You may have recently graduated from college or perhaps you earned your masters this year and now you are interested in starting your own business in New Jersey. One of the first steps you will need to do is select a business structure. The following are three common business structures that new business owners in Millville may want to consider for their new venture.
Sole proprietorships
If you are going into business on your own, your business will be structured as a sole proprietorship unless you register as a different type of business. With a sole proprietorship, your business is not a separate entity from you for legal purposes. This means you are personally liable for your business’ obligations, debts and actions. Those whose business is low-risk or those who want to just get the ball rolling before selecting a more formal business structure may be interested in a sole proprietorship.
Partnerships
If you are going into business with one or more people, you may be interested in structuring your business as a partnership. The two basic types of partnerships are limited partnerships (LP) and limited liability partnerships (LLP).
- In an LP, one partner is a general partner and must pay self-employment taxes. The other partners have limited liability. These partners usually have limited control of the business. Each partner’s role in the business is generally documented in a partnership agreement. In an LP, profits made by the business are passed through the partners’ personal income tax returns.
- In an LLP, all partners have limited liability. This means that all partners will receive protection from being personally liable from the business’ debts and the actions of the other partners.
Like sole proprietorships, partnerships may be attractive to those who want to test out their business before selecting a more formal business structure.
Limited liability companies
A limited liability company (LLC) is beneficial because it combines the attractive features of both corporations and partnerships. In an LLC, the business is a separate legal entity from its owner(s) for legal purposes. This means that the owners’ personal assets will not be at risk if the business goes bankrupt or is sued. Business profits and losses go through to the business owners’ personal income without being subject to corporate taxation. But, owners of an LLC must pay self-employment taxes. In addition, in some states if one owner bows out of the business or a new owner steps in, the LLC must be dissolved and re-formed, unless the owners have an agreement that covers the transfer of ownership of the LLC. Those whose business is high-risk or who have substantial amounts of personal assets may find an LLC to be a good choice for them.
Learn more about business law
The type of business structure you choose has legal consequences, so it is important to consider your options carefully. This post is for educational purposes only and does not contain legal advice. Our firm’s webpage on business law may be of interest to burgeoning business owners in Millville who want to learn more about this topic.
