How to Set Up an LLC in Pennsylvania

What comes to your mind when you think of Pennsylvania? Is it the diversity in the population? Is it the terrain that captures the soul? Could it be its history that tugs at the soul? Well, it turns out that this state also has another thing to offer – a booming economy!

Business in Pennsylvania

Let’s start with the fact that PA has the 6th largest population in the United States. That alone should hint at a few things – a large talent pool and an even larger customer base. What’s more, it also has a thriving business environment as follows:

• The state is the 6th largest economy and is home to some of the largest brands in the country. Furthermore, the cost of doing business in PA stands at 5.8% less than the national average.
• Accessibility – living in PA means that you can easily drive to some of the big cities in the country such as New York and Boston. You can reach customers far and wide and can travel as needed to keep up with clients.
• Good life – the cost of living is pretty low and median housing rates are fair, starting at $46,000 less than the national average.
• Workforce – with an extensive education system, PA continues to introduce talented people into the workforce. It makes it easier for you to find people who can help your business grow to the standards you have in mind.
• Diversity – the economy supports a wide range of industries which allows more money to flow within the state. This diversity also paves the way for complementary industries to come up, further strengthening the business environment.

Want to create an LLC in Pennsylvania? Here’s what you need to do:

Step 1: Selecting a Name and Business Structure

What kind of operations would you like to run? From the title of this article, you may have already guessed that the focus lies on LLC. But is this the only option? Not quite. You have many other entities from which you can choose. Thus, before deciding on a given structure, you need to understand what each type spells for your future.

In PA, you can form the following entities: sole proprietorship, partnerships, limited liability companies and corporations. So, how can you choose what is right for you? Here are key considerations to keep in mind:

• Legalities – some forms require much more work than others. You should thus understand what the law will require of you if you go for a given entity. Some may requires that you hold a given number of meetings or that you file your minutes. You need to understand all these and consider if you are capable of meeting all these conditions. Moreover, you need to consider how much money you will incur in registration, permits and annual filing fees. If you are unsure of which laws are applicable in your case, engaging an attorney would be a great idea.
• Taxation – paying taxes is a cost of doing business. However, entities are not subject to the same requirements. In some, you enjoy flexibility as to the structure chosen when making payments. This adaptability enables you to pay less even when you would have paid more in other circumstances. Talk to an accountant and understand how you can take advantage of each setup and choose one that works for your operations.

Why an LLC?

This article focuses on an LLC as it offers the following benefits:

• Protection – suppose you get sued, the law treats you as a separate entity from the business. As such, the business gets sued and the business gets to pay off any liabilities that accrue from the same. That allows you to keep your personal assets out of reach. Where you are in an informal setup, you and the business are one and the same, putting you at a risk of losing it all.
• Flexibility – not only can you choose how you will pay your taxes but you also get to decide how many people join the company. With other entities, you have restrictions as to the number of owners. Take sole proprietorship as an example. You can only be one person. But with a company, you can keep adding and removing people as you please. That allows you more room to bring in investors and make more profits.
• Fewer Formalities: you have a lot of say in how you run your business. The law will not come in asking you to hold meetings and take minutes as well as other such requirements. You take hold of the reins, as long as it is within the law.

These and more reasons are why many people opt to open LLC in PA as well as other parts of the world.

Want to learn more? Read our full Choose a type of business

Naming the Business when Starting a LLC in PA

If you have chosen to form an LLC in Pennsylvania, here is what you should do to appropriately name the venture. For other entities, you need to adhere to other guidelines and it would help to look into the same. Let’s get started on the naming process.

You might be heavily focused on finding a name that has not been used before. You are right in this. However, first off, you must adhere to the following regulations; else, the name will not go through:

• It should clearly show that the business falls under LLC nature. That means that you should include the phrase ‘Limited Liability Company’ or an abbreviation that alludes to the same. Please note that the suffix should not indicate another entity or cause confusion on this. For example, using Corp would indicate a corporation where this is not the case. Keep it simple and indicate the entity.
• It should not contain names that would otherwise allude to association with a government agency. These can confuse the public and put you in a position where you would have an unfair advantage over your competitors. Names such as treasury and state department, as well as others that fall under public domain, are not acceptable.
• It should not indicate an association with a profession by using names such as attorney and bank. However, where you will have a professional around in the business, you can include such names. Please note that this inclusion would call for additional paperwork and the aforementioned individual would have to take up a role in the company.

Once the naming has followed the above regulations, you need to ensure that nobody else operates under that identifier. That is possible through a quick name search. While on this, also do a trademark and social media search to ensure that you are the only one with the name. If the name passes, you should also check if any URL uses that identifier. Registering the domain name allows you to reserve it as you go through other processes, while ensuring nobody else grabs it and uses it.

