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Your choice of entity helps determine the future of your business

You decided to take the plunge and start a business here in Harrisburg. With all of the choices you need to make before you open your doors, the type of entity you choose helps determine the amount of personal liability you have when it comes to the activities of your business.

In addition, the entity you choose determines how you handle taxes for yourself and your business. It also affects its longevity since some entities can outlive you and your participation in the business while others cannot. Understanding the differences may help you make your choice and may greatly affect the future success of your business.

If you operate as a corporation or an S corporation

Here's what you can expect from this type of entity:

  • Your personal investment in the business limits liability
  • Personal assets remain safe from creditors
  • Easier to expand than some other entities
  • Shares pass to heirs
  • Stock sales raise capital for the business
  • Higher organization costs and upkeep
  • More government regulation
  • Double taxation unless it's an S corporation
  • Operations remain in Pennsylvania

If you leave the business or die, it can continue without your participation. In fact, corporations can exist in perpetuity.

If you operate as a general or limited partnership

Here are the pros and cons of this type of entity:

  • Greater availability of help with creativity, support and decision-making
  • Sharing decision-making could mean delays
  • Greater chances for raising capital
  • Liability is unlimited in general partnerships

In a limited partnership, there is a restriction on liability for limited partners based on their ownership percentages.

If you operate a limited liability company

This hybrid between a corporation and a partnership offers you the following:

  • Limited liability for members
  • Flexibility and customization of the business structure
  • Requires an operating agreement

You may be able to be the only the member of your LLC, which would provide you limited liability with the benefits of a sole proprietorship.

If you operate as a sole proprietorship

A sole proprietorship only lasts as long as you run the business. You can establish this entity with the least amount of time, legal requirements and paperwork. You make all the decisions, assume all of the responsibility and keep all of the business' profits. Your personal assets are vulnerable to creditors and lawsuits.

If you have further questions

After reading these brief descriptions, you may have more questions regarding what type of entity would best suit your needs and the vision you have for your business. You may obtain the answers to the questions you know you have, along with the questions you may not know to ask from local legal resources.

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The Law Firm of Peters & Wasilefski

2931 North Front Street
Harrisburg, PA 17110

Toll Free: 866-830-1116
Phone: 717-260-3483
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