Business Structures: Sole Proprietorship, Corporation, Partnership, Limited Liability
The business structure you choose will have tax and legal implications for years. Learn about the different structures and decide which works best for you.
Sole Proprietorship
"A sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business's debts, losses and liabilities."
Becoming a Sole Proprietor in Pennsylvania
Limited Liability Company
"A limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would."
Forming an LLC in Pennsylvania
Corporation
"A corporation is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. Corporations are more complex than other business structures because they tend to have costly administrative fees and complex tax and legal requirements. Because of these issues, corporations are generally suggested for established, larger companies with multiple employees. For businesses in that position, corporations offer the ability to sell ownership shares in the business through stock offerings."
Forming a Corporation in Pennsylvania
Partnership
"A partnership is a single business where two or more people share ownership. Each partner contributes to all aspects of the business, including money, property, labor or skill. In return, each partner shares in the profits and losses of the business. Because partnerships entail more than one person in the decision-making process, it's important to discuss a wide variety of issues up front and develop a legal partnership agreement. Although partnership agreements are not legally required, they are strongly recommended and it is considered extremely risky to operate without one."
Forming a Partnership in Pennsylvania
Other legal resources on business structure include:
Nolo and PA Biz Online.
The Small Business Start-Up Kit by Peri Pakroo
The Legal Guide for Starting & Running a Small Business by Fred Steingold, Mary Randolph, and Ralph E. Warner
How to Start a Business in Pennsylvania by Jere L. Calmes and Entrepreneur Media, Inc.
For more information contact the Business, Science and Industry Department!
215-686-5394
[email protected]
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