Business Formation

Are you ready for business formation? Do you know which type of business entity is right for your business? There are pros and cons to each type and it is important to set up correctly.

The Sole Proprietorship or Partnership

If you file nothing with the state, then by default your business is a sole proprietorship (one owner) or a partnership (multiple owners). As a sole proprietor or member of a partnership, YOU are the business. There is no separate legal entity to separate you as a person from your business (even if using a fictitious name). What this means from a legal perspective is that YOU are personally liable for your business’ debts, obligations & lawsuits. And because you are personally liable, your home, car, bank, retirement accounts, and anything else of value you may own are at risk.

So how do you protect your personal assets???? By registering a business entity with the state. But which one?

The C Corporation

The C Corporation is the most involved type of business formation – you need Articles of Incorporation, Bylaws, Shareholder’s Agreement, Board of Directors, Corporate Minutes, etc. It’s a substantial amount of work and extra start-up expense. The advantages are that all shareholders enjoy protection from personal liability for the debts and obligations of the business because the business is a separate legal entity. And the C Corporation may be appropriate if you wish to eventually be publicly traded or you intend to pursue investors.

The Limited Liability Company

The Limited Liability Company (LLC) is exactly what the name suggests. It provides limited liability that protects your personal assets. Because you have a separate legal entity, only the assets of the company are at risk for debts, liabilities, and lawsuits. It is easier to set up and less expensive to maintain than a C Corporation. For this reason, the LLC is often the best option for small business owners in Pennsylvania and Maryland. But it is important to set it up right in order to take advantage of the liability protections. I can help you with an affordable flat-rate package!