An individual who wants to start a business in Pennsylvania must follow several steps to ensure the venture complies with state and federal regulations. One of the first things entrepreneurs must do is decide what sort of legal structure they want to use. There are several factors that may affect the choice of legal structure, including the size, tax considerations and operational model of the business.
According to the Pennsylvania Department of Revenue, the state recognizes four types of business structures: corporations, sole proprietorships, partnerships and limited liability companies. An individual who runs his or her business alone may choose to operate as a sole proprietorship or to create an LLC. Both options may allow the business owner to operate without employees, but an LLC may prevent the liabilities and debts of the business from affecting the owner’s personal assets. Filing Pennsylvania taxes is similar for LLCs and sole proprietorships; in most cases, entrepreneurs report business income on their personal tax returns.
A business may also be a partnership in Pennsylvania. The Department of State provides information on three options for this type of structure: general partnership, limited partnership and limited liability partnership/limited liability limited partnership. A general partnership may be simple; two or more individuals, entities or corporations may agree to enter a partnership. Pennsylvania law does not require partners to file an official contract, but they may have to submit paperwork related to a fictitious or business name. A limited partnership includes one or more general partner and one or more limited partner. The limited partner generally does not participate in the daily operation of the business and has little personal liability for business debts.
In most cases, a Pennsylvania limited liability partnership or limited liability limited partnership starts as a general partnership. The partners may file a statement of registration as an LLP or LLLP. Doing so may protect partners from personal liability related to the debts and actions of the business. Entrepreneurs should carefully consider the benefits and restrictions of all business structures before choosing one.