Starting a business in Pennsylvania is not as simple as having a product line and opening the doors to the public. There are several issues that must be considered well before beginning operations. While there have been many that began as a small individual operation on a minimal budget and grown significantly, the truth is that most Pennsylvania companies have been established with much forethought and direction from professionals who understand the challenges of a new business. Regardless of operational size and industry, there are at least a few basic decisions to be made with respect to taxation and the actual business structure.
Sole proprietorship and partnerships structure
Small businesses being operated by a single person or a few individuals will still need to decide on a formal business structure. A sole proprietorship is the best choice when one person is funding the operation and doing most of the physical work associated with staying profitable. New businesses with equal investment and responsibilities could be best suited as a partnership, including a comprehensive operating and ownership contract crafted by a business formation adviser.
Corporate and LLC structure
Larger operations that will require more feasibility evaluation and seed capital will want to choose between corporate or LLC structure. Corporations will be either “S” or “C” designations, usually based on taxation requirements and income ownership. Personal liability avoidance is best accomplished with a “C” corporate establishment, which is the principal business law advantage, but others may want to set up an “S” corporation to avoid double taxation. An “S” corporation is a pass-through income tax liability structure that also allows the corporation to function as a separate entity. A limited liability company, or LLC, often works best for many unequal partnership businesses as a formal operating entity because it is a taxation pass-through structure as well.
Taxation is not the only concern for entrepreneurs, as profit sharing and operating responsibilities are also crucial to long-term success. These details should always be worked out in an enforceable contract that spells out exactly what is required of each party.