- Are you considering forming an LLC in New Jersey to do business?
- Do you need an operating agreement prepared to govern your NJ LLC and the relationships between you and another member(s)?
- Is your LLC being threatened with a lawsuit?
- Are you facing threats of litigation against you as a member of a New Jersey LLC?
- Are there issues concerning the removal or expulsion of an LLC member(s)?
- Are you buying or selling an LLC and need to be represented?
If the Answer to Any of These Questions is “YES”, Then This Page Was Written For You.
The attorneys at Hanlon Niemann & Wright have prepared all types of operating agreements addressing all types of business issues and situations. Because of our experience, we can evaluate and counsel you about the real world of business in New Jersey. It’s that experience that also helps us protect you and/or the LLC if things go wrong. Fredrick P. Niemann, Esq. and the lawyers at Hanlon Niemann & Wright understand NJ LLC laws and the issues that must be considered to protect you and the interests of your LLC.
Introduction to Issues Facing LLCs in New Jersey
TESTIMONIAL
I consulted with Mr. Niemann following a recommendation from an associate in Brick, New Jersey. I was told that Mr. Niemann would be an excellent person to discuss an investment opportunity which was represented to me as very profitable. Mr. Niemann met with me promptly and reviewed the information provided by the promoter. After having considered the promotional information, Mr. Niemann cautioned me against the investment. He requested a four-way conference be set up so that he could meet face to face, eye to eye with the promoter of this opportunity. After several hours of intense questioning and discussion, Mr. Niemann courteously and professionally concluded the meeting, whereupon he immediately told me not to invest a single penny into this scam as I would lose my investment. At the time, I was looking to invest several hundred thousand dollars. Thank God I listened to Mr. Niemann.
Since our meeting, I have learned that the deal was, in fact, a scam and that I would have lost my entire investment. Mr. Niemann’s straight-talking, highly investigative questioning and insight, coupled with his significant past business experience, were invaluable to me.
Scott Buongiovanni Freehold, New Jersey
Understanding the Basics of a New Jersey LLC
Understanding exactly what an LLC is… and what it is not is a good starting point for our discussion. A limited liability company (LLC) is a hybrid business organization. I use the word “hybrid” because an LLC combines the features of both a corporation and a partnership, yet it is neither “strictly” a corporation or a partnership under New Jersey law. Instead, an LLC is created and organized by statute(s) and by an agreement between members who are free to write their agreement the way they want provided the terms of the agreement are not prohibited under the LLC law(s). In addition, federal and state tax laws generally recognize and treat an LLC as a partnership, meaning taxable gains and losses flow to the members individually and are reported on their personal 1040 income tax returns. Therefore, if the LLC is structured properly, no federal income tax is payable directly by the LLC; rather, any taxable gain is passed onto the members through a K-1 when a profit is earned. This avoids double taxation to each LLC member which otherwise occurs when selecting a “C” corporation to do business.
Formation of an LLC
An LLC is formed and becomes a legal entity when a Certificate of Formation is filed with the Division of Revenue in the Department of the Treasury and the NJ Secretary of State unless its certificate of formation provides for a different effective date. State law requires that an LLS have at least one member in good standing. In addition, the members can memorialize all pre- and post-formation agreements among themselves in a document entitled an “Operating Agreement”. I discuss operating agreements in much greater detail later on this webpage.
Fixing a Mistake on a NJ LLC Certificate of Formation Video
Statement of Authority
As earlier mentioned, state law requires a document known as a statement of authority to be filed with the Division of Revenue. This instrument provides public notice that one or more persons within the LLC have authority to act on behalf of the LLC. The statement of authority can describe the scope as well as the limitations placed upon the named individual’s authority and can direct the reader to the person or office, should communication with the LLC be required. This document is much like the registered agent statement commonly filed by “C” and “S” corporations.
Management of the LLC
The provisions of the LLC Act permits the LLC to be managed by a single member unless the Operating Agreement of the LLC provides for one or more managers to assume that role. The act provides that each member in a member-managed LLC has equal rights in management. Thus, a 25% member has the same voting rights as a 75% member in the LLC, unless there is an Operating Agreement that provides otherwise. Therefore, it should be apparent to all readers the critical importance of memorializing in writing the voting rights and the impact of each member’s vote on issues that come up impacting the business of the LLC in the future.
