How To Start A New Jersey Sole Proprietorship

Picking a business structure is one of the first decisions you’ll make when starting a business in New Jersey. The business structure you choose defines your legal and tax obligations, so it’s important to understand the different types of business structures, so you can make an informed decision about the best structure for your business.

In this guide, we’ll explore the ins and outs of starting a sole proprietorship in New Jersey. You’ll learn what a sole proprietorship is, its pros and cons, and a step-by-step guide to getting your business up and running.

Related: How to start a business in New Jersey

What is a Sole Proprietorship?

A sole proprietorship is a business structure owned by a single individual who has complete control over the business. In New Jersey, no formal paperwork is required to create a sole proprietorship, which makes it a popular choice for small businesses.

Before you decide on the sole proprietorship structure for your business, it’s useful to quickly go over some other common types of business structures. These include:

• Sole Proprietorship – owned by one person
• General Partnership – owned by 2 or more people
• Limited Liability Company (LLC) – limits owner liability
• Corporation – more complex structure with shareholders

Related: Overview of business structures

Sole Proprietorship Advantages

• Ease of setup: Since the individual and business are the same, there are no formation documents, and you can get started immediately.
• Lowest startup costs: One of the significant advantages of a sole proprietorship is the minimal costs to set it up. With the exception of registering a business name, there are no costs to start as a sole proprietor.
• Tax simplicity: A sole proprietorship does not file a separate tax return for the business. Instead, the owner reports business income and losses on their individual tax returns.

Sole Proprietorship Disadvantages

• Unlimited personal liability: This is the main risk. As a sole proprietor, your personal assets (like your home or car) could be at risk if your business faces debt or lawsuits.
• Less business continuity: If there are contracts with customers or vendors, they might not be able to be transferred to a new owner. This can cause problems if the business is sold or if the owner passes away.
• Potentially higher taxes: While tax filing is simpler, you might face higher taxes in some cases. As a sole proprietor in New Jersey, you’ll pay self-employment taxes, and your income might be taxed at a higher personal income tax rate than as a corporation or LLC.

When considering these disadvantages, it’s clear that if protecting your personal assets is important to you, forming an LLC could be a better option. With an LLC, your personal assets are usually safe if your business faces legal issues and offers greater tax flexibility too.

Steps to Start a Sole Proprietorship in New Jersey

Starting a sole proprietorship in New Jersey comes with a series of simple steps. Although this type of business structure does not require you to register any legal documents with the state to create one, there are a few essential things that need your attention to ensure the business is legally set up.

Step 1: Choose a Business Name

In New Jersey, as a sole proprietor, you have the freedom to operate your business under your own full name. But, if you have a different business name in mind, you need to register it. For instance, let’s say John Harris wants to run his bakery business, but not under his name. He prefers the name “Jersey Fresh Bakes.” In this case, he will have to register his Trade Name, “Jersey Fresh Bakes”.

Step 2: Confirm the Name Availability

To use a Trade Name, you have to make sure it’s not similar to any other registered business names in the county where the business is located. Most New Jersey Counties allow for online name searches, but if this is not available, you can visit the County Clerk’s Office and review the Trade Name book.

Step 3: Submit the Trade Name Form

So you found that perfect business name, and it’s unique. Next up, you’ll need to register it by filling out and submitting the Trade Name Form with the County Clerk’s Office.

Registering the business name doesn’t really protect it from someone else outside of the county from using it. This means another business can use a similar name. To reinforce legal rights to your name, you may want to apply for a federal trademark through the U.S. Patent & Trademark Office (USPTO).

Step 4: Learn About Business License Requirements

Regardless of the structure of your business, you are required to have business licenses or permits. The type of license or permit you need depends on your business type and its location.

State business registration: If you plan on operating your business in New Jersey, you must register with the New Jersey Division of Revenue and Enterprise Services at least 15 days before starting your operations, by filing Form NJ-REG.

Sales Tax Certificate of Authority: If you’ll be selling physical or digital products, you will need to register for a Sales Tax Certificate of Authority from the New Jersey Department of the Treasury. The certificate allows you to collect sales tax.

Local business license: In addition to state registration, a local business license may be required. Check with local city officials or the economic development office for accurate information.

Professional license: Some services in New Jersey such as contracting, landscaping, daycares, and barber shops need professional licensing before their offer.

Employer Identification Number (EIN): An EIN is necessary for tax reporting for businesses with employees. While a sole proprietorship without employees doesn’t require an EIN, some banks might need it to open a business bank account. Otherwise, a sole proprietor can use their social security number for business operations.

Related: What business licenses are needed in New Jersey?

Wrapping Up

Starting a New Jersey sole proprietorship allows you to avoid a complex business formation process and get up and running quickly. With straightforward registration, low costs, and tax simplicity, it provides an appealing option for launching your business idea.

We’re eager to hear about your journey! In the comments below, share which business entity you plan to go with and your reasons for choosing it. If you have any questions or need further guidance, feel free to ask.