Business Organizations

In a world where sole proprietors and small businesses are faced with unlimited potential individual liability, one may wonder, “how can I avoid individual liability if my company is sued?” In Pennsylvania, there are several business forms that will limit individual liability. Each of the following business forms, when employed properly, will assist a business owner in limiting his or her own liability while retaining a manageable business entity. Incorporation One way to protect your personal assets from business related lawsuits is to incorporate your small business. This limited liability feature of a corporation is one of the most attractive reasons for incorporating your business. Be aware, however, that simply incorporating your small business is not enough to guarantee limited liability. Strict adherence to corporate formalities and proper capitalization of the corporation are necessary. In addition to limited liability, there are other advantages a small business that decides to incorporate will enjoy. For example, a corporation is generally easier to sell and is usually more attractive to buyers than a proprietorship or partnership. The corporate form is also generally more attractive to outside investors because of its limited liability and ease of transfer of an ownership interest. There may also be potential tax savings available to an incorporated entity. Our firm will assist the small business owner through the incorporation process allowing for a smooth transition from a traditional company into an incorporated entity. Limited Liability Company A limited liability company (LLC) is a combination between a typical corporation and a partnership. An LLC allows its members the corporate benefit of limited liability and the partnership benefit of having flexibility when determining profit and loss shares. An LLC has the option of being taxed as a “C” corporation or as an “S” corporation and it can be member-managed or managed by a designated manager. As you can see, LLCs are a very flexible business form. With such a variety of options to choose from, you need experienced attorneys to guide you through the initial setup of your enterprise. Our firm has the experience to counsel your enterprise when you are faced with these crucial decisions and we will assist the small business owner through the incorporation process allowing for a smooth transition from a traditional company into an LLC. Limited Liability Partnership Limited liability partnerships (LLP) are a form of business organization combining elements of partnerships and corporations. In general, each partner in an LLP is fully liable for the debts of the partnership, but not for acts of professional negligence or malpractice committed by the other partners. As such, the LLP is a popular form of organization among professionals, particularly lawyers and accountants. As in a partnership or limited liability company (LLC), the profits of an LLP are distributed among the partners for tax purposes; the LLP is not taxed separately. This avoids the problem of "double taxation" often found in corporations. The major differences between an LLC and LLP are 1) the LLP has the organizational flexibility of a partnership and 2) the LLC is more likely to be subject to a state's franchise taxes. Our firm will assist your partnership through this process allowing for a smooth transition from a traditional partnership into an LLP.