Business Entity Selection

Determining What Is the Best Legal Entity To Operate Your Business or Venture

Determining the proper legal entity for the particular business operations contemplated by the client requires an analysis of the particular type of business, the parties to the business, and the financial short and long term goals. Tax considerations must also be evaluated to come up with the proper business entity for the client’s particular business needs.

Choosing the proper type of entity to conduct your business is a crucial decision that can have longstanding tax and business implications, positive or negative.

We can assist you in evaluating the pros and cons of using a regular C corporation, an “S” corporation, a sole proprietor, limited liability company, family limited partnership or some other form to operate your business. The form and type of compensation to owners and key employees as well as whether to implement some form of retirement plan and other fringe benefits should be explored as part of this process.

Choice of Entity

Depending on these considerations, the appropriate legal entity may be any one of the following:

• C corporation
• S corporation. For some of the basic rules in qualifying for S status, see the article entitled S Corporations: The Basics. For the rules on how to elect S corporation status read the hypertext article S Corporation Election. For a discussion concerning the issues concerning reasonable salaries and the auditing of S corporations in this context explore “Reasonable” Compensation: IRS Auditors Favorite Issue.
• LLC. For some of the basics concerning the LLC see LLCs: The Basics and for an explanation of how an LLC is treated as a disregarded entity for tax purposes click Disregarded Entity. For a discussion of the advantages of holding real estate within an LLC explore the article LLCs and Real Estate.
• Partnership or limited partnership
• Qualified Sub-chapter S subsidiary (Q-Sub). For the Q-Sub treated as a disregarded entity for tax purposes click Disregarded Entity.
• Family Limited Partnerships. To more fully understand this legal vehicle and the gift, estate and income tax advantages review the article Family Limited Partnerships. As for tips and warnings for how a family limited partnership should be operated review Family Limited Partnerships: Failures & Mistakes That Can Doom a Family Limited Partnership
• Sole Proprietorship. For a discussion of the tax implications and legal exposures from operating as a self-employed individual click Self-Employed or Sole Proprietor: Tax Basics.

Legal Services

Legal assistance can also be provided for the following needed services:

• Initial formation considerations.
  • For a general discussion of some of entity choices see Choice of Business Entity For Your Business.
  • Starting a new small business has its own special considerations as discussed at Starting A New Business.
  • For a general checklist of some of the business, financial, legal liability and other non-tax issues that must be considered to ensure the proper entity is chosen, please review Choice of Business Entity: Legal, Financial and Other Non-Tax Concerns.
• Incorporation and Registration services with the state where the organization is to be formed
• Drafting articles of incorporation or formation, by-laws, stock certificate, stock ledger, organizational minutes for shareholders and board of directors and ongoing annual minutes for shareholders and board of directors
• Assisting with the initial tax elections for the entity chosen
• Various registrations with state and local taxing authorities such as Pennsylvania and Philadelphia or any other states, city or counties where required.
• Tax Services: Tax preparation of corporate, partnership or LLC returns. For the special tax treatment of start-up costs for new ventures read the hypertext article Start Up Costs For New Ventures

Investment Real Estate

We offer guidance in determining the best legal entity to hold investment real estate in light of liability protection and tax considerations. For our article highlighting some of these issues please go to the hypertext legal guide entitled Pennsylvania LLCs and Real Estate which also discusses Philadelphia transfer tax implications.

Shareholder Protection

Finally to adequately protect individual shareholders from corporate debt, please see our legal guide by going to the following hypertext article entitled Shareholder Protection From Corporate Debt: Piercing The Corporate Veil.