How to Start an LLC in Pennsylvania
While Pennsylvania is often known for large cities like Philadelphia and Pittsburgh, the business landscape tells a more varied story. The largest income earners for the state include agriculture, manufacturing, and mining, with a large portion of that coming from livestock. Chemicals and prescription drugs are also large drivers of revenue. But along with these large businesses and industries, the Keystone State is home to over a million small businesses as well. If you’re looking to join the ranks by forming an LLC, keep reading to understand how to register with the state and begin.
Recommended LLC Services
Along with the liability protection and tax benefits of an LLC, one reason it is a popular business structure is the ease and flexibility in starting this type of business. Simple paperwork is enough for entrepreneurs to establish a new business in Pennsylvania.
Name your LLC
Have a name in mind? See if it’s already listed in the state’s business directory. If the name comes up in a search, it’s taken. If it doesn’t, it’s yours to claim.
Any paperwork you need to complete on behalf of your business will ask for the same basic piece of information: your business’s name. Choosing this can be a creative exercise that requires thinking about your brand and audience, but you must also take into consideration the official Pennsylvania naming guidelines for LLCs.
Choosing a unique business name
Pennsylvania requires each business entity to have a name that is distinguishable from all others, so a unique name is a legal requirement. There is a name search available online to help you look up options and check on name availability.
Keep in mind that the requirement for names to be unique is within the state of Pennsylvania itself. Unless a name is trademarked on the national level, it can be shared by businesses in multiple states. This also means that things like website domain names and social media handles may be taken, so doing a cursory search can help you understand if your business will be confused for others.
Additional naming rules in Pennsylvania
LLCs in Pennsylvania must note the structure in the name by including either the phrase “limited liability company” or abbreviations like:
- Limited company
Similarly, the name cannot contain variations of the word “corporation” or anything that makes it seem like a government agency.
Other rules state that the name cannot contain offensive terms or words that mislead the public about the nature of the business. Some words, like “attorney” or “university”, can only be used along with proper licensure.
Business name reservation
Until your name is registered with Pennsylvania, it is available for anyone to use. This can happen in one of two ways. The first option is to create your LLC, but if you are not ready to do that, you can also reserve your name. For a $75 fee, you can ensure the name is reserved for 120 days until you are ready to register your business.
You can reserve a business name in Pennsylvania for 120 days.
Select a Registered Office or CROP
Each business entity in Pennsylvania must provide an official mailing address, or registered office, in Pennsylvania. This office is responsible for accepting legal documents like service of process, tax notices, and other official government correspondence on behalf of the company.
Note that this is slightly different than other states’ requirement of a registered agent – Pennsylvania only requires an address to be listed, and not an individual. The address must be a physical address, not a P.O. box, that is within the state.
If you do not have a physical address that can be used, you can also use a Commercial Registered Office Provider (CROP), which provides one on your behalf. (It’s similar to a registered agent service). You will need to enter a contract with the CROP to ensure they can legally receive your mail. Existing CROPs are listed through the state for you to choose from.
File Certificate of Organization
The paperwork that allows you to officially form a Pennsylvania LLC is known as the Certificate of Organization. (In other states, it’s called Articles of Organization). This can be filed online or by mail, but if it is done in hard copy, it is submitted alongside a docketing statement. When done online, the docketing statement will be covered by the portal questions.
The Certificate of Organization will require the following information:
- LLC name
- Address of the LLC
- Registered office or CROP address, including the county
- Name and signature of each organizer
- Effective date of the LLC
- For professional companies, the professional service being offered
If the docketing statement is needed, it will include:
- Entity name
- Individual responsible for tax reports and their mailing address
- Description of business activity
- Federal EIN
- Fiscal year end
You can fill out and submit your LLC formation documents here.
There is a $125 fee associated with filing your Pennsylvania Certificate of Organization. Veterans are able to apply for a waiver that removes this fee.
Pennsylvania processing time
Whether it is submitted online or by mail, the Certificate of Organization has a 2 to 3 business day processing time.
Create an LLC operating agreement
LLC owners in Pennsylvania are not required to have any sort of governing documents, like bylaws, in place. But even without this mandate, it is recommended that every business, even a single-member LLC, have an operating agreement on record at the start of the business.
This document, which outlines the operations and ownership of a business, is crucial for two reasons:
- If there is ever any conflict about a business decision that cannot be resolved, the state will use its default LLC laws to determine the outcome. These laws are not necessarily what is in the best interest of your members or your company, and you will no longer have any input. An operating agreement ensures that your needs are met first.
- Having an operating agreement in place demonstrates that a business is being treated as an entity separate from its owners. With an LLC, the personal asset protection afforded to each member is upheld by this. If there is any question about the separation, your personal assets as a member could lose protection against the business’s debt and obligations.
An operating agreement can be fairly simple, and you usually only need a template found online to draft an effective one. For unique circumstances, you may opt to work with an attorney, but this is not typically needed. Most operating agreements will include provisions on the following topics:
- Capital contributions made to start the business and how more will be raised.
- Ownership shares and how they are divided among members.
- How profits and losses will be allocated to each member for tax reporting.
- The company’s management structure, whether it’s member-managed, manager-managed, or a single-member LLC, you’ll need to specify.
- The decision making process, such as how votes are held and won and who receives what share of the vote.
- Processes for adding a new member or exiting as an existing member.
- Handling of a dissolution in the event that it occurs.
Since Pennsylvania does not require this document, there is nowhere it needs to be filed externally. You can simply have all members sign it and store it as an internal document for future reference.
As the owner of an official LLC in the state of Pennsylvania, you have a number of responsibilities to uphold. In addition to your obligation to customers, there are certain requirements both the state and federal government will expect you to complete. These requirements allow you to operate legally and ensure your business is run smoothly and successfully.
