Why Do I Need a Lawyer When Forming a New Business?

If you are starting a new business, you will need to decide whether you are going to establish a sole proprietorship, a partnership, a corporation, or some variation thereof. Before you make this decision, you owe it to yourself and to the investment you are making to arrange to speak with one of our corporate attorneys who will explain the advantages and disadvantages of various business entities and help you analyze them in conjunction with your particular goals and circumstances.

The various business entities you may wish to consider are as follows:

• Sole Proprietorship – When one person owns a business and does not choose any of the below entities, he or she has chosen, by default, a sole proprietorship. This is the default business entity if no other type is chosen. The sole proprietor is personally responsible for all of the liabilities of the company and is generally taxed as an individual. The entity itself is generally not subject to taxes; however, other entities also offer this advantage and can also provide certain liability protection to the owner. As such, there is little reason to choose to operate a business as a sole proprietorship.
   

• General Partnership – A general partnership exists when two or more individuals jointly own and operate a business. Theoretically, they are equal partners, and each partner is personally responsible for the liabilities of the business, including the actions of his or her partners. There may be certain tax advantages to operating a business as a partnership; however other entities can offer these same advantages without exposing the partners to personal liability.
   

• Limited Partnership – A limited partnership is similar to a general partnership except that all the partners are not equal. Some are general partners who are involved in the management of the partnership and who are personally responsible for the liabilities of the partnership. Others are partners who, provided they are not involved in the management of the business, are generally not personally liable for the debts of the partnership beyond their investment in it.
   

• Corporations – In order to form a corporation, certain documents must be filed with the Pennsylvania Department of State. In addition, certain procedural formalities, such as the holding of annual meetings, must be adhered to in order to maintain the corporate status. The board of directors, which is elected by the corporation’s shareholders (owners), is responsible for running the corporation. A significant advantage of the corporation is that the shareholders’ liability extends to their investment only and generally not to the liabilities of the corporation. One potential disadvantage of a corporation is what is often referred to as the “double tax.” This occurs when the profits of a corporation may be subject to corporate taxes and the dividends paid to the shareholders may also be subject to personal income taxes.
   

• Limited Liability Company – The limited liability company, or LLC, is a relatively new business entity and is somewhat of a hybrid. In many ways, an LLC is similar to a partnership and is taxed in much the same way, although the owners of an LLC are referred to as “members” rather than as “partners.” The most significant advantage of an LLC over a partnership is that all members of an LLC, including managing members, are generally not personally responsible for the liabilities of the business.
  
  The above is provided for informational purposes only and should not be relied upon as a substitute for legal advice. Every case is unique, and only a lawyer can provide you with the legal advice suitable to your individual needs.
  
  Our corporate lawyers are ready to meet with you and discuss the multitude of issues which must be considered when forming a new business. Our advice as to what business entity will best suit your needs will be based upon the facts which are specific to your situation and business as well as the current laws. Additionally, we will guide you through the process of establishing a business entity with the State. To schedule an appointment, please call our offices at 215-362-2474; or e-mail info@dbyd.com.
   

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