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Why a business start up as a sole proprietorship can be useful

For New Jersey residents who have an idea for a business but are working by themselves and do not have a great deal of knowledge in how to get started, it is important to understand the basics of business formation. A sole proprietorship is a business in which, in most cases, it does not need to be registered with the state. This is different from a corporation or a limited liability company. A sole proprietorship is easily started and maintained. If a person who is moving forward with a start-up company and is doing it alone, this is a wise way to do it.

New Jersey does not require a sole proprietorship to be registered with the state as some states do. This type of business should not be utilized for tax shelter purposes or as a loophole because the profits that are earned will be viewed as income on the income taxes. If there are debts with a sole proprietorship and they are not paid, creditors can pursue personal assets.

A sole proprietorship is different from an LLC as there is a lack of security that the LLC has. For example, a judgment against the sole proprietorship will mean that the person who sought the judgment can go after the owner directly and the assets he or she has. A sole proprietorship does not pay business taxes. The taxes go straight to the owner meaning that all profits and losses are reported on the income taxes. A person with a sole proprietorship will pay his or her own taxes as well as Social Security and Medicare. There will also be a self-employment tax.

A start-up company has many benefits to the person who is working on it and a sole proprietorship is a way for a person who has an idea and wants to do it on his or her own to start the business without extensive legal hoops to jump through. However, there are still legal aspects that must be considered and a lawyer who is experienced in a sole proprietorship business start up can help.

Source: smallbusiness.findlaw.com, "How to Set Up a Sole Proprietorship," accessed on Oct. 24, 2017

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