Serving Businesses Throughout New Jersey
New business owners or those looking to restructure their business have a number of decisions to make. From entity formation, to contract negotiation, to compliance issues, entrepreneurs have a number of hoops to jump through in order to pursue their business aspirations. The experienced business formation lawyers at McOmber & McOmber help our clients through every step of the way to protect your interests and maximize your chance of success.
Types of Business Entities
There are a number of different business entity models that new business owners can choose. The type of entity will affect taxation, liability and overall business operations. We will review your business’ details and objectives and help you select the entity that is right for you.
Many small business owners choose to operate as a sole proprietor, allowing them complete control of all the business’s assets. Those assets remain in the proprietor’s name, and the business is not considered a separate legal entity. A sole proprietorship requires proper licensing and registration of a business name. These types of agreements are typically for businesses with minimal capital that the owner manages themselves.
In assuming all control of the business, however, the owner assumes all of the risk as well. Income and expenses are declared on the proprietor’s personal federal income tax return. It is very important to keep the owner’s personal assets separate from those of the business, as they are subject to seizure to cover any outstanding debts incurred by the business. The sole proprietor will still be liable for these debts even if the business is dissolved or sold.
Where there are multiple partners involved, a business can be set up as either a general partnership or a limited partnership. In a general partnership, multiple proprietors share the responsibility for operating the business, as well as any profit generated. They also share liability for the business’s debts, and each general partner can be held responsible for the entirety of the debt. An individual partner can also bind the partnership when entering into other contracts.
A limited partnership typically involves outside investors who are not responsible for the day-to-day management of the business but retain a stake in the business’s success. These parties provide funding for the business, and in turn, they receive a greater share of the profits and receive tax deductions. Limited partners have limited liability; the most they can lose is their investment and they are protected from lawsuits and debts faced by the company. Each state allows a maximum number of limited partners in a business, and limited partners must register with either the Secretary of State or another governing body in the state in which the partnership is created.
Corporations and Limited Liability Companies
A corporation is a legal entity that is entirely separate from its owner and formed with state government approval. Corporations can act as a unique individual when conducting business, which includes legal proceedings, and can issue stock that can be sold to increase its assets. If a corporation faces legal action or incurs debt, it is only the corporation’s assets that are vulnerable. Those forming a corporation must choose either an S Corporation or a C Corporation, which will affect how the business is taxed and how stocks are held.
A Limited Liability Company (LLC) is a combination of a partnership and a corporation. The partners in a LLC manage the business’s operations, but they are not personally liable for the business’s debts. A LLC provides the protection of a corporation, but is typically taxed as a non-corporate entity.
Choosing the Correct Entity is Vital for Success
Finding an entity structure that meets your needs is important and it must be set up properly. Without careful consideration at the outset, unexpected expenses such as insurance costs, business disputes and exceedingly high taxes may affect profits and disrupt operations. Starting with a clear business model is the first crucial step in what may be a daunting, but ultimately rewarding process. Having an experienced business lawyer on your side can help ensure that all the necessary actions are taken to give your business a solid foundation from which to grow.