Determining the business structure before starting one is crucial. Limited Liability Companies (LLCs) and corporations are Pennsylvania’s most popular business structures. Both LLC and Corporation have their distinct strengths and weaknesses. In this article, we’ll look at the fundamental differences between an LLC vs. a corporation. We’ll also discuss how to start an LLC in Pennsylvania, the most attractive business structure choice in the Keystone State.
Differences Between LLCs and Corporations
An LLC is a legal status that protects the shareholders in a company from complete liability. In the event of bankruptcy or dispute, the owner does not have to pay for their assets. Due to these advantages to the owner, this business structure is famous among small businesses in Pennsylvania these days.
On the other hand, a corporation also offers the same perks to the owner. However, they have a more rigid and standardized operating structure, with more record-keeping on the business operations. So, small and medium-sized business owners lean more toward LLCs, which offer more flexibility.
- Ownership Structure
Several ‘members’ with shares in the company cumulatively own an LLC. Individuals, corporations, other LLCs, and foreign individuals can be members of an LLC. While some states require you to dissolve an LLC when a member leaves, that’s not the case in Pennsylvania. You need to make sure that you outline how ownership transfers would work for your company in the LLC Operating Agreement.
Corporations have ‘shareholders’ who can own one or more shares in a company. Since it’s an older business structure than LLCs, transferring your shares to someone else is often straightforward.
- Management
Management advantages are why small businesses lean towards LLCs more than corporations. Either one or all the members of an LLC can run the company. For example, if one of the members is running the business, the others can serve as passive investors. The members don’t have to adhere to the conventional business roles like CEO or Vice President. Instead, they can create roles and responsibilities depending on the business needs.
On the contrary, corporations need a business structure where the titles of the shareholders in the management are fixed in the paperwork. The shareholders also need to meet at least annually.
Starting an LLC in Pennsylvania
Businesses in Pennsylvania nowadays prefer LLCs over corporations due to their flexibility, minimal personal liability in case of bankruptcy or any money dispute, no obligations for the operating agreement, and lower setup costs. In Pennsylvania, setting up an LLC costs $125 only and six weeks total. And with some legal guidance, it can be the ideal business structure if you’re starting in the business world.
To open an LLC, you must visit the PENN File website and create an account. Then, complete the Certificate of Organization, Domestic Limited Liability Company, Form DSCB: 15-8821 to register your LLC.
Endnote
Your chosen business structure should fulfill your business’s needs and long-term goals. If you want personal liability protection, pass-through taxation, and management flexibility, an LLC is a better choice and ideal if you’re new to the business landscape of your state. In contrast, a corporation might be better if you’re a learned businessman who wants to raise capital, establish credibility, and plan for substantial growth. Either way, we recommend you speak to a legal and financial advisor before deciding on either of these structures.
