If you are considering starting your own business, you likely already have the drive and ambition to make your business succeed. However, starting a business is much more complicated that simply hanging up a shingle. In addition to forming a sound business plan, and obtaining startup capital, you must address several legal formalities.
The first step in forming your business is to choose a name for it. In New Jersey, you must resister your business name with the Department of the Treasury. However, before you select a name, it is advisable to check with the department to see if it is taken by another entity. Your business does not have to actually be operating in order to register the name, so be sure to register your business name as early as possible to prevent others from claiming your name.
Type of entity
Once you have selected a name, it is time to choose a legal entity for your business. There are several options available from the informal (sole proprietorships and partnerships) to the formal (limited liability companies, limited partnerships and corporations). It is wise to seek legal advice when choosing an entity, as there are several complicated issues to consider, such as tax consequences and liability. Generally, the more informal entity types offer simpler tax structures but less personal liability protection than the more formal ones.
After you have chosen an entity type, it is time to draft the internal governing documents of your business, such as bylaws, operating or partnership agreements, and employment agreements. The purpose of these documents is to set out the basic rules of how the business is to be governed and operated. Since these documents have a large impact on your business, it is important that they are drafted clearly and address the issues that your business is likely to encounter.
Once the necessary documents have been drafted, it may or may not be necessary (depending on entity type) to register your business. In New Jersey, partnerships and sole proprietorships generally do not need to be registered. However, most of the more formal entity types need to be registered in order for the business to be legally recognized and to receive the legal protections (i.e. liability protection) afforded to it by law.
Don’t go at it alone
Successfully forming a business is a very complex process. Since any mistake in the process can potentially harm your business later on, it is important to consult with an experienced business law attorney to ensure any pitfalls are avoided.