Starting a Professional Corporation in New Jersey 2024: Ultimate Guide

Licensed professional? Level up your business with New Jersey professional corporation! Enjoy unique benefits like New Jersey LLC, such as limited liability, tax perks, and a polished image. Our step-by-step guide unravels the essentials for smooth compliance and the right fit. LLCBase has your back with expert guidance, so make an informed decision and triumph in New Jersey with your professional corporation today!

This guide will review the requirements for starting a professional corporation in New Jersey, explore the advantages and disadvantages of this business structure, and help you determine if it is the right fit for your business goals.

What is a Professional Corporation

A Professional Corporation (P.C.) is a unique type of corporation designed for licensed professionals, such as doctors, dentists, lawyers, architects, and accountants. Forming a P.C. allows licensed professionals to offer their services through a corporate structure, providing them with the benefits of a traditional corporation, such as limited liability protection and tax advantages. Forming a professional corporation in New Jersey is a popular choice due to the thriving professional landscape and business-friendly environment. When starting a professional corporation, choose a reliable formation service in New Jersey.

The primary purpose of New Jersey Professional Corporation is to protect its owners from personal liability for the corporation’s actions. The shareholders’ personal assets are protected if the professional corporation faces legal issues. Moreover, New Jersey professional corporations can offer certain tax benefits, such as deducting employee benefits and operating expenses. These advantages make forming a professional corporation an attractive option for many professionals in New Jersey.

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Who Can File Under Professional Corporation Laws

Under New Jersey Professional Corporation laws, only certain licensed professionals are eligible to form a professional corporation. The specific professions allowed to form a P.C. may vary slightly by state, but in New Jersey, the following professionals can typically form a professional corporation:

Each profession has its governing licensing board, which sets specific rules and regulations for forming and operating a professional corporation. It is essential to check with the relevant board and state laws to ensure that your profession is eligible to form a professional corporation and to understand the specific requirements associated with your profession.

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Structure of a Professional Corporation

• Shareholders: New Jersey Professional Corporation’s shareholders must be licensed professionals in the same field as the corporation’s purpose. For example, if a professional corporation is formed to offer legal services, all shareholders must be licensed attorneys. This requirement ensures that the professional corporation’s management comprises qualified individuals with relevant expertise.
• Directors: The directors of a professional corporation in New Jersey are responsible for overseeing the corporation’s operations and making high-level decisions. The directors must also be licensed professionals in the same field as the corporation’s purpose. The number of directors required depends on the specific licensing board’s regulations, but typically a minimum of one director is needed.
• Officers: The officers of New Jersey Professional Corporation manage the professional corporation. Officers typically include a President, Secretary, and Treasurer. However, additional officers can be appointed as needed. While not all officers must be licensed professionals, the President must hold a valid license in the same field as the corporation’s purpose.

Starting a Professional Corporation in New Jersey: A Guide

Here is a detailed guide to starting a professional corporation in New Jersey that you should follow.

Step 1: Appointment of Registered Agent

The first step in forming a Professional Corporation is appointing Registered Agent in New Jersey. This individual or company will act on behalf of the corporation, receiving official notices and legal documents. The agent must have a physical address in New Jersey and be available during regular business hours.

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Step 2: Choosing the Name of the Corporation

Selecting a name for your New Jersey Professional Corporation is crucial. The name must be unique and appropriate, including the words “professional corporation” or the abbreviation “P.C.” It must also comply with the rules and regulations of the governing licensing board and should not be confusingly similar to an existing corporation’s name.

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Step 3: Drafting of By-laws

By-laws are the internal rules and regulations governing the management and operations of the professional corporation. These should include provisions related to the appointment of directors, issuance of shares, and any restrictions imposed by the licensing board.

Step 4: Appointment of Board of Directors

The board of directors oversees the management and operations of the New Jersey Professional Corporation. Directors must be licensed professionals in the same field as the corporation’s purpose.

Step 5: Conduction of Board Meetings

Regular board meetings are essential for maintaining the proper functioning and compliance of the professional corporation. The by-laws should specify the frequency, notice requirements, and procedures for conducting these meetings.

