Every form of business has potential risks and liabilities. Choosing the apt legal form for your business depend on the degree of the potential risks. If you operate a business that has minimal risk potential, you may assume the forms of sole proprietorship or a partnership if two or persons are involved in the business. Proprietorships and Partnerships are easy to form and operate. Hardly any legal formalities are required to be complied with. Whatever business permits or licenses needed to operate a business has to be taken care of. The issue with these legal forms of business is that they do not protect the business owner’s personal assets from business debts. If the business defaults payments to creditors or lenders, the business owner will have to settle by using personal resources. This is the reason why you should not remain a sole proprietorship for long.
Business owner’s personal liability to business debts can be limited by forming a Corporation or a Limited Liability Company. State laws have to be complied with for forming both forms of business. There are a few formalities required for the formation. Limited Liability Company can be formed by filing an Articles of Organization with the state department managing business registrations and paying a fee. Limited Liability Company offers personal limited liability protection and flexibility in managing the business operations as in partnership or sole proprietorship. LLC can be constituted with a single member or multiple members. Another advantage with LLC is that it can elect to be taxed as any of the other IRS tax classification that is more beneficial in tax planning.
Forming Corporations entail extensive procedures. As any business entity, Corporations are also formed under state statutes. Procedures and formalities in incorporating your business may vary in each state. Corporations offer the limited liability protection to its share holders. This is the most adopted form of business due to its perpetuity and strict regulations controlling its operations. Lay investors prefer corporations above other forms because buying and selling shares in a corporation is easy. If you have plans for your business to expand beyond the status of a small business, corporations are your best bet. Why incorporate is because of these qualities of corporations. It is easy to attract capital and business continuity is not dependent on its business owners. Corporations can be of two types. S Corporations and C Corporations. Though the legal structures of both are same, there are some restrictions in S Corp business ownership. The taxation differs, S Corps have a pass-through taxation whereas the C Corp is subject to corporate taxation.
The state of New Jersey offers incentives to small business to do business in the state in many ways. The Urban Enterprise Zone or Work force training programs by the state have positively impacted many New Jersey businesses in their growth and development. NJ incorporation is possible by filing the required Certificates of Business information with the Division of Revenue. You may file online or through paper documents and pay the filing fees to obtain authorization to conduct business in the state. As to why incorporate, the corporation has many advantages over other forms of business. The main advantage is that corporations are perpetual and investors contribute more readily because of the easy transferability of stock or shares in a corporation.
Forming corporation in New Jersey can be accomplished by filing Certificate of Incorporation and submitting Business registration application with the New Jersey Division of Revenue. The basic requirements for forming a corporation in New Jersey are:
Corporate Name: You must determine that the name you have selected for your corporation is available for use before filing the certificates of information for business registration. The name must not be similar to an existing New Jersey business entity. You must also not include terms and language prohibited by the state statute. The name availability check is automatic if you are filing online.
Certificate of Incorporation: The certificate should contain certain basic information regarding the corporate organization. It should list (1) the name and address of one director at the least. If there is more than one director, all their names and addresses must be listed (2) the aggregate number of shares, each class of shares and the privileges assigned to each class (3) the registered office address of the corporation, which must be a NJ street address (4) the designated registered agent and his New Jersey communication address. There can only one registered agent for a corporation. The certificate of incorporation may include additional information optionally if you wish to formalize them.
Bylaws: The directors must hold the first meeting and adopt the bylaws of the corporation. The bylaws are the charter under which the corporation will function and operate its business.
Your corporation can elect to be a C Corporation or an S Corporation under New Jersey Statutes. The C and S are not different corporate business structures but tax classifications. The C Corporation is subject to corporate tax; it has to pay federal and state income tax on profits from business directly. When the profits are distributed among the shareholders, they pay tax on that as their personal income. S Corporation advantages are, it has a lower corporate tax and has a pass through taxation. The shareholders pay tax on their share of profits through their personal tax returns.
