One of the first steps a new business owner in New Jersey must take before the business can start running is to choose a business entity. Some of these entities are sole proprietorships, partnerships, limited liability companies and corporations. There are advantages and disadvantages to each of these business entities.
A sole proprietorship has only a single business owner who owns and runs the business. Sole proprietorships are taxed only once on their earnings. Plus, the business owner in a sole proprietorship makes all the decisions regarding the business’s operations. However, a sole proprietor can be personally liable for the company’s debts and actions.
Partnerships take the form of either a general partnership or a limited partnership. General partnerships have multiple partners that run the business. However, they are all personally liable for the company’s debts and actions. Limited partnerships have two types of owners: general partners and limited partners. General partners are the ones who have ownership of the company, run it and are personally liable for its debts and actions. Limited partners do not have any control over the business and aren’t personally liable for it.
Corporations are technically a separate legal entity from those who own it. There are many regulations that come with opening and operating a corporation. Owners of a corporation are not personally liable for the debts and actions of the company. There are a number of ways a corporation can raise funds, for example, by selling stock. However, the corporation’s owners are doubly taxed on the company’s profits.
Limited liability companies are a combination of partnerships and corporations. The owners of the LLC will not be doubly taxed. In addition, the owners of the LLC will be protected from liability. An LLC can have an unlimited number of shareholders. Moreover, all owners of the LLC can play a part in running the company. However, there are laws and regulations LLCs must follow, and an LLC may have to dissolve after a certain number of years or if an owner leaves the business.
Deciding what type of entity your business will take will have a major effect on the business’s vitality and will affect business transactions for years to come. Because there are so many aspects that one must consider regarding each entity, choosing one can be complicated. Therefore, potential business owners may want to seek professional guidance, so they can decide what entity is best for them and their business.