How to Form an S Corp in New Jersey

An S corporation (or S corp) is a business entity that elects to pass credits, deductions, corporate income and losses to its shareholders for inclusion on their personal tax returns.

To be an S corp, a company in New Jersey must meet the state's requirements, which include having fewer than 100 shareholders and having only one class of stock. The Garden State requires a business to incorporate as a standard corporation before becoming an S corp.

S corporations are named for Subchapter S of the IRS’ Internal Revenue Code. They pass on corporate credits, deductions, income and losses to their shareholders without incurring federal tax – this is known as a “pass-through” entity.

In turn, the shareholders report these elements on their personal tax returns, and the IRS assesses tax at the shareholders' individual income tax rates, allowing S corporations to steer clear of double taxation on corporate income.

Shareholders own S Corporations, which are managed by a board of directors, and run by officers that the board appoints. The company must document meetings of the shareholders or board of directors by keeping minutes.

An S corp provides limited liability protection – an owner's personal assets are protected from creditors or legal claims against the company. It also protects the personal assets of the shareholders in the event that a business goes bankrupt or loses a lawsuit. To qualify in New Jersey, an S corporation must:

• Have only permitted shareholders per IRS requirements

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these can be estates, individuals or specific trusts, but not corporations, partnerships or nonresident aliens. Have up to 100 shareholders. Be a domestic corporation. Have just one stock class. Not be an ineligible corporation, such as some financial institutions, insurance companies and domestic international sales corporations. * ​​Have a tax year ending on December 31.

Any company or individual doing business in the state of New Jersey must be registered in the state, but before doing this, they should:

• Choose a business structure that fits their ownership and business plan.
• Check with the state to determine the business’ licensing requirements.
• Contact the New Jersey Small Business Development Centers and seek legal advice if needed.

To do this, the entity must first search for an available business name. LLCs, C corps, S corps, LPs, and LLPs need to check to see if a name is available with the New Jersey Department of Treasury. If it is, the business will reserve the name when submitting its documents for registration, which includes a Certificate of Formation.

An S corp needs a registered agent who is responsible for accepting legal documents and official mail for the business at a New Jersey street address. This entity cannot use a P.O. box.

To be a registered agent, certain requirements must be met. The registered agent:

• Must be an individual residing in the state or a business providing registered agent services.
• A person or entity that can accept legal documents during normal business hours only.
• Must be at least 18 years old.

The Garden State has specific requirements for corporate directors. New Jersey requires corporations to have at least one director. However, it does not have a resident requirement for that person or persons.

Corporate directors must be at least 18 years old. Their names and addresses must be listed on the S corp’s Certificate of Incorporation. Additionally, the Certificate of Incorporation should include the name and address of the registered agent and the number of authorized shares and share value.

All for-profit and nonprofit corporations in New Jersey must have an Employer Identification Number (EIN) from the Internal Revenue Service.

After obtaining the EIN, the business must file its Certificate of Formation with the state. For-profit entities and foreign nonprofit corporations will pay a fee of $125. Domestic nonprofit corporations pay a fee of $75. This can be done online.

After filing the Certificate of Formation, the business must file Form NJ-REG, the tax/employer registration form, which can also be done online.

Businesses seeking S corporation status in New Jersey must receive approval. Without it, the state considers the business to be a C corporation with all the rules that apply to that designation. To apply for S corp status in New Jersey, the business must submit a Form 2553, Election by a Small Business Corporation. All shareholders must sign the form and consent to the election.

The business must be fully registered in New Jersey, and it must file its S Corporation Election via the state's SCORP application. The S corporation election filing must have taken place within three and a half months from the start of the fiscal year to be in effect for the current tax year. Out-of-state businesses must be authorized to do business in the state to file for election.

Once an election is complete, the corporation may continue as an S corporation in New Jersey as long as it is a federal S corporation.

When revoking an S corp election, a Letter of Revocation must be drafted and filed with the state Division of Revenue and Enterprise Services via the SCORP application and signed by shareholders with more than 50 percent of outstanding stock shares on the date of revocation.

The revocation filing must include a copy of the initial election form. The letter of revocation's filing must be on or before the final day of the election’s first tax year.