You want to start a new business, now what?

 

What happens next? How to do you get started and make sure that you're starting your business out correctly?

 

Most people start a business without understanding the legal and financial implications tied to that business. Usually, they will set up a "sole proprietorship" and figure the rest out at tax time. 

 

With almost no exception, the best course of action is to organize as some type of legal business entity, not as a sole proprietor.

Do you want your home, personal bank account, and retirement savings on the line for a business liability? If the answer is no, then you do not want to be a sole proprietor.

 

What are some of the most common business entity types in Pennsylvania?

 

• ​A general partnership is a business in which all partners participate fully in running the business and share equally in profits and losses. While forming a general partnership is easy (typically there are no filing fees or filing formalities), partners of a general partnership are typically all equally and personally liable for all debts and obligations of the general partnership.

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• ​A limited liability partnership (LLP) is like a general partnership in that the LLP allows all the partners to take an active role in the management of the business. However, unlike a general partnership, the LLP offers partners some liability protection from actions of the other partners and the partnership and the partnership employees. LLPs are most often used by groups of professionals such as doctors, accountants or architects.

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• A limited partnership is a partnership comprised of one or more persons who control the business as general partners and one or more persons as limited partners who contribute capital and share profits but who do not manage the business and are liable only for their amount of their contribution to the limited partnership.​

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• A limited liability company (LLC) is a statutorily created entity comprised of members with limited liability. Limited liability companies can be managed by either their members or managers. This is the most common form of entity formation for entrepreneurs and professionals.

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• A corporation is an entity that provides limited liability for shareholders and centralization of management.

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• An S-Corporation is not an entity type in and of itself. Instead, “S-Corporation” is a status for tax purposes only. Both an LLC and a corporation can elect S-Corporation status for purposes of tax treatment. S-corp status means that the entity is a “pass-through entity.” All profits and losses of the business entity are passed through to the owners on their personal tax returns in their respective ownership proportions, regardless of how much money was actually distributed to each owner during the calendar year. S-corp status is a favorite planning tool for many business owners because it allows you to take a salary (which is always subject to self-employment tax) but the distributions are not subject to self-employment tax, giving you the opportunity for substantial savings and more financial flexibility to continue building the business you love.

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I have a fictitious name / "doing business as" (DBA) isn't that enough?

Unfortunately, filing a fictitious name only with Pennsylvania isn't enough to legally protect yourself and your entity. Set up a call with us to discuss your next steps to protect the work you've done to establish yourself and your business name as a legal entity. 

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We Are Here to Help You

At Entrusted Legacy Law we will educate you, take the time to get to know you, your business, your concerns, your goals and your issues and will gladly and patiently answer all your questions to produce a business plan that is exactly right for you. We also will work with your accountant to make sure that our plan matches the tax plan you have established with your CPA. 

 

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