Starting the process to register a business in PA can be both very exciting and nerve wracking. The key is to be sure that you have covered all the bases of what you must do in order to be completely legal. Doing so protects you from potential problems down the road. Here you will find a wealth of information about what steps you need to take and the best order in which to do them so that you can start your business off on the right foot. By the end of this, you should have a good understanding on how to start your own business in PA.
Clearly, when starting a business you want to have a clear plan in place. This should include where your funding will come from, what type of equipment you need, if you need a location, where that location would be, what you can afford and studying how feasible your business will be. In other words, asking yourself if there is a market for what service or product you will be providing and how much it will cost to meet the demand of the market. Once you have all of those aspects in order you can begin to think about what type of structure you will operate under.
Essentially there are three formats to operate under, being sole proprietor, partnership and corporation. Under these there are all subgroups, and each serve different purposes. A sole proprietorship is a single owner small business. They report their income using a schedule C tax form, which allows them to write off their expenses, and they are taxed at their personal tax rate. This is the easiest means of becoming a business. Other benefits include maintaining sole ownership, far less paperwork and the ability to dissolve the business easily if needed. Downfalls included increased liability personally for debts, difficulties in obtaining funding and the fact that the business dissolves immediately upon the death of the owner.
Partnerships are more complicated and require more paperwork to ensure that all parties involved are protected. You can either have an equal partnership, where all parties are liable for debts, or a limited partnership, where only certain parties are liable. Limited partnerships are technically used when some parties will be running the business and other parties (the limited partners) have simply invested in the business and expect a return, but are not willing to take the other risks that come with the business. If entering into a partnership agreement it is best to have a lawyer that can navigate you through the process to ensure that you are properly protected in the case of the business failing or ensuring that profits are fairly distributed.
The final option is a corporation. Almost every corporation runs under a limited liability corporation. Creating an llc in PA enables the owners to have very limited liability and enables it to operate with pass through taxation, meaning you would take an income from the business and then the business is taxed separately. The downside is that additional paperwork and more complicated tax forms. Fortunately, you can start as a sole proprietorship and move up to this option when your business begins to generate large profits.
Once you have decided what type of business you wish to start and what name you will be operating under the first step to take is to register your business with the federal government and obtain a FEIN. This is only necessary if you plan to have employees, otherwise you would simply use your social security number. This enables you to have employees and is generally the number that you will use to identify yourself with the government and other businesses.
It is very easy to apply for a FEIN. It can be done online at the IRS website, simply search for FEIN application. Be sure that you are ready to apply when you start your application, as you can not save it (at the time of this post). The major benefit is that you will be given your FEIN immediately after completing the form.