Reservation

To make sure that nobody else can use your name, you need to reserve it by paying a non-refundable fee of $70 to the state. This reservation will remain in place for 120 days and you are free to extend it once the expiry date approaches. Reservation can be done as follows:

Online

You will need to create an account before filling form in the required fields and making a submission

Mail

Download a form from the PA Secretary of State’s website and manually fill it and deliver it to:

Pennsylvania Department of State
Bureau of Corporations and Charitable Organizations
P.O. Box 8722
Harrisburg, Pennsylvania 17105-8722

FAX

Send your document to (717) 705-0927 or (717) 783-2244

Please note that when paying by check, you should address the same to the ‘Department of State.

Want to learn more? Read our full Unique Business Name For LLC

Step 2: Electing an Agent to Set Up an LLC in PA

You must elect someone to serve as your primary point of contact when starting an LLC in PA. This elected third party will accept legal documents on your behalf, enabling you to focus your efforts on your business. Additionally, having such an agent ensures that law enforcement officers do not serve you summons in your place of business. That means that your clients do not have to see it when you are on the wrong side of the law. Moreover, you do not have to share your operating address publicly when you have a third party taking care of your documents. This advantage is especially helpful to people who run their businesses out of their homes. These are but some of the benefits to having someone else serving as your point of contact.

The agent should meet the below conditions:

• Should be aged at least 18 years
• Should have the capacity to enter into a contractual agreement
• Should have a physical address in the state, which is different from a mail box
• Should be reachable during the state’s working hours to receive documents on your behalf

Own Representation

If you wish, you do not have to hire a third party to receive documents for you. Instead, you can do this for yourself as long as you meet the following criteria:

• You should have a physical address in PA, which can be a residential or office address, even if it is your home.
• You should operate during the normal state’s working hours, enabling officers to make deliveries as needed.

Third Party Representation

You can choose to have a friend or another person/ company receive documents for you. Advantages of this move include:

• You can keep your home or office address as private, given that the third party will share their information
• You can work at any time you please and do not have to be available during the state’s working hours. If you engage in a business that requires you to move around a lot, this would be beneficial.
• You can avoid having law enforcement officers showing up at your door. Instead, they will go to the third party, allowing you to keep your legal problems a secret from clients and your employees.
• You can expand as needed as most third parties operate across many states.

The only downside to hiring a third party is that you pay a tidy sum of money to keep the services going. However, compared to what you would pay if you ever got into legal trouble for non-compliance, the asking amount is minimal. Below are some of the third parties you can rely on to stay on the good side of the law:

• ZenBusiness
• Northwest Registered Agent
• LegalZoom
• IncFile
• InCorp

All these offer agency services at affordable rates and assure you that you will be within the bounds of law at all times. Be sure to look into their individual offerings for a better idea of what to expect.

Want to learn more? Read our full Assign a Registered Agent

Step 3: Filing Certificate of Organization

In the last step, we covered how to choose who can receive documents on your behalf. You need to elect them into that position. To do this, you need to file the Certificate of Organization for your company. This legal document also enables you to get the license to operate in the state, among other things. It contains the following information:

• The name of the business as we discussed under step 1. You should ensure that it is within the guidelines earlier stated.
• Your representation. Under this field, you should fill in the details of the person or company that will handle all your legal documents. Ensure that the person meets the selection criteria. Additionally, you will need to include their physical address.
• All the members of the organization will require signing the form and indicating their names. If you are a sole owner, you will have an easy time with this step.
• When you plan to start your operations. It can be immediately you get approval or sometime in the future. Please indicate this on the form.
• What you plan to do. The operations of your setup should be within the law and clear. Take an example of where you plan to practice medicine in the organization. Not only will you need additional paperwork for this, but you will need to indicate exactly which services you will provide. Any businesses that require special permits will need to show these.

This document is available under the Pennsylvania Department of State’s website where you can fill it as follows:

Online

For this method, you need to create an account before you can fill in the required fields and make your application.

Mail

You can find the PDF version of the form on the site as well as a docketing statement. Send the complete form to:

Pennsylvania Department of State
Bureau of Corporations and Charitable Organizations
P.O. Box 8722
Harrisburg, PA 17105

Fax

Send the form to (717) 705-0927 or (717) 783-2244

How Much Does an LLC Cost in PA? Fees and Timings

Each application calls for a non-refundable fee of $125.

Want to learn more? Read our full File LLC Certificate of Organization

Step 4: Drafting an Operating Agreement

When starting a business, you should be clear on how you wish to operate it. These clarifications form the basis upon which you can settle disagreements in the future. Take the example of where a member wants to leave the company. What will you do with their shares? These are circumstances which many companies have to grapple with from time to time. Where an operating agreement on this is clear, members can refer to it and find a solution. However, in the case where no such policies are in place, members often have to resort to default rules as set by the state. Unfortunately, these rules are generalized and the chances are high that some people may bear the short end of the cane. Thus, formulating your laws before starting operations would be the best way forward.

