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What are the Legal Requirements for Forming a Small Business in PA?

Business Formation

Business FormationThere are few things more exciting than taking your future into your own hands and starting a business. Though our society holds entrepreneurs in high esteem, it does not make becoming a business owner easy: there are numerous legal requirements and tax obligations, and failure to fulfill them can lead to significant penalties and fines. The best way to ensure that your business formation plans are complete is to consult with an experienced attorney that can guide you through the process.

One of the most important considerations is the type of legal business structure you are going to use. This is usually determined based on a number of different factors, including your personal needs, how many people are involved in the business, what type of business you are operating and more.

The four options for the business structure are:

  • Sole proprietorship – This is the simplest and most popular option for small businesses. It offers the advantage of less paperwork and fewer legal restrictions, but the disadvantage of personal liability for all of the business’ debts and liabilities. These businesses report income using PA Schedule C and the profit or loss of the business is reported on the owner’s personal income tax return.
  • Partnership (general or limited) – Partnerships have similar advantages and disadvantages to sole proprietorships. The major difference is that there is more than one owner. A partnership has added risk in that any partner is able to obligate the firm or create liabilities for the business single-handedly.
  • Limited Liability Company – LLCs have the advantage of limiting personal liability for stakeholders, though their operations are similar to those of partnerships. They offer the same level of flexibility and pass-through income that sole proprietorships and partnerships do.
  • Corporation – Corporations are the most complex type of business that can be formed. They have more extensive paperwork requirements involved in their formation, but they have the advantage of limited liability to the shareholders.

Each of these options has its own advantages and disadvantages. To speak with a professional who can offer you knowledgeable guidance for your particular situation, contact our office to set up an appointment.