Starting a Business

The most important decision that you will make when starting a new business is what legal form your business will take. There are a variety of options available, all offering different costs, risks, rewards and consequence.  Some options include:

• Sole proprietorships
• Partnerships
• Limited liability Companies (LLC)
• Corporations

Sole Proprietorships

While Sole Proprietorships offer low start-up costs, they expose the owner to personal liability and can be difficult to transfer.

Partnerships

A Partnership is an association of two or more people who carry on a business as co-owners.  Most partnerships are governed by a partnership agreement.  The partnership is the owner of all partnership property.  The partners own a transferable interest in the share of profits and losses and right to receive distributions.  Partnerships file partnership returns with income and loss attributable to the partner on a Schedule K-1 (regardless of whether that partner receives any income).  Because partnerships require a partnership agreement and separate returns, the initial and ongoing costs of a partnership are higher than a sole proprietorship.

New Jersey allows limited liability partnerships which differ from general partnerships in that the partners in a limited liability partnership are not liable for partnership debts or liabilities resulting from the negligence of other partners not under the direct supervision of the limited partner.

Limited Liability Company

Limited liability companies are a fast-growing form of business entity.  A limited liability company can be comprised of one or more members and can elect for partnership or corporate tax treatment.  Where a limited liability company has a single-member, it may be treated as a sole proprietorship in the sense that it need not file a separate return.  However, unlike a sole proprietorship, the sole-member of a limited liability company is not generally personally liable for the business debts of the entity.  Where a limited liability company has multiple members it is wise to have an operating agreement governing their respective rights and obligations.  Depending on the tax election, a multi-member LLC will either file a partnership or corporate return.  Generally, an LLC combines the advantages of partnership taxation with corporate limitations on liability.

Corporations

Corporations come in two main types, C and S.  C Corporations and S Corporations differ with regard to tax filings, tax treatment and membership restrictions.  Both forms offer limited liability but the decision between the two forms of corporate ownership are enormous.

New Jersey Business Attorneys

If you are starting your own business, the types of entity you choose is of critical importance.  The lasting repercussions of choosing the wrong entity or failing to memorialize an agreement among co-owners can be devastating.  Contact the law office of Foss, San Filippo & Milne, LLC online, or at (732) 741-2525 to get the professional help you need at this critical stage in the life of the business.