General

1Is it necessary to form a legal entity to operate a business?
That depends upon the type of business you intend to conduct, whether you will have employees and the amount of risk you are willing to take. Generally, your personal assets receive much more protection from claims made against the business if you form a legal entity.
2Should I form a corporation or an LLC?
There are several considerations when making the determination as to whether to form a corporation or a limited liability company. If you make certain elections, both can act as pass-through entities, meaning the income (or loss) will flow down into your income tax statement. A corporation would need to file the paperwork to be treated as a Subchapter S corporation in order to be pass-thru entity. An LLC is a pass-thru entity by default, but it can elect to be taxed as a corporation and also elect to be treated as a Subchapter S corporation and receive the same tax treatment as a corporation that has elected to be treated as a Subchapter S corporation.

Generally, a limited liability company is less expensive to form and has less formal requirements to adhere to. Limited Liability companies are very flexible, however, you should discuss the choice of entity with a business attorney.
3Should I just use an online service to incorporate or form an LLC?
While you can use an online service, there will be things about your business or personal situation that they do not ask about that may have a large impact on what entity you should form to conduct business. Utilizing a business attorney gives personal, expedient service that is tailored to your specific needs. Using a business attorney provides you with the opportunity to form a relationship with someone who will learn about your business and be available for questions you have as your business grows. While some people will be able to use online services without a problem, there are many times when I have a client come to me and we have to "fix" mistakes that were made. This results in you paying more to form your entity than if you had hired a business attorney from the start.

Corporations

1Can one person form a corporation?
Under Pennsylvania law, you can form a corporation with just one person.
2What is a corporation required to do in Pennsylvania?
In Pennsylvania, a corporation must have at least one Annual Meeting of the shareholders. Certain actions of the corporation must be approved by the Board of Directors of the corporation. Actions of shareholders and the Board of Directors can be done by written consent, without the necessity of having an actual meeting.

The minutes of all shareholder and Board of Director meetings, and all written consents should be kept in the corporate record book. In addition, a corporation must be careful not to commingle its funds with the funds of any shareholder or director. A corporation is a separate legal entity and in order to receive the protection against personal liability for obligations of the corporation, it is important to follow the corporate formalities, such as meetings and/or written consents and not commingling funds. A separate bank account should be opened for the corporation to ensure that funds are not commingled and the corporation is actually a separate legal entity.
3What are Bylaws?
The Bylaws of a corporation set forth many of ways the corporation is to operate, such as when and where it will hold shareholder and Board of Director meetings, how many shareholders must be present at a meeting in order for the shareholders to legally take action, whether the officers and directors will be indemnified in connection with any litigation instituted against them as a result of their position in the corporation, and certain other matters.
4What is a Buy-Sell Agreement?
A buy-sell agreement restricts the transfer of shares of the corporation, so that any transfer must comply with the provisions in the buy-sell agreement.

It is usually a good idea to have a buy-sell agreement in a corporation with few shareholders, where one or more shareholders do not want to “partner up” with a person they may not know. The buy-sell will restrict the shareholders from selling their shares without certain consents from the other shareholders.

The buy-sell agreement often contains a provision giving the other shareholders the right to purchase the shares of the shareholder that wishes to sell at a price that is determined in accordance with the buy-sell agreement.

A buy-sell agreement is also useful if one of the shareholders passes away, so the shares can be purchased from the heirs at the predetermined price.

It is a good idea for the corporation to purchase insurance for a buy-sell so that the remaining shareholders will have the funds to purchase the shares.
5What is a Shareholders Agreement?
A Shareholders Agreement governs how the corporation will conduct its activities and the rights of the shareholders with respect to each other. A Shareholders Agreement will contain provisions in addition to those contained in the Bylaws. Although it may seem silly for a corporation with only one shareholder to have a shareholders agreement, some banks are requiring corporations to provide a copy of a shareholders agreement, even with only one shareholder, in order to open a bank account for the corporation.
6What is an EIN Number?
An EIN, or Employer Identification Number if the tax identification number of the corporation, in much the same way as a Social Security number is the tax identification number of an individual. Every corporation must apply for an EIN number and your business lawyer can do this for you when forming your corporation.
7Can I do business using a different name than the name of the corporation?
Yes, you can. However, you should file a Fictitious Name Certificate for a couple of reasons. Although it does not give you trademark or service mark protection, it does give you the right to use the name as long as no one else has a trademark or service mark that was filed prior to you filing for a fictitious name. In the event someone files a trademark or service mark after you file for a fictitious name, you have the right to use the fictitious name in Pennsylvania.

