What business structure is best for me?
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What business structure is best for me?
Hello, I am a high school student and I have partnered with a friend of mine in creating a clothing brand. We have set up everything in terms of the website and the products, and now we are left with setting up the brand legally in the state of Pennsylvania. We have trademarked our clothing brand, and identified the business structure as a general partnership, but I want to make sure that I am picking the correct business structure. I am 17 with no job, hopefully that can help you help me identify what business structure is best for me.
Asked on May 18, 2018 under Business Law, Pennsylvania
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 6 years ago | Contributor
An LLC is the best structure.
1) Liability protection: with partnerships or sole proprietorships, the owner(s) are personally liable for business debts or when the business injures a person, and is/are personally obligated on business contracts and leases. But with a limited liability company (LLC) or corporation (inc.), the business is a separate legal "person" and the only the business, not the owner(s), is liable for contracts, debts, or harm done to others. The protection is not 100%: you have to be sure to keep the business accounts separate from your own and "respect" the business's independent existence, not treating it as an extension of the owners, to keep the protection; and the owners would still be liable for certain tax payments (sales tax, payroll taxes), or if the owner personally does something to harm another (like running someone over while driving a company car), or if the owner personally guarantees a debt or loan. However, even with those limitations, an LLC or corporation provides substantial protection from business-related liability.
2) An LLC is simpler and more flexible than a corporation: it involves less paperwork and documentation, there is no need for annual meetings or reporting, and you have more freedom to structure the business. Corporations are better if and when you intend to sell shares of the business to the public (e.g. "go public"), but LLCs are better for most people for most other purposes.
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