Step 6: Issuance of Corporate Shares

Shares represent ownership in the corporation. The professional corporation must issue shares to its shareholders, who must be licensed professionals in the same field. Share issuance should comply with the by-laws and any restrictions imposed by the licensing board.

Step 7: Comply with State Requirements

Forming New Jersey Professional Corporation requires compliance with specific state requirements, such as obtaining necessary permits and licenses, paying fees, and adhering to rules and regulations the governing licensing board sets forth.

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Step 8: Filing of Statement of Information

New Jersey professional corporations must file an annual report with the New Jersey Secretary of State. This document includes essential information about the corporation, including its name, address, Registered Agent, and directors.

Step 9: Getting Tax Permits from the State

The professional corporation must obtain the necessary tax permits from the New Jersey Division of Taxation, such as an Employer Identification Number (EIN) from the Internal Revenue Service (IRS).

Step 10: Opening of a Bank Account

Finally, open a separate bank account for the New Jersey Professional Corporation to maintain proper accounting and financial records.

Fees Associated with Professional Corporation in New Jersey

Here are some of the most common fees when starting a professional corporation in New Jersey.

• State Laws and Regulations: To form a professional corporation in New Jersey, it is crucial to comply with the state laws and regulations governing professional corporations. The New Jersey Statutes Title 14A and the specific licensing board’s regulations for each profession outline the requirements and restrictions for professional corporation formation. Before starting the process, professionals should consult with their licensing board to ensure they meet the necessary qualifications.
• Incorporation Process: Once the licensing requirements are met, the next step to form a professional corporation in New Jersey is to draft and file the Certificate of Incorporation with the New Jersey Secretary of State. This document includes essential information about the corporation, such as its name, address, purpose, and number of authorized shares. Filing the Certificate of Incorporation requires a filing fee currently $125 for most professions. However, it is essential to check with the New Jersey Secretary of State for the specific fee associated with your profession.
• Naming Requirements: You must follow specific rules when choosing a name for a Professional Corporation in New Jersey. The name must include the words “Professional Corporation,” “P.C.,” or “Prof. Corp.” Additionally, the name cannot be misleading or too similar to an existing corporation’s name. Conducting a name search with the New Jersey Secretary of State is recommended to ensure the chosen name is available. This search is free, but reserving a name before filing the Certificate of Incorporation requires a reservation fee of $50 online and $50 mail.
• Certificate of Incorporation: The Certificate of Incorporation is a critical document for forming a professional corporation in New Jersey. It outlines the corporation’s essential information, such as the name, address, purpose, and number of authorized shares. The Articles must also include a statement that the corporation is a professional corporation and the specific profession it practices. Once completed, the Certificate of Incorporation must be filed with the New Jersey Secretary of State, accompanied by the appropriate filing fee.
• Additional Fees and Costs: In addition to the filing fees mentioned above, forming Professional Corporation in New Jersey may involve other costs, such as:
  • Annual Report: professional corporations must file an initial Statement of Information with the New Jersey Secretary of State every End of the corporation’s fiscal year of filing the Certificate of Incorporation. The filing fee for this form is $75.
  • Licensing and Permit Fees: Depending on the specific profession, the governing licensing board may require additional licensing and permit fees.
  • Registered Agent Fee: Hiring of Registered Agent service will likely involve an annual fee of $50 – $200, which can vary depending on the service provider.
  • Legal and Accounting Fees: Forming a professional corporation may involve consulting with attorneys and accountants, which can result in additional professional fees.

Advantages of a Professional Corporation

• Limited Liability Protection: One of the main benefits of a professional corporation is its limited liability protection to its shareholders. This means the shareholders’ assets are protected from the corporation’s debts and liabilities.
• Tax Benefits: Professional Corporations enjoy specific tax benefits, such as deductions for business expenses and the ability to retain earnings within the corporation.
• Business Credibility: Operating as a professional corporation can enhance the credibility and reputation of the professional services, demonstrating a commitment to compliance and professionalism.
• Continuity of Operations: A professional corporation has a perpetual existence, ensuring the continuity of operations even if the shareholders or directors change.

