You’re ready to take the plunge and start your own business. It’s a big step on many fronts, but it has the potential to benefit you in a number of ways.
While there’s a lot on your mind, you don’t want to get ahead of yourself. Forming a business in Pennsylvania is easier said than done, as there are many options to consider and steps you’re required to take.
What type of business entity is best?
There is no right or wrong answer to this question, so it’s critical that you consider all your options. Here’s where you should start:
- Sole proprietorship: If you’re going into business by yourself, a sole proprietorship is the easiest way to get started. While there are no tax benefits, deciding in favor of a sole proprietorship allows you to avoid a lot of paperwork and start-up costs.
- Limited liability company: Also known as an LLC, the primary benefit of this entity is the ability to separate your personal and business assets. This way, if your company runs into trouble, such as a lawsuit, your personal assets are safe.
- Corporations: An S corporation and C corporation are the most common types. There are many benefits of both. For example, you have the ability to take the same deductions as in a sole proprietorship. Furthermore, a corporation is eligible for special deductions.
- Partnerships: If you’re going into business with one or person, a partnership is another type of business entity to consider. With this, you’re required to file an annual information return to report your company’s income, gains, losses and deductions.
When choosing a business entity, it’s easy to assume that one is as good as the next. You rush through the process of making a decision because you’re more interested in other areas of your company. This is a decision you could regret in the future.
It’s important to choose the right entity upfront, as doing so gives you one less thing to worry about. Furthermore, while you’re able to change your business entity type in the future, it will cost you time and money. It’s much better to make the right decision the first time around, based on the pros and cons of each business structure.