If you currently own a small business in Pennsylvania or are planning to start one, you should consider incorporating. This will have a number of benefits for you including shielding you from potential liability. Whether you choose to set your company up as a corporation or limited liability company (LLC), you will be able to get these protections and more if you choose to form the entity in Pennsylvania. A skilled business law attorney can help you with the process, while showing you all of the benefits that come with incorporation.
Limited Liability for You and the Other Shareholders
One of the biggest reasons to incorporate is to shield your personal assets. When you operate as a sole proprietorship or general partnership, you risk having your business liabilities become your own. This is because you are personally liable for the debts, expenses and obligations of your business unless you form an entity that controls your business. Once you incorporate in Pennsylvania, you will be able to shield your personal assets from the company’s liabilities. As long as you treat the corporation as a separate entity with its own bank account and do not commingle your personal and business funds, you can provide protection for your personal belongings in the event the company gets sued by a creditor or other third party.
Tax Structure
There are two ways to set up your corporation for tax purposes. You can set it up as a Subchapter C corporation, which pays taxes with any dividends to shareholders taxed separately. The other way to go is a Subchapter S corporation, which is taxed like a partnership, issuing an information statement and K-1 to shareholders, with each shareholder responsible for his or her share of the profits or losses of the business. With a small business like yours, it makes more sense to set up under Subchapter S. This will avoid the double taxation that happens under Subchapter C. In general, Subchapter C is used by large entities and publicly traded companies that want to be able to raise money with few restrictions and to own other entities under its corporate umbrella.
Tax Benefits
When you operate as a sole proprietorship or general partnership, you are limited under the tax law as to the items that are completely deductible. This is not the case with a corporation. Things like insurance premiums are completely tax deductible by a corporation. This is not often the case with sole proprietorships where such expenses may be seen as personal and not business. In addition, you can set up pensions and 401K plans in your corporation to lower your income taxes.
There are also some Pennsylvania-specific benefits to incorporating in this state. These programs are maintained by the Pennsylvania Department of Revenue and the Department of Community and Economic Development. Depending on your industry, you may be able to take advantage of one or more of these programs to reduce your company’s taxes.
Ease of Transfer
Owning a business as a sole proprietorship puts everything in your personal name. This may be fine when you are working, but what happens when you retire? Transferring the assets will be much more complicated. Estate planning is also more difficult since all the assets to run the business may end up being divided among your heirs making operation of the business impossible. All of these issues are easily addressed by having a corporation. If you want to sell, you can transfer the stock of the company to the buyer. You can bring in a partner by issuing shares to him or her. When you pass on, your estate can distribute your shares to your heirs, leaving the business intact.
One-Step Process
Incorporating in Pennsylvania is a straightforward process. You choose the name of the corporation, have your attorney fill out and file the Articles of Incorporation, and pay the filing fee. Once the Articles of Incorporation are approved, you or your attorney can file for a taxpayer identification number for your corporation from the IRS along with your Subchapter S election. When you choose to incorporate in another state, you will need to do the extra step of qualifying to do business in Pennsylvania as a foreign entity. This will involve an additional form and filing fee. You also run the risk that the name you choose will be rejected because it is the same or similar to another entity already operating in the State. You will avoid these headaches when you choose to incorporate in Pennsylvania.
If You Are Planning to Incorporate in Pennsylvania, Call Our Firm Today
There are a great many benefits to incorporating your business in Pennsylvania. The experienced business law attorneys at Jones Gregg Creehan & Gerace, LLP look forward to assisting you in the process so that you will be able to get the most out of these potential benefits for your business. Contact us for an initial consultation.