What Are Some Benefits of Forming My Business As an LLC in Pennsylvania?
If you’re starting a new business in Pennsylvania, there are many ways to structure it legally. While doing your research, you will come across the terms “limited liability company” and “LLC,” however, you need to fully understand what this type of entity is and whether it is the appropriate structure for your business goals.
A limited liability company (or LLC) is a business entity that protects its owners by shielding owners from personal liability for debts the company incurs. Although other business entities also offer liability protection, the LLC stands out from other entities.
The LLC is unique as it combines numerous characteristics of other legal entity types, which makes it one of the most preferred legal structures for any new company.
Some of the benefits of a general LLC business include:
- Limited Liability Protection – One of the most recognized characteristics of an LLC is its limited liability protection. This benefit allows its members to separate their assets from those of the companies. Accordingly, it enables its members to pursue business purposes while reducing risk to their personal property.
- Pass-Through Taxation – This benefit is valuable as it helps to avoid double taxation. Unlike other business entities, the LLC is not taxed at the entity and ownership levels. Your LLC business is taxed only at the ownership level.
In other words, your business taxes pass through to the owners. This unique benefit exists because the IRS does not recognize the LLC as a separate legal entity for tax purposes. By default, your business is considered a single-member LLC and taxed more as a sole proprietorship.
- Custom Management Structure – Your LLC does not mandate any particular management structure. Members can decide to manage the company or use one or more managers who do not have to be members (aka owners).
- More Relaxed Compliance Requirements – An additional benefit of the LLC is considerably less stringent compliance requirements. For example, your LLC does not have required annual meetings or have “ boards of directors.” The running of your business can be much more flexible and trimmed down legally.
Of course, the above is a simple overview, and discussing your new business with a local Bluebell business lawyer will provide you with the detailed information you must have to make the right choice.
Are There Any Risks of Being An LLC in Pennsylvania?
There are always risks, which is why all the owners of your new business must meet with a knowledgeable and detailed business lawyer and discuss the pros and cons of forming an LLC.
Each business owner must analyze their situation and determine whether the benefits of forming an LLC outweigh the risks.
The following are some of the risks to consider:
- The Loss of Limited Liability – Your LLC does provide the owners with limited liability. However, poor practices could result in an LLC losing its liability shield. For example, if your company fails to properly maintain adequate separation between the company’s assets and the member’s assets, and an issue ensues, then the court could find grounds to pierce the “liability veil.”
- Possible Difficulty Enticing Investors – An LLC’s looser, more flexible structure can make it less appealing to investors. It could be more challenging to ensure investment returns without strict structural elements like mandatory meetings and reports. If investors are vital to your growth and operation, your experienced Blue Bell business lawyer will ensure you know all the facts before you proceed.
- Pass-Through Taxation – This can sometimes be a “double-edged sword” and have drawbacks for LLC members because the income tax that members pay on business earnings will occur whether or not dividends are paid to the members.
What Are the Different Types of Business Entities in PA?
Although forming an LLC has become extremely popular for rational and sound business reasons, a qualified Blue Bell business lawyer will ensure you have all of the information needed to decide on what structure is proper for you.
Some of the other types of business entities are:
- A Sole Proprietorship – This is a type of business entity where there is no legal distinction between the owner and the business. A “sole proprietorship” can be informal and formed without filing with the state or formally registered as a fictitious name. The owner has unlimited personal liability for the debts and obligations of the business.
- A Partnership – A general Partnership just means that two more people engage as co-owners in a business without formally filing any paperwork with the state to form a for-profit company. Each partner of a general partnership has equal rights and liabilities in the partnership. Partners have unlimited personal liability for the partnership’s debts and obligations. There are other types of partnerships, including Limited Partnerships and Limited Liability Partnerships.
- A limited partnership is composed of one or more general partners and one or more limited partners. General partners have unlimited personal liability, while limited partners have limited liability based on their capital contributions to the partnership.
- A limited liability partnership is a partnership where the partners enjoy limited personal liability for the acts of other partners. Liability protection varies depending on the partner’s involvement and responsibilities.
- A “C Corp” Corporation – This is your more well-known form, and the owners of a corporation are shareholders. Corporations are created by Pennsylvania state statute. Shareholders generally have limited personal liability for the corporation’s debts and obligations. There are a few types of corporations that your lawyer will outline if they fit your targeted needs more effectively.
How Can a Business Lawyer Help Me Form an LLC
An LLC may be more straightforward and flexible, but it’s still a company and certain procedures need to be followed. There are reasons to use an LLC, but the real question is what type of business entity best suits your needs. Obtaining a complete case evaluation with your local, detailed, and experienced business lawyer will always help you ensure this critical decision is right for your business and its future.
These are some things you will need to consider when forming any business entity:
- Choosing a legal and distinct name for your company and possibly a fictitious name.
- Appointing a registered agent for your company.
- Filing a correct and complete Certificate of Organization.
- Preparing a thorough, detailed, and legally correct operating documents for your business.
- Filing for your company’s EIN.
- Filing annual registration.
No matter what business you have, structuring it correctly is the first significant and critical decision. You must get this right, and once done, file correctly, legally, and always with the guidance and knowledge of a professional business lawyer.
I’m Forming a New Business; How Should I Proceed?
Forming your new business as an LLC may be the right thing for you to do for sound and rational business reasons. However, in today’s business climate, doing it yourself is often a mistake.
You want to start your business on solid, legal grounds, and you must have the professional guidance of a qualified business lawyer to do it.
The Pile Law Firm, PLLC’s business law team, has always been dedicated to ensuring that your new (or existing) business is legally sound and ready to forge ahead and thrive.
Call us today at (610) 718-6368, and we will help you with all of your business challenges, regardless of how complex they may be.