Get your EIN
As an individual, the United States government issues you a nine-digit identification number used to track a number of records, including your taxes- this is your Social Security Number. There is a similar number issued for businesses, known as the Employer Identification Number. The Internal Revenue Service (IRS) oversees this process for tax purposes.
If your LLC has any employees and/or must pay excise taxes, it is mandatory to have an EIN in place. Businesses that don’t meet these criteria don’t need to have one, but can still obtain an EIN. There are a number of benefits that an EIN provides to even a small business, such as:
- Most banks require an EIN before you can open a bank account in your LLC’s name.
- If you need to provide a tax ID, an EIN is less sensitive than your personal Social Security Number and therefore safer to share.
- Having an EIN can lend credibility to your business in the eyes of customers, vendors, and potential investors.
- In the event that you hire employees, you will already be prepared with the necessary EIN.
There is no cost to obtain an EIN through the IRS.
You can get your EIN by visiting the IRS website.
Get Pennsylvania business licenses
Each level of government is able to issue a variety of permits and licenses to businesses, which must obtain the licensure in order to operate in that government’s jurisdiction. Federal, state, and local governments each have their own requirements, so it is important to know all of the rules so your LLC can adhere. Keep in mind that if you have a physical office in multiple jurisdictions, you’ll need to have licensing for each location.
Since certain activities are regulated by the United States federal government, any business that conducts those activities needs to be licensed through the federal government. This includes:
- Alcoholic beverages
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
- Transportation and logistics
Pennsylvania state licensing
Some professions will need to have certain licenses and permits at the state level. The Pennsylvania Licensing System is a state website that provides details on these licenses and what is needed to register for them.
Any business in Pennsylvania that intends to sell or lease tangible personal property and certain services that are subject to sales tax will also need to obtain a sales tax license, also known as a seller’s permit. This allows your business to collect sales tax on behalf of Pennsylvania and registers you to pay it back to the Department of Revenue as needed.
Local licensing in Pennsylvania
Each town and county in Pennsylvania is also able to make its own laws surrounding business licensing. For example, the City of Philadelphia requires each business to have a Commercial Activity License, and other businesses need additional licenses and permits. You should always check with all local government offices to be sure you have all the appropriate licenses and permits in place.
Open business bank accounts
If you’ve chosen an LLC business structure, you are likely aware that this affords you some personal asset protection. Throughout the life of your business, it’s important to maintain this protection by continuing to demonstrate that you are a separate financial entity from the company. If there is any question about this separation, your protection could be eroded and you could become liable for your business’s obligations.
Having a bank account dedicated to the LLC’s income and expenses is a key way to show this delineation. A simple checking account will help establish the division. As an added benefit, accounting and tax reporting is also simpler when your bank account is only for the business.
You can also establish credit for your business by opening a credit card. Just like your personal credit score, an LLC can have a credit score that helps potential lenders understand if you are a safe investment or not.
Review LLC tax rules in Pennsylvania
As a business structure, LLCs are unique in their tax treatment and are not subject to corporate taxes. Like most states, Pennsylvania charges a corporate tax rate that is applied to a business’s profits – generally a flat 9.99% of taxable income. However, the default tax treatment for an LLC is as a pass-through entity, which means that the profits are instead taxed as a part of each member’s personal tax returns. Pennsylvania does not charge any additional taxes to LLCs, besides sales tax and employment taxes when applicable.
File annual paperwork
Pennsylvania also does not require LLCs to file any kind of annual report or a Statement of Information. However, a Professional Liability Company (PLLC) and foreign LLC does need to file a Certificate of Annual Registration with the Department of State. Filing this document keeps your business in good standing with the state.
Get insurance for your LLC
If your business has any employees that are not also owners of the business, state law says that you must have a workers’ compensation insurance policy in place. This policy offers coverage for employees if they are injured, rendered ill, or even die during work at your company.
All other insurance will be optional, but most businesses have at least some coverage in place. The most typical form of insurance is general liability insurance, which is meant for claims against your company, like when someone is injured on your property or an employee causes property damage. Additional liability insurance may also be purchased for those in professional services to protect against errors, omissions, and even malpractices.
Additional resources to help you set up a business in Pennsylvania
With so many small businesses in the state, Pennsylvania is dedicated to helping entrepreneurs run effective LLCs. The Department of Community and Economic Development houses many resources aimed to make this as simple as possible.
- An Entrepreneur’s Guide with step by step guides to starting and growing a business.
- The Pennsylvania Business One-Stop Shop is a portal for business owners to obtain information and take action.
- Pennsylvania’s Business Hub for management of all aspects of a business at the state level.
- A basic overview of the business registration process.
What is a docketing statement in LLC formation?
To form an LLC, Pennsylvania requires you to submit both a Certificate of Organization and, in some cases, a docketing statement. A docketing statement is a supplemental form that provides additional information to the state to make the application process simpler. This must be either submitted by mail or addressed through the online portal.
Is there an EIN for Pennsylvania startups?
LLCs get EINs from the Internal Revenue Service. Sole proprietorships don’t need one. At the state level, LLCs also need to register with Pennsylvania for payment of business and sales taxes. There is no tax ID specifically issued by Pennsylvania, but there are account numbers for each business that may be required on forms.
Does Pennsylvania require business licenses for LLCs?
In Pennsylvania, the only universal state-level license a business needs is a sales tax registration or seller’s permit. Some professions will also need to obtain specific licensure to operate within the state. All other licenses are issued by local governments like towns and counties, so it is important to contact their offices where your LLC is located.
How are federal and state taxes paid?
An LLC is usually a pass-through entity, which means the LLC owner pays income tax on profits via their personal tax returns. They pay federal taxes and state taxes the same way. The LLC itself doesn’t pay taxes.
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