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Common business structures for people starting a new company

On Behalf of | May 10, 2022 | Business Formation & Planning

People may have a great idea for a new business in New Jersey. They may even have potential clients or customers wanting to work with them. This is the part of the business that new business owners know best. However, there is more to starting a business than simply selling a product or service. It is important for new businesses to have legal business structures in place to bets fit the businesses’ needs.

There are different business structures to choose from and what is chosen depends on different factors. Some of the options business owners can choose from are:

  • Sole proprietorship – this is for single owners and the owner assumes responsibility for all assets and liabilities of the company.
  • Partnership – this can be between two or more people who either equally own or proportionally own the business and like a sole proprietorship are responsible for the assets and liabilities of the company.
  • Limited liability company (LLC) – This allows the owners to protect themselves from the debts and obligations of the companies. However, the profits of the company still pass through to the owners as income on their personal tax returns. The business does not file a separate tax return.
  • C-Corporation – this creates a company that is separate from the owners of the company. There are shareholders who have ownership interest in the company, but the company is a separate entity that files its own tax returns. Similar to LLCs, C-corporations protect the owners from personal liability from the debts and obligations of the company.
  • S-corporation – these are similar to C-corporations is how they are set up, but like an LLC the profits pass through to the owners of the company and are reported on their personal tax returns. There are also more limitations on S-corporations than C-corporations.

Choosing the right business structure depends on the type of business and the goals of the business. It is important for new business owners in New Jersey to understand the different options before choosing a business structure, but it is important that a business structure is established. Experienced attorneys understand the different business structures and may be able to guide one in setting up their business.