers. In those instances, the debtor is allowed to keep $1,000 in personal property and clothing. However, any property valued above that amount can be listed for public sale, the proceeds of which would then be paid over to the judgment creditor after expenses of sale. Lastly, yet often the most effective way to collect money on a judgment, is an execution or garnishment against the debtor’s wages. This collection tool is available to judgment creditors when the debtor works in New Jersey and earns in excess of $217.50 per week.
There are, of course, other business forms, like partnerships, limited partnerships, as well as sole proprietorships that can be operated under unique business names as well.
If you have any questions about business entities or would like to consult with an experienced business attorney to determine which business structure may be right for your business and you, contact Hunziker, Champion, Romer & Miller at (973) 256-0456 or fill out our contact form for a consultation.
