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Home » Choice
of Business Entity
Dennis Piper & Associates, P.C. is a full service Pittsburgh
Accounting firm ready to partner with you to ensure the most advantageous
business structure for your company.
How to Form Your Legal Business Structure
Once you decide to establish a business, your first consideration will be the
type of business organization to use. Legal and tax considerations will help to
determine your final choice, as well as personal needs and the needs of the
particular business. As a leading Pittsburgh Accounting firm we can meet with
you to determine which business structure will best suit your business.
There are three principal kinds of business structures: the sole
proprietorship, the partnership, and the corporation.
There are advantages and disadvantages to each of the legal forms of business
you may choose. As an entrepreneur you must examine all of the characteristics
and consult a knowledgeable legal professional when considering the formation
of your business.
Sole Proprietorship
Most small businesses operate as sole proprietorships. This is the simplest
form of organization and allows the single owner to have sole control and
responsibility. Some advantages of the sole proprietorship are less paperwork,
a minimum of legal restrictions, owner retention of all the profits, and ease
in discontinuing the business. Disadvantages include unlimited personal
liability for all debts and liabilities of the business, limited ability to
raise capital, and termination of the business upon the owner's death.
You should note that a small business owner might very well select the sole
proprietorship to begin. Later, if the owner succeeds and feels the need, he or
she may decide to form a partnership or corporation.
General Partnership
A partnership is similar to a sole proprietorship except that two or more
people are involved. Advantages are that it is easy to establish, can draw upon
the financial and managerial strength of all the partners, and the profits are
not directly taxed. Some disadvantages are unlimited personal liability for the
firm's debts and liabilities, termination of the business with the death of a
partner, and the fact that any one of the partners can commit the firm to
obligations.
The partnership is formed by an agreement entered into by each partner. This
agreement may be informal, but it is advisable to have a written agreement
drawn up between all parties. While no filing is required to form a general
partnership, it may be required to file a fictitious name registration. Refer
to the section in this guide on How to Register Your Business Name.
Limited Partnership
A limited partnership is a partnership formed by two or more persons having one
or more general partners and one or more limited partners. The limited partners
have limited exposure to liability and are not involved in the day-to-day
operations of the limited partnership.
Limited Liability Company
The limited liability company (LLC) is a hybrid between a partnership and a
corporation, providing the liability protection of a corporation, with the
advantage of being treated as a partnership.
Limited Liability Partnership
A limited liability partnership (LLP) is an existing partnership that files an
election with the Corporation Bureau, Pennsylvania Department of State,
claiming LLP status. The effect of becoming a LLP is to provide general
partners with additional protection from liability.
Corporation
A corporation is the most complex form of business organization. It is costlier
and more difficult to create because of the paperwork required. Business
activities are restricted to those listed in the corporate charter. However,
most corporations list a general-purpose clause.
Advantages of a corporation are that liability is limited to the amount owners
have paid in to their share of stock, and the corporations continuity is
unaffected by the death or transfer of shares by any of the owners. Some
disadvantages are extensive record keeping, close regulation, and double
taxation (taxes on profits and taxes on dividends paid to owners).
S Corporation
Closely held corporations may elect to be taxed as federal or state S
corporations, which permit shareholders to pay taxes on corporate net income
personally, as if it were a partnership. S corporation status is limited to
corporations that have no more than 75 shareholders. A Pennsylvania corporation
cannot elect to be an S corporation unless it has also applied for federal S
status.
To apply for Pennsylvania S status, file with the Pennsylvania Department of
Revenue within 75 days of the beginning of your fiscal year. When you receive a
copy of your federal notification of approval from the IRS, you must furnish a
copy to the Pennsylvania Department of Revenue. S corporations are responsible
for filing and paying the Capital Stock and Foreign Franchise Tax.
How to Register Your Business Name
Any sole proprietorship, partnership, corporation, or other form of association
conducting business under a fictitious business name must register this name
with the Pennsylvania Department of State. A fictitious name is any assumed
name, style or designation other than the proper name of the entity using such
name. These types of entities include any association, general partnership,
syndicate, joint venture or similar combination of groups of persons.
The surname of a person, standing alone or coupled with words that describe the
business, is not a fictitious business name and need not be registered. For
example, Jones Radio Repair would not be a fictitious name because it includes
the last name of the owner. However, Bills Radio Repair is considered to be a
fictitious business name because the owner's last name is not listed.
The inclusion of words that suggest additional owners, such as Company, &
Company, & Sons, & Associates, makes the name an assumed or fictitious
name. For partnerships, the last name of all partners must be listed or the
fictitious name rule applies. For example, if Moore, Johnson, & Smith
includes all three partners names, it is not considered to be a fictitious
business name. If all the partners' names are not included, then the name must
be registered with the Pennsylvania Department of State.
To register an assumed or fictitious business name, you must file with the
Corporation Bureau, Pennsylvania Department of State. After registering a
fictitious name, you will be required to place an advertisement in a newspaper
of general circulation in the county in which your business will be located and
one in a legal publication or newspaper in that same county. You can identify
the legal publication by contacting the county courthouse or county bar
association in the county where the principal office is located. The
Corporation Bureau can also assist you.
The penalty for failing to file a fictitious name registration is that the
unregistered entity may not use the courts of Pennsylvania to enforce a
contract entered into using the fictitious name. The failure to register the
fictitious name does not void the contract, but merely prevents such
enforcement until registration. The court has the option of imposing a penalty
in these instances where the entity seeks to enforce the contract and
subsequently registers the fictitious name in an untimely manner.
Pittsburgh Accounting Firm Serving:
Allegheny, Armstrong, Beaver, Butler, Washington, and Westmoreland County
Allison Park, Apollo, Evans City, Fawn, Frazer, Gibsonia, Grove City, Hampton,
Lower Burrell, Mars, New Castle, Plum, Shaler, Slippery Rock, West Deer,
Pittsburgh and all other Western Pa Municipalities |
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