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Is it time to incorporate your business?

On Behalf of | Sep 23, 2021 | Business Law

The business that has been in your family for generations may have grown from a small family-run enterprise in Hazleton to a large company with many workers, many customers and significant assets. Managing a large business differs from running a small business, but most business owners want to see their company grow. One way for a large company to grow is to transition from a sole proprietorship or partnership to a corporation. If this seems attractive to you, you will want to know when to consider incorporating and how incorporation works in Pennsylvania.

What is a corporation?

Per Pennsylvania statutes, a corporation is a separate legal entity from its business owners. This means the corporation is treated as a “person” for legal purposes, with the same rights, privileges and responsibilities that a living person would have. Corporations can make a profit on their own, must pay taxes on their own and can be sued under certain circumstances. In fact, corporations are “double taxed” meaning that they are first taxed on their profits and are then taxed again on the dividends they pay out to stockholders.

In addition, because a corporation is its own legal entity separate from stockholders, if a stockholder sells their shares in the corporation, corporate business will continue without interruption. This is because the corporation owns the business and issues stock to investors.

Business owners benefit from incorporating because they are not personally liable for the actions and debts of the business. For example, in general (although not always) the owners of a corporation cannot be personally sued due to the actions of the corporation. Also, if the corporation goes bankrupt, the owners’ assets will not be on the line for liquidation.

It is important to note that in Pennsylvania, a company wishing to incorporate must file Articles of Incorporation with the Bureau of Corporations and Charitable Organizations. The corporation’s business activities are limited to those stated in the Articles of Incorporation. Articles of Incorporation are complex legal documents, and many choose to work with an attorney when executing them. Publication of the filing of the Articles of Incorporation must be included in two generally circulated newspapers.

How do I know I am ready to incorporate?

There are a variety of considerations to keep in mind if you are considering incorporation. First, if you want to raise capital, incorporating allows you to do so through the sale of shares to interested investors. If your business is medium- to high-risk, incorporating can protect you from personal liability for the actions of the corporation. Incorporating can also be beneficial if you would like to eventually “go public” or sell your business to another party. Incorporating can also help attract new employees to a company that offers them stock options.

Corporations are among the most complex business structures

Corporations are among the most complex business structures. This post only provides a brief overview of corporations in general. Pennsylvania recognizes many different types of corporations including:

  • Nonstock corporations
  • Statutory close corporations
  • Registered corporations
  • Management corporations
  • Professional corporations
  • Insurance corporations
  • Benefit corporations

If you are considering incorporating, you will want to ensure you understand all the requirements. A misstep can cause significant delays or even legal liability. Fortunately, help is available to those who want to learn more about incorporation or who have decided to incorporate and are ready to move forward with the legal steps of doing so.