You own a New Jersey company or about to start one. Meanwhile, you’re a bit confused. Admittedly, you’ve done your share of internet research. You’re not sure if you need to incorporate. After all, there are so many choices when it comes to determining the business entity that best matches your business model.
For individuals just starting out, it might seem easy enough to set up shop as a sole proprietorship. In some cases, you might figure that an LLC is the right way to go. As we shared in a prior article, the latter comes with its share of fiduciary duties. However, it may not exactly represent what you think it does when it comes to limiting your liability or lawsuit exposure.
One: Incorporate to Limit Personal Liability Exposure
Did you know? If your business is a single member LLC, you still have personal liability exposure. Even if your limited liability company goes under, you could face a lawsuit in your own name.
An experienced business attorney can explain how forming a corporation might be the best for your type of company. The law on corporations is so vast in New Jersey that it actually takes up several volumes of books. NJSA 14A:17-8 provides details concerning personal liability versus corporate liability. For many companies, this is an important reason to incorporate.
Two: Consider Your Taxes
First, you should be aware that there are different types of corporations. And, in short, they are not all created equally when it comes to tax consequences. When most people think of corporations, their focus is on C-corporations. Often, business owners express concerns about the prospect of double taxation. The corporate entity must pay taxes, and dividends are also taxable. Notably, tax rates are lower for corporations.
However, S-corporations represent another tax alternative. The “S” refers to a section of the IRS code and allows for “pass-through” taxation. Under this corporate structure, profits and losses are passed through to the company’s shareholders. They then report the information on their personal income tax returns.
In New Jersey, non-profit groups may also form B-corporations. In those cases, a professional accountant can help determine whether it is wiser to file taxes under the provisions of C-corporations or S-corporations.
Three: Incorporation Adds Status
It’s almost magical. Add an “Inc.” to your company name, and you seemingly add credibility. For one, before you even take on your name, you’ll have to make sure you can own it. This means that your lawyer will do a corporate search for your proposed company name.
For whatever reason, clients and vendors alike seem to like to deal with corporations. It could be an assumption that there is more accountability and transparency. Reputation is vital in any type of business dealings. Therefore, the inference that corporations are bound by specific legal reporting standards means big things to consumers.
One more thing. Even if the business owner dies, moves or retires, a corporation can live on. Shareholders have the advantage of keeping a company going despite management changes.
Determining what business entity fits your company is often critical to your company’s success. Incorporation comes with a great deal of paperwork but makes sense for many start-ups and existing businesses. Contact the Law Offices of Lawrence M. Centanni to review your options. We look forward to hearing from you!