Deciding you want to start a business is the easy part but understanding what each business structure entails takes quite some time and can become confusing. If you are not sure what’s the best option for you, have a look at what each option features and why starting an LLC in PA may be your best bet.
PA Business Type: What Types of Companies Can I Register?
Let’s go through each option one by one. Keep in mind that when making your final choice, you should consider aspects such as your expansion goals, your business plan, how easy it will be to run the business, how you will pay your taxes, what control you want, how much money it will cost and what regulations you will be under. If it gets confusing, do not hesitate to engage professional help now before you are in too deep.
What is a Business Corporation?
Most people associate businesses with this entity, which is a more complex legal structure compared to most other options. You can form S Corporations, C Corporations or B corporations. For many companies, this has been the go-to for several decades now, though the LLC has now come up fast and threatens to take away this popularity score. In some cases, you may see these entities switching from one type of corp. to the other e.g., C to S.
This option is not for everyone and it works best for large organizations with multiple moving parts. For a startup with a handful of employees, this would not be the most ideal option as it has so many complexities that would not prove worthwhile for a business of this magnitude.
What is a Not-for-Profit Corporation?
As the name may suggest, these entities do not exist to generate revenue for shareholders. Instead, they are in place to help a cause and they are best for people who are into charity, research and other activities that give back to the society. Ideally, these entities do not pay any taxes, but this only happens when they meet the requirements set forth in the Internal Revenue Code. Please understand what this will spell for you in terms of taking profits and how accountable you need to be before starting such an organization.
What is a Limited Liability Company?
On the forefront of entity options is this increasingly popular entity. Forming an LLC in PA might be one of the best things you can do for your organization and once you see what other people have to say about their experiences, you will start to see you. You get to protect your personal assets in the event that something goes wrong and you end up getting sued. Without such protection, it’s easy to lose even what you amassed long before getting into business. This advantage is one of the leading reasons why this entity seems to have taken off so fast. Plus, LLCs can report their earnings and losses in different ways and can even pass them through to their members.
What is a General Partnership?
Creating a GP in Pennsylvania means that you will all share duties and responsibilities. More importantly, you are all liable for the actions of one member. For example, if someone does something that makes the organization liable, you all pay for it. However, you can reduce your exposure by having an agreement in place.
What is a Limited Partnership?
An LP in Pennsylvania will accord you limited liability such that if you only serve as an investor, you will not face the detriments of the other partners’ actions. However, if you have a managerial role, you will carry most of the responsibility.
What is a Sole Proprietorship?
Forming a sole Proprietorship in Pennsylvania is not the best option but can work for running your small business. Most people planning on being self-employed go for this option as it costs the least to start. However, please note that this can be very risky in the event that someone comes after you or your business. Once you start expanding or if you know you will expand at a fast rate, please consider another option.
Why is LLC the best option for fast company formation?
As we have seen, all choices come with their upsides and downsides. Even so, the LLC has taken center stage in recent years with many people choosing to go down this road. Why is that?
- Protection. Anything can go wrong as you handle your operations and you will have little control over what your employees or partners do when you start your business. One small mistake can have you standing in court trying to defend yourself. But here’s an easy way to protect yourself- you can distinguish yourself from the business and an LLC allows you to do this. That way, even if someone tries to sue you, they cannot, but instead, they will sue the business and unless you knowingly acted wrongfully, your assets should be safe. It’s unlike the case with partnerships and sole proprietorships where the proceedings can work against you and you can find yourself giving up everything to stay afloat.
- Flexibility. Do you want to have more say in the number of people you have working with and for you? Would you like to decide if and when you hold meetings? These are some of the things that have entrepreneurs going for this business option. You can even decide how you want to get taxed and will not have to work with default rules. Plus, you can avoid double taxation by moving your returns to your personal returns. Additionally, you can decide what laws you will follow by coming up with an agreement from the start. As long as you and your other members are clear on the guidelines and you keep up with your actions of good standing, you will hardly ever see the authorities.
- Fewer Requirements. Unlike other setups where the authorities will be present almost all the time checking in on what you are doing, you will enjoy a longer leash with this entity. Nobody will come tell you that you need a board to manage the business or that you must file your meeting’s minutes. All that is up to you and you can decide what works for you.
- More Credibility. When investors, creditors and suppliers see an LLC, they think of a professional setup with guidelines at all levels. They feel safer working with you and will be more open to bigger deals within a shorter period. You will also see that banks will be more open to dealing with you and can extend credit lines to you within short periods of opening an account.
There’s more to gain from such an entity than there is to lose.
Should I use a DBA for my LLC in Pennsylvania?
What Is a DBA in Pennsylvania?
People sometimes confuse DBAs as a form of entity but they are not. Instead, these are fictitious names you can use to represent your legal business and appeal more to your target audience. For example, your original name may be XYZ Cakes and you want to move to an area where you feel that XYZ Cakes would not get you the biggest reach. In this case, you can register the fictitious name 12Z Cakes under the original name, making the second one your DBA for your Pennsylvania LLC.
When you register a DBA, you do not start a business or create an entity. Instead, you come up with another name to use for your business. Please keep this in mind and follow through with the due entity formation processes.
How to file a DBA in Pennsylvania?
Getting DBAs in this state is possible via:
Online
The PENN File website prompts you through the processes.
By Mail or In-person
Access the LLC Pennsylvania DBA form here, fill it and send it to:
Pennsylvania Department of State
Bureau of Corporations and Charitable Organizations
P.O. Box 8722
Harrisburg, PA 17105-8722.
Frequently Asked Question
Luckily, once you have the paperwork done, your work is as good as done and you will not need to pay or renew anything during the entirety of your business.
If you have a change of heart, you can access the state website and fill out the required details or you can file a Pennsylvania DBA amendment form and mail it to the state address. It will cost you $70.