Under Pennsylvania law, a business may incorporate. If it chooses to do so, it is thereafter identified as its own legal entity. As a separate entity from the owners, the business is then considered to be acting on its own when it buys and sells property, assents to contracts and exercises legal rights. The Pennsylvania Secretary of State receives and processes applications for incorporation, which must be submitted in compliance with local guidelines.
Benefits of Incorporation in Pennsylvania
An incorporated business enjoys certain advantages, the most important being a limit of liability for the shareholders. The most shareholders can lose is the amount they invest in the business. If the business had remained a personal asset of the owners, they could run the risk of losing their personal property to pay for the company's financial liabilities in case of default. Furthermore, a business that has not incorporated puts the unnecessary burden on creditors in the Morrisville area to evaluate the credit worthiness of individual owners rather than that of the business, making loans more difficult. Finally, a corporation's ownership stake is divided into equal slices or "shares" of stock, which make investments in the business much easier to transfer.
Costs of Incorporation
These benefits come at a price. First, incorporation in Pennsylvania may require a filing fee. Second, a corporation pays taxes just like any other entity. In other words, the profits a corporation makes are now taxed separately, while any disbursements to shareholders are taxed as individual income. This is called double taxation. However, a business might avoid this disadvantage with proper planning and assistance from a local Morrisville lawyer.