Entity Formation

Choosing the right entity for your Pennsylvania Business

Our attorneys regularly counsel clients on selecting the best form of business entity for them. We can assist you in evaluating tax considerations, opportunities in a business cycle and your personal goals in order to optimize your business’ growth potential. Taking all of these items into consideration, we can recommend the type of entity (S corporation, limited liability company, limited partnership and so forth) which is best in Pennsylvania for your particular situation. Our business lawyers also work closely with our clients in developing succession plans through the use of shareholder agreements and buy-sell arrangements. By working closely with our estate planning lawyers, we can help assure that these business arrangements are also optimal from an estate planning perspective.

Starting a business involves many issues.  One of the most important is to determine which form of entity is right for your business.  When deciding the form of business ownership to use, there are two main factors to consider:  liability exposure and tax ramifications.

Consider liability exposure when choosing an entity

Some business forms, if properly used, provide the owners with a shield from liability, so that only the business assets (and not the owner’s personal assets) can be reached if there is a judgment against the business due to a mistake.  Corporations, limited partnerships, and limited liability companies can each provide a shield for personal assets against business debts. There are requirements that must regularly be met to keep that shield in place, however, and the costs of forming and maintaining one of those business entities may be more than the business can afford. Thus, some businesses prefer to operate as a sole proprietorship or general partnership.

Consider tax ramifications when choosing an entity

Taxes are payable by the sole proprietorship owner or general partners on their individual tax returns.  In corporations (unless special “S Corp” status is sought), the corporation itself pays income tax, and then the profits distributed to shareholders in the form of dividends are taxed again.