Guide to Starting an LLC in Pennsylvania
Starting a small business can be a daunting task, especially if you’re not sure where to start. In this blog post, we will guide you through the process of starting an LLC in Pennsylvania. We’ll provide you with all the information you need to get your business up and running. So, if you’re ready to take the plunge into entrepreneurship, keep reading!
What is an LLC?
An LLC, or Limited Liability Company, is a type of business structure that can help protect your personal assets in the event that your business is sued. Unlike a sole proprietorship or partnership, an LLC provides its owners with limited liability protection, which means that their personal assets are not at risk if the business is sued. In addition, an LLC can help to shield you from personal liability in the event that your employees or contractors cause damage or injure someone while working for your company. As a result, an LLC can provide peace of mind for business owners who want to protect their personal assets. If you’re considering starting a business, an LLC may be the right choice for you.
Steps to Form a Pennsylvania LLC
While it can be intimidating to form an LLC for the first time, with a little research and patience, you can learn how to form an LLC in Pennsylvania without an attorney.
Let’s break down the steps to complete the Pennsylvania LLC formation process.
Total Time: 10 minutes
Step 1: Choose a Name for the LLC
The first step in forming a Pennsylvania Limited Liability Company is to make sure the name you want is available.
It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of Pennsylvania. The Pennsylvania Department of State makes it easy to search and verify if your LLC name is available. Here is more information on how to do a Pennsylvania LLC name search
In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:
– Limited Liability Company
– Limited Liability Co.
– Ltd. Liability Company
– Ltd. Liability Co.
If there is a name you want but are not ready to register the LLC, you can file the Name Reservation Form (SSCB:15-208). The name reservation filing fee is $70 and will hold a name for up to 120 days.
Before finalizing your LLC name, you may also want to see if a domain name is also available to have a matching website address.
Step 2: Designate a Pennsylvania Registered Office Address
Every LLC in Pennsylvania is required to have a Registered Office Address (sometimes referred to as a Registered Agent in some states). A Registered Office Address is a street address where legal documents, tax notices, summons, subpoenas, etc. (Service of Process) can be sent to the LLC.
The basic requirements for a Registered Office Address in Pennsylvania include:
– The address must be a physical street address in the state (PO Boxes aren’t allowed).
– Somebody must generally be available during normal business hours at the address provided to receive service of process.
Learn more about the requirements for a Registered Office in Pennsylvania
Listing a Registered Office Address becomes public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed. Hiring a commercial Registered Agent service like Northwest Registered Agent will help keep the owner’s names from being publicly listed.
Step 3: File the Pennsylvania Certificate of Organization
The paperwork to officially create an LLC in Pennsylvania is called the Certificate of Organization. To submit the paperwork, either file online through the Pennsylvania Department of State’s website or download and mail the Pennsylvania LLC Certificate of Organization (Form DSCB:15-8821).
When filling out the Certificate of Organization, a few sections and terms can be confusing. Let’s go over a few of these sections to help get your LLC started right.
Initial Registered Office – If the initial registered office is the LLC’s physical address or the address where the business records are stored, select (a) and enter the address below.
The Registered Office Address can be your home address or any physical street address in the state, however, a Post Office Box is not allowed.
Commercial Registered Office Provider (CROP) – If hiring a commercial registered office service, they must first be registered with the Department of State. If they are, select (b) and enter their name and county from the drop-down menus.
Organizer Information – An LLC Organizer is someone involved with the formation of the Certificate of Organization. The Organizer may or may not become a member, such as a mentor, attorney, or accountant, but any LLC member can be listed as an organizer.
At least one organizer and their address must be listed. After all of the organizers have been listed, click on “Save and Continue.”
Effective date of Certification of Organization – If you want the LLC to start immediately, choose the box that says, “The Certification of Organization shall be effective upon filing in the Dept of State.”. If you want to start the LLC later, select the box that says “The Certification of Organization shall be effective on (month date year hour, if any)” and enter the date of your choice. The main reason for delaying the LLC start date is when the filing is being done close to the end of a calendar year, and the business isn’t going to have any activity until the start of the year. By delaying the start date until the following year, you can eliminate the need to file a partial-year business tax return.
