Whether opening a restaurant, boutique, professional services firm or any other enterprise, there are several questions that any individual or group needs to consider when starting a new business. Here is a short list of questions and action steps that will help protect business owners.
- Should you form an entity and, if so, which kind? Typically, it makes sense to form an entity to minimize personal liability and protect individually owned assets. There are a number of options – a limited liability company (LLC), corporation (S or C), limited partnership (LP), limited liability partnership (LLP) or general partnership (GP) – for profit or not-for-profit.
- Do you want to own 100% of the business or bring on partners and/or investors? Consider if what another person brings to the table (e.g. money, expertise and the ability and time to work at the business) is worth the loss of control. How do you split ownership, control and responsibilities? If you form a corporation, who will be the initial Directors and Officers?
- Are there any available State or Federal grants, low interest loans or other resources?
- What should you name the business? Check New Jersey’s portal to see if your desired name is available or already in use. If available, the next step is filing a Certificate of Formation for an LLC or the equivalent depending on the type of entity.
Note: If you want to conduct business under a different name than the entity’s exact legal name, consider filing a fictitious name registration, which carries a five year “renewable” term.
After forming a New Jersey entity, business owners have 60 days to file an Application for Business Registration (NJ-REG) to alert the State what types of taxes it should expect to receive (e.g. payroll taxes if there are employees) and when to expect those funds and the associated tax returns. Completing the NJ-REG is cumbersome, so a CPA is a helpful ally.
Business owners may also need to obtain an Employer Identification Number (EIN) from the IRS unless the business is owned by a sole proprietor. An EIN can be requested and obtained online. Note: S and C corporations have different Federal and State registration and filing requirements to be considered. Again, you should consider consulting with a CPA.
Other questions and decisions to consider:
- In which states will business be conducted? If outside the state of formation (i.e. New Jersey), additional registrations may be required.
- Consider and obtain appropriate insurance coverage after consulting with an insurance agent. If leasing space or obtaining financing, the landlord and lender will impose insurance obligations that must be fulfilled.
- If leasing space, be cautious about entering into a long-term lease and providing personal guarantees – both upside potential and downside risks should be considered.
- Check with the municipality in which the business is going to be located about their requirements for licenses, permits, certificates of occupancy, etc.
Starting a business is an exciting endeavor but it is also challenging and there are critical steps that must be followed. As with any big decision or investment, consulting with experienced business counsel can help you navigate the process.