In spite of the tremendous challenges that Americans have faced in the past year in terms of businesses going under and record unemployment, people are bouncing back with unexpected resilience. Economists have labeled the sharp increase in new business applications a “startup boom”, with the third quarter of 2020 showing the highest number of applications ever seen.
In fact, between June and September of 2020, almost 1.4 million startups were founded. There were more new businesses launched in the United States during that quarter than at any time in history.
As brick-and-mortar businesses, shopping malls, theater chains and a vast array companies in the public service sector have been hit hard, entrepreneurs are turning to innovative ways of creating a niche for their business in a new economic landscape. Whether it is providing new online services for purchasing or delivering goods or creating opportunities through an expanded online community, innovation continues to drive the U.S. economy.
The most common business structures
When starting up a new business, it is important to factor in management and operational structure as well as liability and ownership interests. The business owner may also want to consider the tax implications of the structure chosen during formation.
The most common business structures are:
- A sole proprietorship, which has only one owner. Because the business is not a separate legal entity, the owner is personally liable for business debts and obligations.
- A partnership, which has two or more co-owners who share the business’s profit or loss on their personal income tax. Although they are personally liable, a limited partnership provides limited liability for some of them.
- A corporation, which is a separate legal and tax entity whose owners are shareholders having limited liability with a managerial structure that oversees operations.
- A limited liability company, which limits the liability of the owners and has tax advantages in allowing profits and losses to pass through to individual owners.
Business formation in New Jersey
While there are general considerations that a new business owner in Essex County and New Jersey will have to take care of during the formation of the business, it is important to also consider having a trusted legal source to assist with entity selection, liability and insurance concerns, and the drawing up of iron-clad contracts that include noncompete and severance policies. These are important matters that will protect your rights if there is a corporate dissolution or business divorce.