In the state of New Jersey, you can open for business as a sole proprietorship without filing any documents with the state government. You may want to choose a separate name under which to conduct business. If you do, you’ll need to register your assumed name with the local county clerk’s office. You may also need to secure certain licenses, based on the goods or services you’ll be offering. Because the process requires little effort on your part, the sole proprietorship form can be attractive, but it has serious drawbacks, which can be avoided by choosing other legal forms, such as a limited liability company (LLC) or a corporation.
Without a doubt, the most significant risk in conducting business as a sole proprietorship is that you have no insulation from liability from creditors or others who may sue you. Your personal assets and net worth may be “attached” to satisfy a judgment in a legal proceeding.
One of the most attractive features of both corporations and limited liability companies is that they shield your personal assets from creditors. When you choose one of those legal forms, your liability to creditors will be limited by the amount of your investment in the enterprise. In other words, you can only lose what you have invested in the company (unless you fail to take appropriate steps to separate the assets and liabilities of the company from your personal assets).
There’s good news—in the state of New Jersey, you can legally establish a one-member limited liability company or a one-shareholder corporation.
When you operate as a sole proprietorship, all income is taxed at your personal marginal tax rate. When you set up a corporation, you will be subject to the flat corporate tax rate, which can often be lower than your personal marginal tax rate. In addition, you’ll only pay personal income tax on any salary or wages you pay yourself from the company.
At the office of Howard N. Sobel, we provide comprehensive legal counsel to businesses and business owners. 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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