Many people in New Jersey and beyond have dreams of owning their own businesses. It may stem from a love of a product they make or a service they offer, or they may simply have an entrepreneurial spirit that draws them to the business world. You may be among those people who have toyed with the idea of starting your own small business.
If you are ready to turn your dream into a plan, you probably have many questions to answer and many choices to make. Among the first decisions to make is which business entity will best suit your goals. Starting your business with just yourself narrows your options, but you would still benefit from understanding the differences between the two most common choices: limited liability company or sole proprietorship.
Control and liability
There are numerous differences between an LLC and a sole proprietorship, and you will want to obtain solid legal advice about each before making an educated decision. For example, as a sole proprietor, you maintain complete control over your business, its daily operations and overall vision. If you want your business to be an LLC, you must register it with the state of New Jersey, pay an annual fee and comply with the state laws regarding LLC operations.
As its name implies, having an LLC means you are not personally responsible for any debts the company accrues. If you accumulate debt for your business but your business is not successful enough to repay those debts, the creditors cannot claim your personal bank account, your home or other assets to satisfy the debts, in most cases. Only company assets are fair game.
Consider the future
While you may have more control over your business as a sole proprietor, you may not have as much access to the funds you may need to help your business thrive and grow. Some lenders won’t place much confidence in a sole proprietorship, but an LLC registration seems to offer more credibility. Additionally, as long as your business is a sole proprietorship, you are the sole owner. If you ever decide to bring on a partner, trust or other business, you will first have to change your business entity.
You can see that there are advantages and disadvantages to both business entities. Only you know your goals for your business and the level of protection and control you desire. Discussing your situation with a skilled business attorney is a wise way to obtain solid information for making a sound and prudent choice for the entity of your new business.