Factors to Consider When Setting Up a New Business
You’ve decided you want to be your own boss. You have a plan for how to obtain financing, and you have a strong sense of your market and how to reach potential customers. One of the first things you’ll need to consider, though, is what legal form your business will take. Will you operate as a sole proprietorship, a partnership, a corporation, or a limited liability company (LLC)? When making that decision, you’ll want to consider a number of factors:
- The extent to which you want or need to limit your liability—What are the potential risks associated with the business? With some business forms, such as sole proprietorships and partnerships (except for limited partnerships), your personal assets may be at risk for the debts of the business. That’s generally not the case with a corporation or a limited liability company.
- Your potential tax liability—With certain types of corporations (called C corporations), there is a corporate tax. In addition, you may incur personal tax on any distributions you take from the business. With sole proprietorships, partnerships, LLCs, and S corporations, income passes through the business entity and is reported on your personal income tax return. While there is no tax on the income of those business entities, you may be responsible for self-employment tax.
- How the business will be financed—Will you be putting your own money into the business or getting a loan based on your personal finances? Will you need investors? If so, do you want them to be partners or shareholders? Be aware—you can potentially be liable for the debts of a partner, but you will be insulated from liability for the debts of a shareholder.
- The complexity of managing the business—While every type of business structure involves some level of paperwork and documentation, some are more complex. For example, with a sole proprietorship, you may be able to open your doors with nothing more than a business license and a certificate of assumed name, if those are even necessary. To operate a business as a limited liability company or a corporation, you’ll need to file documents with the state, such as articles of incorporation or organization, and you’ll typically need to prepare and implement bylaws. You may also be required to hold periodic meetings of shareholders or members.
Contact Attorney Howard N. Sobel
At the office of Howard N. Sobel, we provide comprehensive business formation counsel throughout the state of New Jersey. Contact our office online or call us at 856-424-6400 to set up a free initial consultation. Evening and weekend appointments can be arranged upon request. We accept all major credit cards.
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