Form a Business in Pennsylvania
Once you decide to start a new business, your first choice hinges on what type of business organization best fits your business model. There are four major categories of businesses in Pennsylvania: sole proprietorship, partnership, limited liability company, and corporation. Each structure offers the owner various benefits and drawbacks.
A majority of small businesses are sole proprietorship, probably because they are owned and operated by a single person and are structurally simple. Since their organizational structure is fairly straightforward, the operator of a sole proprietorship has to contend with less paperwork and fewer regulations. One major drawback of sole proprietorship is that the owner assumes unlimited personal liability for any and all debts the business may accrue. Sometimes these organizations serve as proto-businesses, and once the business grows past a certain point the owner changes the legal structure of the business in order to expand.
This type of business is basically the same as a sole proprietorship except that there are two owners instead of one. Having a partner to help run the business gives you access to more funds and allows the business to take on more work than when a business is operated by a single owner.
There are three main types of partnerships: general, limited, and limited liability. In general partnerships, both owners operate the business and assume full legal and financial responsibility for the business. Limited partnerships include at least one partner who does not operate the day-to-day activities of the business and so assumes limited liability. Limited liability partnerships provide the general partners with additional protections from liability.
Limited Liability Company (LLC)
These aptly-named companies are similar to corporations in that they limit the owners’ personal liability. They may have a single member or many members, and membership may include other companies as well as individuals. However, certain types of businesses are not permitted to operate as a LLC. Meanwhile, a LLC generally offers a high level of flexibility which combined with the limitations on personal liability causes this type of organization to be very popular.
Corporations are by far the most complex businesses to form and operate. While the personal liability of the members is limited, corporations are required by regulations to maintain exhaustive records and income is taxed both at the corporate level and at the individual level when owners receive dividends. The two types of corporations in Pennsylvania are C corporations and S corporations. The main difference between these two types is that C corporations follow federal rules for calculating income and losses while S corporations must use Pennsylvania state tax rules for that purpose.
The business attorneys at Kraemer, Manes & Associates not only can answer business entity questions but also can help you choose the right entity for you and your business or help merge two businesses. After all, we are here to serve you and your business. Call or email us because we can guide you through the process of forming a business.