Professional Company – If the services of the LLC have to be licensed by the state, enter “Applicable” in the drop-down menu and select the types of licensed services. For more information about professional licensing, see Pennslyvania Business Licenses and Permits in our state guide. Some common licenses are for Chiropractic, Dentistry, Law, Medicine, Optometry, Podiatric, Public Accounting, Psychology, or Veterinarians.
Public Benefit – A public benefit LLC is a for-profit LLC that intends to have a positive impact on society and the environment.
A public benefit LLC is more complicated than a Domestic LLC as in addition to filing a Certificate of Organization [DSCB:15-8821], a docketing statement [DSCB:15-134A], will also be filed with the Bureau of Corporations and Charitable Organizations.
FEIN – The FEIN (Federal Employer Identification Number) is a unique federal business identification number, much like a social security number for an individual. We recommend leaving this field blank until the LLC is filed with the Department of State. If the name you plan to use can’t be registered, it will need to be revised with the IRS. More information about how to apply for an LLC FEIN.
Description of Business Activity – Provide some basic information about what the business will do.
Step 4: File Form DSCB:15-134A New Entity Docketing Statement
In addition to filing the Certificate of Organization, Form DSCB:15-134A Docketing Statement – New Entity must be filed at the same time.
The docketing statement obtains information such as the entity name, tax responsible party, description of the business activity, FEIN (Federal Employer Identification Number), and LLC tax year.
Estimated Cost: 130 USD
You have a Pennsylvania LLC. Now what??
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare a Pennsylvania LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.
Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, Federal Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, build business credit, register for business licenses and permits, file federal and state taxes, and more.
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
Related: How to Apply for an EIN
Elect the LLC’s Form of Federal Income Taxation
One of the significant benefits of the Limited Liability Company is the tax flexibility it provides. When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:
- Sole proprietorship
While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.
Related: How can an LLC be taxed?
By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.
Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.
Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.
In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership is that the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership. As a result, the owner will pay self-employment taxes on all business profits. As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes. Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.
Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you. Some tax elections, such as the C corporation, may be detrimental for some people due to double taxation.
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- Occasionally, the bank will request the Pennsylvania Certificate of Good Standing to prove the LLC is active and in good standing with the state.
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting your business. Some common registrations include:
- Business License – Some cities require businesses to obtain licensing before they can start.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
- Sales Tax License – In order to sell products and certain services, registration with the Pennsylvania Department of Revenue will be necessary.
File the Decennial Report
LLCs are required to file a decennial report with the Pennsylvania Secretary of State. The annual report updates ownership information and other details.
The Limited Liability Partnership, Limited Liability Limited Partnership, and Restricted Professional Limited Liability Company have to file the Certificate of Annual Registration by April 15th of each year.
Common Questions To Starting An LLC In Pennsylvania
How much does it cost to start an LLC in Pennsylvania?
To form an LLC in Pennsylvania, the Certificate of Organization will need to be filed with the Department of State. The cost to file the certificate is $125.
How long does it take to start an LLC in Pennsylvania?
It normally takes 7-10 business days for the Pennsylvania Department of State to process the paperwork to form an LLC in Pennsylvania.
Is there a yearly fee for an LLC in Pennsylvania?
LLCs in Pennsylvania will need to file a Decennial Report, which is due every 10 years. In addition to submitting the Decennial Report, there is a $70 filing fee.
Do I have to pay to hire a registered agent?
No. Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state, and are generally available to receive documents during normal business hours.
Does an LLC need a business license in Pennsylvania?
It’s sometimes thought that the LLC and business license are the same in Pennsylvania, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.
What is a Foreign Limited Liability Company?
A foreign LLC isn’t a special type of LLC. Instead, it’s an LLC that was formed in another state (domestic LLC) that wants to physically operate in Pennsylvania. Physically operating means having a presence, such as having an office or hiring an employee.
Related: What is the difference between a domestic Pennsylvania LLC and a foreign LLC?
What is a Professional Limited Liability Company?
Businesses in Pennsylvania that require licensing from the state to offer their services, such as accountants, attorneys, psychologists, veterinarians, and more., are required to file as a Professional Limited Liability Company (PLLC) instead of an LLC.