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What’s the best formation for your new business?

On Behalf of | Apr 16, 2024 | Business Law

Choosing a structure for your business is one of the first steps you will need to take as a new business owner. The structure of your business will affect how your business will be managed, the documentation needed for formation, your personal liability for business debts and taxes you owe.
The type of structure you choose for your New Jersey business will depend on your specific needs. You will typically be able to choose one of the following options:

  • Sole proprietorship
  • Partnership (general or limited)
  • Limited liability company
  • Corporation

The benefits of forming an LLC

Many business owners find that the limited liability company business structure provides the most security and benefits. Some of the advantages of the LLC structure include:

  • Taxation flexibility: You have the choice to be taxed as a corporation, partnership, sole proprietorship, or an LLC. Generally, LLC owners will likely choose to avoid double taxation and instead go for “pass through taxation,” which allows for the company profit to pass through to LLC owners who will declare it as personal income.
  • Low cost and minimal formation paperwork.
  • Flexible management structure which allows members to manage the business.
  • Limited personal liability for business debts.

While there are many advantages to an LLC, there are also some disadvantages. LLC owners may pay more in taxes, as they may have to pay a self-employment tax. There is also a limit to the concept of protecting members for personal liability, particularly if you do not keep your business transactions separate from your personal ones.

Having a solid understanding of business law is essential to choosing the right business structure for your new business. The structure you choose can impact your business for many years to come.

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