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What are some options for structuring your new business?

On Behalf of | Feb 24, 2021 | Business Law

Many people in New Jersey have an entrepreneurial spirit and a gem of an idea, and they will decide to start their own small business. When doing so, they will have to select a business structure. The following is an overview of some common business structures new business owners may consider.

Sole proprietorship

If a person is the sole owner of their business, conducts business activities and does not register their business as any other type of business structure, by default their business will be considered a sole proprietorship. In a sole proprietorship, the business is not considered a separate entity from the owner for legal purposes. This means the business owner will be personally liable for all the debts and actions of the business.


If two or more people decide to go into business together, they may choose to enter into a partnership. Two common types of partnerships include limited partnerships and limited liability partnerships.

In a limited partnership, one general partner has unlimited liability, but must pay self-employment taxes. The other partners have limited liability and generally limited control over the business. This relationship will be documented in a partnership agreement. Profit

Limited liability partnerships are a lot like limited partnerships, but all partners have limited liability. This means that each partner is protected from debts against the business and will not be held accountable for the acts of the other partners.

Limited liability company

In a limited liability company, the business owners are not personally liable if the business is sued or goes bankrupt. In addition, the profits and losses of the business are not subject to corporate taxes. However, owners of a limited liability company must pay self-employment tax. In some states, when an owner joins or leaves a limited liability company, the business must be dissolved and reformed to reflect the new ownership, unless the business already has an agreement in place regarding the transfer of ownership.

Learn more about business structures available to you

Ultimately, the type of business structure you choose depends on how many people will own the business, and what types of liability you want the business owners to have. Some business structures are more complicated than others, and there are structures that may be available that are not discussed in this post. Our firm’s business law website may be of interest to those who want to start their own small business.


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