Starting a new business is always an exciting endeavor.  However, to give your new startup the very best chance of succeeding in the long-term, there are certain steps you’ll need to take during the formation process.  For example, you’ll need to choose a formal structure for your new entity — but which sort of structure will make the best fit?  You’ll also need to draw up contracts and agreements for your internal operations, and any deals or transactions you make with other parties — but how do you know those contracts are valid, enforceable, and compliant with the law?  You may want to bring on employees — but what sorts of hiring and firing procedures are legally permissible, and which violate federal regulations?

These are just a few of the many questions all startup owners must ask themselves as they go through the initial procedures for launching a company in New Jersey.  An experienced attorney can help you find the answers.  To arrange for a private legal consultation with a Union, New Jersey small business startup attorney, call The Jayson Law Group LLC at (908) 258-0621 today. 

Business Man

Which Business Structure Should You Choose?

For new entrepreneurs, this is arguably the most fundamental question of all.  Just as a coffee shop is wildly different from a sit-down restaurant, the type of formal structure you select for your entity will influence virtually every aspect of your new organization throughout its entire life cycle, from daily operations, to tax considerations, to financial liabilities, to how many people can participate in ownership.

Which Structures Can I Choose From?

There are four basic types of structures you can choose from, some of which involve more specific sub-categories:

  • Corporation
    • C-Corporation
    • S-Corporation
  • Limited Liability Company (LLC)
  • Partnership
    • General Partnership (GP)
    • Limited Partnership (LP)
    • Limited Liability Partnership (LLP)
  • Sole Proprietorship

How Do Different Structures Work?

  • C-Corp — C-Corps are taxed twice, because both the corporation itself and the individual shareholders are subject to taxation.  However, these organizations give owners personal liability protection, and can have an unlimited number of shareholders, which is optimal for very large-scale operations.
  • GP — A general partnership divides responsibility and authority equally among partners.  While the very word “partnership” implies two people, a general partnership can actually involve two or more people. GPs are subject to formal partnership agreements, but also have low startup costs.
  • LLC — Historically speaking, the LLC is one of the newest business structures.  Limited liability companies are often called “hybrids,” because they blend the simple tax considerations of a partnership with the liability protection of a corporation.  This makes the LLC attractive to many startup owners.
  • LLP —  LLPs limit personal liability which arises out of another partner’s actions (e.g. malpractice).  There must be a minimum of at least two partners.  LLPs are somewhat restrictive in that they are only available to certain professionals, such as attorneys, accountants, physicians, and architects.
  • LP — In a limited partnership, there is a general partner and a limited partner.  The former has a greater degree of control, but also has more personal liability.  The latter has less influence over the business, but also enjoys personal liability protection.
  • S-Corp — Unlike C-Corps, S-Corps are not subject to corporate income tax because they are pass-through entities.  While they must file an informational return, they do not actually pay income tax.  S-Corps grant partial personal liability protection.
  • Sole Proprietorship — As the term “sole” suggests, these businesses involve only one owner.  However, it is possible to hire employees.  If the proprietor dies, the business will dissolve.

Balancing The Accounts

What Are the New Jersey Business Registration Requirements?

If you are a sole proprietorship or general partnership, you must register with the county in which the company is located, but do not need to register with the state of New Jersey.  If you are a limited partnership, corporation, or LLC, you must register with the state.

Pros and Cons of Different Business Structures

Needless to say, each structure comes with its own set of pros and cons.  What may be a perfect fit for one company would be highly disadvantageous for another, so it’s critically important to go over the benefits and drawbacks in detail with an attorney.  Here are some general points to consider:

  • Personal Liability — Personal liability means that if your business runs into trouble — for example, if you are sued because somebody injures themselves at your store — your own personal assets become vulnerable, including the contents of your bank account.
  • Size — Some people form businesses on their own, while others enter an endeavor with dozens or even hundreds of other shareholders.  Some structures are “roomier” than others, and depending on how many people are involved in your operation, your options may be limited.
  • Taxation — No one wants to pay higher taxes than necessary, but some structures are taxed more heavily than others.  For example, some organizations enjoy “pass-through” status and are only taxed once, whereas others are taxed at both the company and individual levels.

If you are thinking about starting a new business, call the Union, New Jersey small business startup lawyers of The Jayson Law Group LLC at (908) 258-0621, or contact our law offices online to schedule a confidential consultation.