Distributions of Profits
Profit distribution(s) is a big deal under New Jersey’s LLC laws. Under what is called the default provision(s) of the LLC Act, profits and distributions to members are to be made in equal shares among the members, rather than pro rata according to their capital contributions or capital accounts. This may (it likely will) contradict the expectations of the members, particularly those who have made larger capital contributions than their co-members. To negate this default rule the members can provide a different formula for distribution of profit(s) and compensation in their written operating agreement. Profits and losses are another important reason to have a written operating agreement.
The Limited Personal Liability of an LLC Member
Like shareholders of a “C” or “S” corporation, New Jersey grants the members of an LLC broad (but not absolute) statutory protection from personal liability. Instead an LLC member risks only the capital that the member invests into the LLC. But again, there are exceptions to this broad legal immunity protection.
Acting as Local Counsel in Business Litigation Cases
Hanlon Niemann & Wright acts as local counsel to New Jersey lawyers who do not practice business litigation and to out-of-state lawyers whose clients themselves litigating in New Jersey. In addition to practicing before all twenty-one (21) County Superior Courts, we also practice in all New Jersey federal courts. Our experience and familiarity with local practices and procedures can be very helpful to firms and their clients less familiar with the nuances of NJ practice. We also understand and respect the primary attorney-client relationship and carefully define our role as local counsel to align with the needs of clients and their attorneys. Yet we stand ready to handle the full scope of services needed by client disputes and litigated matters. We provide this representation with our commitment to value, efficiency, and effectiveness.
Out-Of-State Attorneys
We typically assist out-of-state attorneys in a variety of ways, including:
- Prepare and file motions including pro hac vice
- Advise on strategy and local rules.
- Handle personal service and next-day filings.
- Ensuring compliance with time periods for filing discovery.
- Providing out-of-state attorneys with background intelligence on local judges and arbitrators.
- Serving subpoenas for documents and testimony.
- Filing and arguing motions to compel compliance with subpoenas.
- Domesticating subpoenas and foreign judgments.
- Enforcing judgments against New Jersey based judgment debtors.
The Takeaway From Reading This Page
Avoidance of personal legal liability is very important to many entrepreneurs and businesspeople and a compelling reason to form an LLC when the nature of the enterprise is risky and subject to legal claims. If you’re contemplating the creation of an LLC and want to address the important points of your agreement in writing, I invite you to contact me toll-free at (855) 376-5291 or email me at fniemann@hnlawfirm.com . If you read further into this page and later pages , you’ll appreciate how much better off you’ll be if you put your LLC agreement on paper. The legal consequences of not doing so are many.
TESTIMONIAL I own several small businesses. I’m good at what I do but legal matters and dealing with lawyers and legal issues is stressful. I called Fredrick P. Niemann and have developed a great relationship with his lawyers and staff. They have reviewed my leases, negotiated the buyout of my former business partner, handled land use problems in a neighboring county and generally have really been there for me. I really like them personally and professionally.
If you are a small business owner, give them a call.
– Mike Halsey – Middletown, New Jersey
CALL US IF PROBLEMS AND/OR THREATS OF LITIGATION AND LAWSUITS DEVELOP IN YOUR LLC
Many of the most successful small and medium-sized LLC’s in NJ are founded on a strong relationship between two or more members. But if the relationship breaks down, the consequences can be devastating. It’s hard to be objective when your company and its business interests are being threatened and it seldom makes sense for those involved to sort out the problem themselves. If not resolved quickly and decisively, company or member disputes can deplete business resources, focus, and create adverse interpersonal relationships among members.
Many attorneys and/or law firms only offer transactional LLC services. When faced with the prospect of a business dispute from whatever source, a lawsuit and possible courtroom involvement, they’ll quickly bail out and refer their LLC client (you) elsewhere. Not us, we’re with you all the way and we’ll continue to serve you throughout the entire matter.
We’ve negotiated settlements and dismissals and tried to conclusion LLC disputes involving expulsions, member resignations; breaches of non-compete and restrictive covenants, contract and insurance clauses, tortuous business practices and buyouts of member interests.
These are just some examples of our Limited Liability Company litigation background.
Fredrick P. Niemann Esq.
If your case involves an actual or potential LLC dispute, lawsuit or conflict among members and you would like to speak to a firm member personally, call Fredrick P. Niemann toll-free at (855) 376-5291 or e-mail him at fniemann@hnlawfirm.com. At Hanlon Niemann & Wright, we are experienced NJ business and LLC lawyers who will champion your interests with confidence. And just for the record, we charge much less than the big firms out there notorious for fee gauging.