It often seems like there is a miles-long checklist for first-time business owners. One extremely important item on this list is deciding the best structure for your company. Each entrepreneur has wildly different products, services, and goals. You should always consult with multiple professionals before officially forming your business. To get you started, though, I am giving you an overview of five popular legal structures for Pennsylvania businesses.
Limited Liability Company (LLC).
Many entrepreneurs like this business structure because it is somewhat of a midpoint between a sole proprietorship and a corporation. This is because it is relatively easy to form yet insulates your personal assets from most financial liabilities, just like a traditional corporation does. Another attractive feature of an LLC is that profits made through the company are only taxed once, at the personal level. By contrast, revenues of corporations are taxed at both the business and personal levels. Overall, the LLC structure can give you a great amount of flexibility.
Starting a business is daunting for many people, so they often enlist a trusted friend or colleague to join in on the risks and rewards of being an entrepreneur. If you and an associate share a common vision for a prospective company, you should consider starting a business partnership. There are many types of partnerships and partner classifications, so you can tailor titles and roles to the level of involvement and personal liability you desire. A relativey new entity type, the Limited Liability Partnership, provides essentially the same benefits as the Limited Liability Company. An attorney can help your determine which structure is the best for you and your partners.
Sole proprietorships are a great structure for entrepreneurs testing the waters. Due to limited legal requirements, simple record-keeping procedures, and easy income tax reporting rules, you may want to form a sole proprietorship for your business idea. However, be aware that with a sole proprietorship, your personal finances are completely up-for-grabs if you run up a great amount of business debt or if you are sued.
Once you get past the many requirements necessary to form a corporation, you can realize its many benefits. With a C corporation (traditional large corporation), you have an array of funding options to help get your corporation off the ground. You also have the benefit of having people buy shares (ownership interests) in your company. This allows you to raise money while still shielding your personal property and assets from lawsuits and creditors.
Benefit Corporation. (B-Corp)
This structure is a relatively new classification. B corporations are businesses that are created both for corporate profit but also a general public benefit. This is a popular structure among the socially- or environmentally-conscious entrepreneur. Companies that become certified as B corporations (notable ones include Patagonia and New Belgium Brewing Company) are signaling their commitment to both internal and external stakeholders. Pennsylvania Benefit Corporations operation much like a C-corp but must annually file a report with the state explaining the general public benefits the company provided during the previous year. This report is also provided to all shareholders and posted on the company’s website.
Starting a business is an exciting time in your life. Before you make your first sale though, you need to determine the best business structure so you achieve your goals. Call Concerto Law today. We love to help entrepreneurs check all the legal boxes when launching their dreams.