
What Type of Business Will You Form in New Jersey?
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.®
Explore Our Business Formation Series
Dive deeper into the essentials of establishing and managing your business in New Jersey with our comprehensive series:
Learn why this series is essential for business owners in New Jersey and how it will guide you through every critical step of the formation process.
In What State Will You Form Your Business?
Explore the implications of choosing New Jersey or other states for your business formation.
What Type of Business Will You Form in New Jersey?
Understand the various business structures and determine which suits your needs.
Setting Up an LLC in Delaware vs. New Jersey
Compare the benefits and challenges of forming an LLC in these states.
Setting Up a Corporation in Delaware vs. New Jersey
Assess the factors influencing your choice between these two states for corporate formation.
Who Will Be the Registered Agent of Your Business?
Learn about the role and importance of a registered agent in New Jersey.
Where Will You Operate Your Business?
Consider the legal and practical aspects of selecting your business location.
What Will Be the Principal Office Address of Your Business?
Determine the significance of your principal office address and compliance requirements.
How Will Your Business Be Treated for Tax Purposes?
Gain insights into tax classifications and their impact on your business.
Will Your Business Protect You from Liability?
Understand the liability protections offered by different business structures.
What Are Various Types of Business Insurance Policies?
Explore essential insurance policies to safeguard your business.
Government Resources and Financial Support for NJ Businesses
Discover available resources and support for New Jersey businesses.
Protecting Your Business: Legal Insights on Intellectual Property in NJ
Learn how to protect your intellectual property rights in New Jersey.
Important Employment Laws in New Jersey
Stay informed about key employment laws affecting your business.
Employer Record-Keeping Requirements in New Jersey: What Business Owners Need to Know
Understand the record-keeping obligations for employers in New Jersey.
Contracts 101: Interpretation and Enforcement of Contracts Under NJ Law
Get acquainted with contract laws and how they affect your business dealings.
Conclusion: When Is New Jersey Right for Your Business?
Reflect on the advantages of establishing your business in New Jersey.
Each article is crafted to provide you with the knowledge and tools necessary for successful business formation and operation in New Jersey