Disadvantages of a Professional Corporation

• Complexity and Cost of Formation: Forming a professional corporation can be more complex and costly than other business structures, such as sole proprietorships or partnerships.
• Ongoing Compliance Requirements: professional corporations must adhere to ongoing compliance requirements, including regular board meetings, filing annual reports, and maintaining proper records.
• Limited Flexibility in Management: professional corporations may need more flexibility in management, as the board of directors must consist of licensed professionals in the same field.

Taxation of Professional Corporations

Here are the taxes that your professional corporation must pay in New Jersey:

Federal income tax

A professional corporation in New Jersey is subject to federal income tax on its net earnings. However, a P.C. can elect to be taxed as an S corporation, which allows the corporation’s income, deductions, and credits to pass through to the shareholders. This can result in significant tax savings by avoiding double taxation.

State taxes

New Jersey Professional Corporation is also subject to state taxes, such as the New Jersey franchise tax, which is based on the corporation’s annual net income. Additionally, depending on the nature of its operations, the professional corporation may be subject to other state and local taxes, such as payroll and sales taxes permit in New Jersey.

Tax deductions and exemptions

A professional corporation in New Jersey can take advantage of various tax deductions and exemptions, such as deductions for employee benefits, operating expenses, and depreciation. These deductions can help reduce the corporation’s taxable income, ultimately leading to tax savings for the P.C. and its shareholders.

Alternatives to Professional Corporations in New Jersey

If you decide that a professional corporation is not for you, then you might consider the following alternatives.

• Sole Proprietorships: A simpler business structure is where an individual operates the business under their name without limited liability protection.
• Partnerships: Two or more individuals join to operate a business, sharing profits, losses, and responsibilities.
• Limited Liability Companies (LLCs): A hybrid business structure that combines the limited liability protection of a corporation with the tax benefits and flexibility of a partnership.
• S-corporations: Starting an S Corp in New Jersey avoids double taxation by allowing income, losses, and deductions to pass through to the shareholders’ personal tax returns.

FAQs

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How to Save Money While Forming New Jersey Professional Corporation

One of the first steps to saving money when forming a professional corporation in New Jersey is to carefully consider your choice of legal entity. While a professional corporation may be the appropriate structure for certain professions, such as lawyers, doctors, and accountants, it may not be necessary for all types of businesses. Depending on the nature of your profession and the size of your business, you may be able to save money by choosing a different legal structure, such as a limited liability company (LLC) or a sole proprietorship.

Another way to save money when forming a professional corporation in New Jersey is to do as much of the paperwork and filing yourself as possible. While it may be tempting to hire a lawyer or a professional business formation service to handle all the details, taking the time to educate yourself on the process and completing the necessary forms on your own can save you a significant amount of money in legal fees. There are many resources available, both online and offline, that can help guide you through the process of forming a professional corporation in New Jersey.

Additionally, when it comes to selecting a registered agent for your professional corporation, consider choosing a reliable but affordable service. A registered agent is responsible for receiving legal documents on behalf of your business and ensuring that they are handled in a timely manner. While some registered agent services can be quite expensive, there are many affordable options available that provide the same level of service.

Furthermore, when setting up your professional corporation, be sure to carefully consider your business expenses and budget accordingly. Planning ahead and being mindful of your spending can help you avoid unnecessary costs and potentially save you money in the long run. Consider whether certain expenses, such as office space, equipment, or professional services, are essential to the success of your business, or if they can be cut back or eliminated altogether.

Lastly, don’t forget to take advantage of any tax deductions or incentives that may be available to you as a professional corporation in New Jersey. By carefully documenting and keeping track of your business expenses, you may be able to lower your tax liability and keep more money in your pocket.

In conclusion, forming a professional corporation in New Jersey doesn’t have to break the bank. By carefully considering your choice of legal entity, completing as much of the paperwork yourself as possible, selecting affordable services, budgeting wisely, and taking advantage of tax deductions, you can save money while setting up your business entity. With the right approach and careful planning, you can successfully form a professional corporation in New Jersey without draining your bank account.

Conclusion

New Jersey Professional Corporation can offer several benefits for licensed professionals. However, it is essential to carefully consider the proper structure and compliance requirements before proceeding. Seeking professional guidance in forming a professional corporation can help ensure a smooth process and enable professionals to focus on providing their services. Visit LLCBase for more information about starting a professional corporation in New Jersey.