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Business entity options for Moorestown sole proprietors

When a person in Moorestown first decides to create his or her own business, it might be organized as a sole proprietorship. Simply put, if just one person owns a business, it is a sole proprietorship. It does not need to be registered with the state, although it still may need to apply for licenses and permits, depending on the business.

However, as a person's sole proprietorship expands, the needs of the business and the business owner may change. The business owner may feel that his or her own personal assets are in need of more protection, and should be separate from the liabilities of the business. A sole proprietor may also find that he or she wants to attract more investors. Therefore, one thing those in sole proprietorships do when faced with these issues is to change their sole proprietorship to a limited liability company (LLC) or a corporation.

One of the major advantages of switching from a sole proprietorship to an LLC or corporation is liability protection. When a person has a sole proprietorship, he or she is still responsible personally for the debts of the business.

On the other hand, the assets and liabilities of LLCs and corporations are separate from the assets and liabilities of its owners. By transforming a sole proprietorship to an LLC or corporation, it could attract more investors and partners.

But, there are some disadvantages of switching from a sole proprietorship to an LLC or corporation. These business entities must be filed with the state before they can come into existence. Moreover, many states require LLCs and corporations to file with the state each year. These filings cost a small amount of money, but should the business fail to file it could be penalized or could even have its right to conduct business revoked.

Another disadvantage of switching from a sole proprietorship to an LLC or corporation has to do with taxes. If a person owns a sole proprietorship, the business income can are included on the owner's personal tax return. LLCs and corporations though, are required to file separately from their owners.

As this shows, there are advantages and disadvantages to switching a business from a sole proprietorship to an LLC or corporation. New Jersey business owners considering making the switch should make sure they understand all the consequences of doing so before proceeding.

Source: SmallBusiness.Chron.com, "The Advantages & Disadvantages of Changing the Company Organization From a Sole Proprietorship," accessed on Jan. 14, 2017

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