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What Type of Business Will You Form in New Jersey?

Oct. 29, 2024

As a New Jersey business owner or manager, one of the most crucial decisions of your entrepreneurial journey is selecting the right business structure for your enterprise. Your choice of entity will directly influence your personal liability, ability to raise money for the business, level of control over the venture, and tax liabilities, as outlined in the Internal Revenue Code. In this first article of our insightful business formation series, we'll uncover the business structures available to New Jersey business owners. 

Types of Business Structures for New Jersey Businesses

Here are the basic types of business entities you can elect to form in New Jersey:

  • Sole Proprietorship

  • Partnership

  • Limited Liability Company (LLC)

  • Corporation (S-corp or C-corp)

Sole Proprietorship

A sole proprietorship is an unincorporated business owned and operated by one person. This owner controls the business's decisions and is personally liable for debts and profits. It is the simplest and most common business structure available to New Jersey entrepreneurs. Additionally, forming is relatively inexpensive since there is no need to file formation documents with the New Jersey Division of Revenue and Enterprise Services. However, local licenses and permits may still be required.

Partnership

Alternatively, two or more New Jersey entrepreneurs can enter an oral or written partnership agreement to form a business and share its profits and losses. Depending on the type of partnership you elect to form, the partners are generally liable for the business's debts and obligations.

Here are the basic types of partnership business entities:

  • General partnership- Every partner shares equal responsibility and unlimited liability for the business's debts and obligations. This means their personal assets can be used to cover business liabilities.

  • Limited partnerships- These are partnerships with at least one general partner and two or more limited partners. The general partner has unlimited liability, while the limited partners have no liability for their assets apart from their investment in the business.

Limited Liability Company (LLC)

An LLC is a hybrid legal entity that combines the benefits of both corporations and partnerships. Being a limited liability entity, the owners’ assets are protected from lawsuits and creditors. Additionally, an LLC's profits and losses are passed on to the members' personal income tax returns.

Corporation

A corporation is a business structure that is a separate business entity from its owners. This means that the business entity can enter into contracts, sue and be sued, hire employees, and loan and borrow money in its own name. New Jersey entrepreneurs have two options when it comes to corporation formation, both of which offer liability protection:

  • An S corporation or an S corp is an alternative to an LLC. Companies with less than 100 individuals as owners can elect to form an S-corp and enjoy the benefits of pass-through taxation, where profits and losses are passed through to the individual owners, who report them on their personal tax returns.

  • A C corporation is a type of corporation where shareholders are taxed separately from the business entity. This results in double taxation, where the business pays corporate business taxes on its profits, and shareholders pay ordinary income tax on their dividends.

Each business structure, as you've seen above, has distinct characteristics and operations. In our upcoming articles, we'll further delve into the nuances that set these entities apart and how your choice can influence your business journey.

Conclusion

Our business lawyers at Stature Legal offer strategic guidance on choosing a business structure that aligns with your personal and business goals. Join us next time for the next installment, during which we'll dissect some of the critical factors to keep in mind when selecting a state of formation.

Are you wondering about any of the issues mentioned above? Please email us at  Info@staturelegal.law or call (732) 320-9831  for assistance.

At Stature Legal, our New Jersey business lawyers give business owners the clarity they need to fund, grow, protect, and sell their businesses.  We are trustworthy business advisors keeping your business on TRACK: Trustworthy. Reliable. Available. Caring. Knowledgeable.®