How to Legally Structure a Family-Owned Business in PA or WV
Launching a family-owned business is an exciting venture, but without the right legal structure, even the closest relatives can end up in disputes. Whether you're opening a bakery with your siblings in Pittsburgh or a real estate investment company in Morgantown, choosing the correct legal structure for your family business is critical for tax savings, liability protection, and succession planning.
This guide breaks down the best legal entity options for family-owned businesses in Pennsylvania and West Virginia, with insights on what works—and what to avoid.
Why Legal Structure Matters for Family-Owned Businesses
Your business entity determines:
How profits are distributed
Who’s legally responsible if something goes wrong
How taxes are filed
What happens if someone dies, divorces, or leaves the business
In both PA and WV, the wrong structure can lead to unnecessary taxes, family conflict, or loss of control. That’s why you need to start with a solid foundation.
1. Sole Proprietorship – Not Ideal for Family Businesses
While a sole proprietorship is the simplest structure (no formal paperwork, just you doing business), it’s generally not recommended for family-owned businesses because:
There’s no liability protection
Only one person can legally “own” the business
There’s no built-in succession plan
Even if only one family member is running the business day-to-day, you’ll want a more flexible structure to protect and involve others.
2. General Partnership – Easy But Risky
If you and a family member simply start doing business together, Pennsylvania and West Virginia law may automatically consider you a general partnership. While easy to form, it comes with risks:
Each partner is personally liable for debts and lawsuits
One partner can bind the business without others’ consent
There’s often no clear agreement about roles or ownership
If you choose this route, draft a clear partnership agreement that addresses:
Ownership shares
Profit/loss distribution
Decision-making authority
Exit strategies
3. Limited Liability Company (LLC) – Most Popular for Families
A multi-member LLC is the top choice for many family-owned businesses in PA and WV. Why?
Benefits:
Personal liability protection for each family member
Flexible ownership structure (e.g., 60/40 or 33/33/34)
Can be taxed as a partnership or S Corporation
Operating Agreement can control management, profit splits, and succession
LLCs are easy to form through the PA Department of State or WV Secretary of State and provide a strong legal foundation when paired with a customized Operating Agreement.
4. S Corporation – Tax Advantages for Some
An LLC can elect to be taxed as an S Corporation, or you can form a corporation and file for S Corp status. This structure works well for high-income family businesses because:
Benefits:
Reduces self-employment tax on owner salaries
Still provides liability protection
Easier to separate salary from distributionDownsides:
Must pay reasonable salaries to owners
Requires strict record-keeping and formalities
Limited to 100 shareholders—all must be U.S. citizens or residents
Not every family business will benefit from S Corp status. Talk to a business attorney or CPA to see if it’s right for your situation.
5. Family Limited Partnership (FLP) – For Estate & Wealth Planning
An FLP is a specialized structure that allows family members to own percentages of a business while preserving control in the hands of the senior generation. These are often used for:
Family farms
Real estate investment companies
Generational wealth transfers
FLPs are complex and require careful tax planning, but they’re a great tool for succession planning and asset protectionin family-owned businesses.
6. Co-Ownership Without a Legal Structure – A Bad Idea
It’s surprisingly common for family businesses to operate without any legal entity—just a shared bank account or handshake deal. This exposes everyone to:
Personal liability for business debts
Family disputes with no legal resolution process
Confusion over ownership rights if someone dies or divorces
If you want to keep your family AND your business intact, formalize the structure early.
Key Legal Documents Every Family Business Should Have
Regardless of which structure you choose, every family-owned business in PA or WV should have:
Operating Agreement (LLC) or Bylaws (Corporation)
Buy-Sell Agreement (in case a family member exits or dies)
Employment/Independent Contractor Agreements
Succession Plan (for generational transitions)
Liability Insurance for owners and the entity
Talk to a Business Attorney Who Understands Family Dynamics
At The Skeen Firm, we help family-owned businesses across Pennsylvania and West Virginia build legally sound foundations that withstand the test of time—and family drama.
Whether you need help forming your LLC, drafting an Operating Agreement, or planning for generational succession, we’ll help you protect your business and your relationships.
📞 Call (724) 249‑2439 or
📩 Schedule a Consultation
Download Your Free Family Business Startup Checklist
Need help organizing your legal to-do list? Download our free startup checklist for PA & WV family-owned businesses.
*Disclaimer: the advice provided is for informational purposes and is not intended as legal advice. It should not be relied on, nor construed as creating an attorney-client relationship.