One of the major decisions that anyone starting a business needs to consider is what business structure it will have. The business structure will affect operations, administration, tax structures, personal liability, and the ability to raise capital. There are different options for entrepreneurs to consider when starting a business, and certain factors might make specific structures more advantageous than others. Different business structures will require different processes to be followed when preparing and registering relevant documentation. For example, an entrepreneur in New Jersey wanting to register an LLC would need to conduct a New Jersey LLC search before choosing a name for their LLC. NJ regulations around business registration may differ for different business structures. This is why it is essential to carefully consider the requirements, benefits, and statutory regulations before choosing a business structure. This article will discuss LLCs and the advantages of choosing this business structure for small business owners.
What Is A Limited Liability Company?
A limited liability company (LLC) is a business that has its own legal existence – the LLC owns the business, assets, liabilities, and debts. Members’ (typically what LLC ‘owners’ are referred to as) liability is limited to their investment in the company. This means that any corporate losses incurred cannot exceed what the members have invested, and their private assets are not at risk if losses are incurred or the company fails. An LLC is also what is known as a pass-through entity. This means that the company ‘passes’ its income directly to the members, and members are taxed on profits as part of their income tax – the company does not file a corporate income tax return. This means the company is not subject to double taxation (personal and corporate).
Why Should A Small Business Owner Register An LLC?
For entrepreneur(s) aiming to start a company, there may be many benefits to registering your small business as an LLC. If the company grows over time or the members want to raise capital through different means, an LLC can be changed to a different business structure if it meets certain IRS requirements.
Limited Liability Protection
As discussed above, one of the primary advantages of having an LLC is that the members’ (owners) personal assets are protected if the LLC encounters financial difficulties such as bankruptcy or litigation. Since the LLC exists as its own legal entity, it bears its own debts and liabilities. This is especially helpful for small business owners who might have made significant investments to start the company and cannot afford to have their assets compromised. For startup companies, limited liability is important for members while the market and viability of the business are tested.
Flexible Tax Options
As above, LLCs are pass-through entities, meaning that their profit goes straight to their members, who pay tax on it through their personal income tax filings. This allows the company to avoid double taxation. However, if it becomes favorable for a company to be taxed as a corporation, it may file to be taxed as such.
Registration Process And Maintenance
For example, registering an LLC is a relatively simple process in most states, though statutory requirements might differ between New Jersey and Pennsylvania. Conducting a New Jersey LLCsearch to determine the availability of a chosen company name and establishing a business structure and profit share system are important steps to take before registering an LLC NJ. Once the business operations have been discussed and decided on between members, a Public Records Filing for a New Business Entity must be filed with the New Jersey Secretary of State. There may be other paperwork that needs to be filed, depending on the company’s purpose.
The company may require a general business license or an industry-specific permit. It is important to check the requirements for your business and ensure the right paperwork is in place. Once the LLC is formed, there are typically fewer ongoing compliance requirements than other business structures might have. This means that members can focus on their business operations rather than time-consuming administration. It is, however, important that members ensure the correct filing of their LLC and that good standing is in place. This can be done by conducting a New Jersey LLC search of the company at specific intervals.