Types of Business Entities – How to Choose a Business Entity

Business entities and where to base one are some of the most common questions early stage or growing businesses ask.
Many new business owners have read information online that suggest setting up a Limited Liability Company (LLC) in such far-flung places as Nevada, Wyoming and sometimes closer to home, in Delaware. However, when pressed, most people can’t articulate a clear reason WHY someone would want to set up a business entity so far from home. Why not set up a business on Mars?

The fact is, most people have about 20% of the correct information on where to base a business. If the business owners or partners are in Pennsylvania or New Jersey and actually running the business in one of these states, a thorough discussion needs to be held about the yearly filing fees, requirements and potential inconvenience of having a far-flung business entity.

What business entities are available in Pennsylvania? The most common business entities are as follows:

Limited Liability Company (LLC)

Corporation (c-corp)

Limited Partnership

Benefits Corp (B-corp)

Why haven’t we listed s-corporation (s-corp)? Because there is no legal entity called s-corp. The “s” refers to subchapter s of the IRS code and is a tax designation. The underlying entity would be either a corporation or an LLC. This is one of the biggest legal misconceptions our office deals with.

A word about using an online formation service: several prospects have come to us recently after having visited online formation services, some of whom advertise the formation at “no cost,” just the state filing fee. Reading of the fine print will usually disclose some kind of hidden cost, such as an annual registered agent fee, charges for applying for a free EIN, or charges for an Operating Agreement. Rarely is anything in life truly “free.”

If you’d like our help in selecting a proper entity and where to form it, please reach out to our office.