Proper entity selection an important decision when starting a business

In starting a business, there are a lot of decisions that need to be made, including financing, entity selection, and structuring the business. Selecting the specific form a business will take is important for a number of reasons.

Entity selection affects a number of aspects of business, including the costs of formation, ease of dissolution, distribution of profits, ownership and control, liability, taxation, and ability to generate capital. All of these things need to be given careful thought before selecting an entity, and an experienced attorney can help provide skillful guidance. 

There are a number of options entrepreneurs have in Pennsylvania when it comes to entity selection. Two basic forms of unincorporated business entities are sole proprietorships and partnerships.

Sole Proprietorship

With this business form, there is no filing requirement, so startup is easy and there is little paperwork and few legal restrictions. Sole proprietors have sole control over their business, receive all the profits, and have sole liability.  


This is a versatile business type which involves two or more co-owners, who may be persons or other entities. In general partnerships, each general partner has n equal share in management of the business, as well as in profits and liabilities. Owners are able to specify otherwise by agreement, though. For general partnerships, there is no filing requirement with the state.

Limited partnerships are similar to general partnerships except that, in addition to have at least one general partner, there is at least one partner with limited management of the business and limited exposure to liability. Limited partnerships require filing a special certification with the state showing that various requirements have been met.

Limited liability partnerships are another type of partnership which provides general partners with limitations and additional protection from personal liability. Formation requires registering with the state to show certain requirements have been met, and renewing registration annually.

In our next post, we’ll continue looking at types of business entities, including limited liability companies and corporations, and the role an experienced attorney can play in the process of business formation. 

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