Furthermore, if you do not file for a fictitious name, you may not sue in the courts of Pennsylvania to enforce a contract entered into while using the fictitious name. There is also the possibility that you get fined if you do business under a name different than your corporation name in Pennsylvania.

One requirement in Pennsylvania when filing for a Fictitious Name is that you must place legal ads in two newspapers. One newspaper should be a general circulation newspaper in the county where you are conducting business and the second advertisement should be placed in a legal newspaper in the county where your business is located.

Limited Liability Companies

1Can one person form an LLC?
Under Pennsylvania law, you can form an LLC with just one person. Single-member limited liability companies are considered "disregarded entities" and for tax purposes are treated the same way as a sole proprietorship.
2What is an LLC required to do in Pennsylvania?
An LLC is not required by Pennsylvania law to hold meetings and keep minutes, however, it can be additional protection in making an argument that the LLC is, in fact, a separate entity if such formalities are followed. The LLC is more flexible in this respect that a corporation. If the LLC has an Operating Agreement, such agreement may require meetings be held and records to be kept of actions taken. However, it is still important to ensure that the funds of the LLC and its members are not commingled, so a separate bank account for the LLC should be opened.
3Are some LLCs member managed and others managed by a Manager?
Yes, an LLC can be operated by its members, who are the owners of the LLC.

If the founders of the LLC elect, they can have a manager run the operations of the LLC. This can be one individual, a Board of Managers or it can be a legal entity. It is not necessary that the manager also be a member of the LLC.
4What is an Operating Agreement?
An Operating Agreement is similar to the shareholders agreement of a corporation, and may also contain provisions restricting the sale of any interest in the LLC. The Operating Agreement spells out the rights and responsibilities of the members and managers, if any, of the LLC.

Depending upon whether the LLC has elected to be treated as a pass-through entity, the Operating Agreement can provide great flexibility with respect to how profits and losses are allocated.

It is advisable for sole member LLCs to have an operating agreement for a couple of reasons. First, the existence of an operating agreement is additional evidence that the LLC is a separate legal entity. Second, many banks are requiring a copy of the operating agreement in order for the LLC to open its bank account.

KHNETIC Legal

1Do you charge by the hour?
In most cases, we bill on a flat fee basis, as we want our clients to be able to budget for their legal expenses. Flat fee cases are paid upfront. For certain transactions, such as matters that require negotiation, it is difficult for us to determine ahead of time how much time will be required to “get the deal done.” In such cases, we will bill on an hourly basis, and we will ask for a retainer to be applied against the time spent. The types of typical agreements that result in hourly billing are agreements for the sale or purchase of a business, settlement agreements and employment agreements (although many times we can do an employment agreement on a flat fee basis). We will keep you informed regarding the proceeds of the matter, including with respect to what amount of time is being spent. Your invoice for hourly based services will contain a detailed breakdown of how our time was spent.
2Outside General Counsel Services
KHNETIC Legal can craft an agreement with your company where it acts as outside General Counsel for a monthly fee. Clients may find that they are calling us frequently or in need of contract reviews on a consistent basis. The Outside General Counsel service permits the client to pay a set monthly fee in advance and get a certain level of service each month for such fee. We will customize a monthly fee that works for the client.
3Paying your Legal Invoice or retainer
In an age where more and more people are paying their bills online, KHNETIC Legal believes it should offer its clients the same convenience. After KHNETIC Legal runs a conflict check, you will be sent an email instructing you on how to set up access to the Client Portal. Through the Client Portal, you can view your invoices and pay them with Visa, Mastercard, American Express and Discover. Retainers can be paid and replenished in the same manner.

The Client Portal can also be used for transmitting secure messages between you and KHNETIC Legal. KHNETIC Legal can transmit your documents to you through the Client Portal and you can view the work in progress on your matter.

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