To run a successful business, you need to establish a strong foundation for your company to grow. The right foundation starts with selecting a formation for your newest venture, which depends on a multitude of factors.
Luckily, there are several business formations to choose from. Consider the following four types of common business formations before making a final decision.
Four types of business structures
When selecting your formation, it’s critical to examine all your options, especially:
- Sole proprietorship: One of the most common structures is a sole proprietorship, where there is only one owner of the business. Most people who select sole proprietorships will run the business under their name or incorporate a distinct name for their professional life. One caveat to this formation is there are no protections from lawsuits and creditor claims.
- Partnership: Another option is establishing a partnership. In Pennsylvania, you can choose between a general partnership or a limited partnership. The two options share similarities, but a general partnership means each partner is entitled to share equally in all aspects of management. In a limited partnership, one person may have limited control over daily operations. Either option allows you to choose someone to help you through the business formation process.
- Limited Liability Company (LLC): An LLC is a blend between a partnership and corporation; the company is run by members who determine the major decisions regarding operations. However, there is corporate-level protection for these members in terms of financial and management treatments. It’s fairly unique and requires more registration in Pennsylvania than similar options.
- Corporations: Corporations are the most formal option for business formations. There are two main options: a C corporation and an S corporation. Both options offer protection for owners and require taxation on earnings. You may consider establishing a corporation if you’re expanding on a current business or merging with other companies.
There are also other options like non-profit and family limited partnerships, but which you choose depends on what your business needs. Once you make that decision, you need to work with the Pennsylvania Department of State to register and license your business properly.