Business Formation Types
Starting a Business in New Jersey: Pros and Cons of Different Types
When considering how to start a business in New Jersey, you have a lot to think about. An NJ business lawyer can help you through the process of choosing which business format to select, what type of business documents you will need, what the tax implications are for each business type, who makes the controlling decisions and other factors. The Monmouth County law firm of Garland & Mason, L.L.C., assists businesses and entrepreneurs in forming new corporations, limited liability companies (LLCs), partnerships and other business entities. We also handle a myriad of business transactions.
Advantages and Disadvantages of Common Business Entity Types
Each of the business formation types has pros and cons. Below we list some of the most common advantages and disadvantages by type. However, this is just a small sample of the things you need to think about:
- Sole Proprietorship
Advantages. The key advantage is that the owner is his own boss and controls the decision process. The start-up costs and capital requirements are normally low. The owner gets the profits which come with some tax advantages.
Disadvantages. The owner will have personal liability. Additionally, when the owner leaves, the business has to be sold or has to fold. Raising funds (even small amounts) can be difficult.
Advantages. Partnership agreements determine who has control of decisions and who can run the business if one or more of the partners leave. The startup costs should be low and multiple partners means multiple investors. There is also little regulation by people outside the partnership.
Disadvantages. The partners and partnership still have personal liability concerns. If a business partnership agreement is not properly drafted, there could be disputes on control decisions and what happens if one party leaves. Finding the right partner(s) can be problematic.
Advantages. There is limited personal liability. Management is determined by the bylaws. There are rules for transferring interests and ownership of the corporation. Furthermore, the business can continue even if the owners leave or die since the Board of Directors has central control of the business. It is also easier to raise capital.
Disadvantages. There is much more external regulation, including requiring much more record-keeping. The tax implications can be complicated. It is also much more difficult to dissolve a corporation.
What are Additional Business Types?
All types of business entities have pros and cons on how to form and operate them. In addition to the above, there are also:
- Chapter S Corporations
- Professional Corporations (PCs)
- Limited Liability Partnerships (LLPs)
- Limited Liability Corporations (LLCs)
- Joint ventures
- Nonprofit organizations
Our business attorneys can guide you in determining the best business entity type depending on the needs and goals of your company.
What Should I Consider When Forming a Business Entity?
While choosing between various business formation types is a key first step, there are many other practical and legal issues that arise. Some of these considerations are:
- Business name. You need to choose and protect a business name. If you want to add a logo, then you should consider protection for that too.
- Where to conduct the business. Where you locate the business can impact a variety of legal issues such as liability, taxes, regulations and more.
- Licenses and permits. You will need to know what local and state licenses you need, such as building permits.
- How to get financing. Any new business will take time to develop customers. You will need to pay the bills while you develop your customer base. For example, our law firm can help review how much money you realistically need and where you can obtain financing.
- Insurance. What types of insurance coverage do you need? Typical insurance packages (there may be others) employers need to know about are:
- Workers’ compensation
- Premises liability
- Medical insurance
- Product liability insurance
Garland & Mason, L.L.C. Will Help You Choose the Right Business for Your Needs and Finances
Contact our lawyers by calling (732) 358-2028 or contact us online to schedule a free initial consultation. Our business attorneys help analyze your business needs and explain your options so you can make an informed choice. We are located in Manalapan, New Jersey; however, we serve business clients throughout the state.