Setting Up Your Business in Pennsylvania: Types of Entities

General Partnership

Ownership
  • 2 or more owners
  • Individuals or entities
Control
  • By partners in accordance with partnership agreement
  • Each partner has authority to bind the company
Liability
  • All partners are jointly liable for partnership debts
Federal Taxation
  • Each partner’s share of income or loss is included on income tax return of the partner and taxed at the personal or corporate rate
State Taxation
  • Same as federal
  • Not subject to capital stock/foreign franchise tax

Limited Partnership

Ownership
  • 2 or more owners
  • Individuals or entities
  • At least 1 general partner and 1 limited partner
Control
  • General partner(s) in accordance with partnership agreement
  • Each general partner has authority to bind the company
Liability
  • General partners are jointly liable for all partnership debts
  • Each limited partner’s liability limited to capital invested
  • In Pennsylvania, limited partners may participate in management of business and maintain liability protection
Federal Taxation
  • Each partner’s share of income or loss is included on income tax return of the partner and taxed at the personal or corporate rate
State Taxation
  • Same as federal
  • Not subject to capital stock/foreign franchise tax

Limited Liability Partnership

Ownership
  • 2 or more owners
  • Individuals or entities
Control
  • By partners according to partnership agreement
  • Depends on whether LLP began as a general partnership or as a limited partnership
Liability
  • General partners not liable for “negligent or wrongful acts or misconduct” committed by other partners; remain jointly liable for all other partnership debts (e.g., contractual obligations)
  • Each limited partner’s liability limited to capital invested
Federal Taxation
  • Each partner’s share of income or loss is included on income tax return of the partner and taxed at the personal or corporate rate
State Taxation
  • Same as federal
  • Not subject to capital stock/foreign franchise tax

Limited Liability Company

Ownership
  • 1 or more owners
  • Individuals or entities
Control
  • Depends on whether company is member- or manager-managed
  • By members or managers according to operating agreement
Liability
  • Member’s liability limited to capital invested
  • Managers do not have liability of general partners; only authority
Federal Taxation
  • May be taxed as corporation or partnership (default is partnership tax treatment)
  • If only a single member and taxed as a partnership, then treated as a disregarded entity
  • If treated as partnership, then each member’s share of income or loss is included on income tax return of the member and taxed at the personal or corporate rate
  • Could elect to be taxed as a corporation and then make the Subchapter S election
State Taxation
  • Same as Federal
  • Subject to capital stock/foreign franchise tax (unless also a restricted professional company)

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