This agreement lays a foundation for the procedures to follow in the event of any conflicts in the future. The LLC operating agreement Pennsylvania should include the following components:

• The general setup of the business. Under this, you should show when the company came into being, who its members are and how much they own in the business. Where members are not equal when it comes to shares, this should be clear.
• The running of the operations. You should be clear as to who is in charge of the governance. Will members take over or will they appoint managers to take care of the running?
• The voting procedures. Now and then, members will need to decide on items by voting. It should thus be clear which guidelines they should follow in these circumstances. Also, where some people have more votes or more power than others, this should be clear.
• The investments. Depending on the setup of the business, some people may have put in more money than others. The rules should show how much money everyone has invested and the required contributions by new members.
• The sharing of revenues and losses. Businesses come into being with the hope of making money. You should indicate how you will handle any incomes and losses to the operations. Will you share them equally or will the sharing follow an ownership ratio structure? Agreeing on this in the early stages works well in preventing money-related conflicts in the future.
• The departure of members. Members can leave the business, either by death or by voluntary departure. The policies should be clear on what happens in either case. Will the remaining members buy out the member or will the member get their invested capital? Can outsiders buy into the company? These are integral issues on which members must agree.
• The dissolution of operations. There may come a time when members decide to do away with the operations. It can be due to the company having a given end date or the resolution that the company no longer serves the needs of its members. Whatever the reason, you should be clear on how you will go about this. It helps to read a bit on dissolving entities to have an idea of how to go about this.

Please note that having such guidelines in place not only minimizes internal conflict but adds to your protection. When you have such governance, you enjoy more credibility and this shows in how much liability to which you get exposed.

You do not have to file this document with the state. Instead, you can keep it for your records. When opening a bank account, as we will later cover, having this document will also come in handy.

Want to learn more? Read our full Create an LLC Operating Agreement

Step 5: Getting an EIN

You will need to remain in the good books with the government and this also extends to registering for taxes. To do this, you might need an EIN (Employer Identification Number) if your business falls into one of the following categories:

• You will hire people to help out in the carrying out of the day-to-day activities. Where you plan on having help, you need to get an ID to help in the payment of taxes accruing from these hires.
• You will run the business with other people, all of whom have ownership in the company. Where you are not alone in the setup, money will flow in different directions, warranting the need for an ID.

While your business may not fall into the above classifications, having a Pennsylvania tax ID number will accord you some advantages as shown below:

• It becomes easier to open a business bank account as the ID points to your credibility. With this, you can look forward to additional financing options as you enjoy more protection.
• You can hire people to help you when the operations reach their peak. When starting out, you might think that the idea of getting help is not feasible. But as you grow, you might realize that you need more hands on deck. It would be great to have this ID to help you get hires when and if needed.
• You can keep your SSN private by transacting using this ID. That means that identity theft will be tricky and it will be quite hard for someone to gain access to your personal finances.
• You will enjoy more protection when it comes to your liability if things go wrong in the business.

Thus, even if you might not need one, it does help to have this ID around.

Application

You can make your application online or send in hard copies to the IRS. All the information you need is available on the IRS website. During application, you will need to fill in the following fields: your name and your ID.

Online

If you want the ID processed fast and without much hassle, this is the best approach. All you need is to log onto the site anytime from 7am to 10pm from Monday to Friday. Once you provide the necessary details, you will get an ID immediately after the application.

Mail

You will need to download form SS4, fill it and submit it to:

Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999

Fax

Download form SS4 and fill it before faxing it to (855) 641-6935

Fees

The application is free.

Want to learn more? Read our full Get an Employer Identification Number For LLC

Step 6: Opening a Bank Account

Once you have your EIN, you can move on to this important step- separating what belongs to you and what should go to the business. You might wonder why you need to finish step 5 first. However, you will find that many financial institutions will prefer that you have your taxes right to bank with them.

Why should you get an account?

• Having an LLC means that you are separate from the business. What this means is that you can still keep what belongs to you even if someone comes after your business. But to enjoy this, you have to be clear on what belongs to you and what belongs to your business operations. The way to do this is by opening an account that exclusively deals with business revenues and expenses. That means that if anything goes wrong, the law will only touch what belongs to the entity. However, where you use one account, the law treats the money as that of the business and you can end up losing everything.
• When transacting with your clients or investors, you want to give off a feeling of professionalism. This appearance is possible when you use a business account. But when you send and receive payments with a personal account, you lose some of your credibility.
• You will have an easier time keeping up with your records. Instead of sifting through numerous transactions trying to decide what belongs to you and what goes to the organization, you can deal with each account separately. Plus, this works in your favor when bringing in a third party to look into the accounts. Given that their work is on the minimal side, they will not charge you an arm and a leg to get it sorted.
• You can develop a relationship with the financial provider. When the time comes to expand, you can count on this relationship to help you get better financing than you would with a personal account.
• When deciding how much you need to pay in taxes, you will have an easier time tracking what’s come in and what has gone out of the business.

You can thus see why it is important to open a bank account for LLC.

Application

Opening an account comes down to the bank you choose. Here are some tips you can use. First, ask around to learn which banks offer business bank accounts. Secondly, compare their service levels and look at reviews on the same. Some will have better features than others. Thirdly, consider the costs you will incur to run an account with each of the institutions. Finally, call the institutions to understand what they need from your end. Generally, you will need the following:

• Certificate of Organization
• EIN
• ID, with one having a photo
• Operating agreement

You can then make a selection and show up with what’s needed; having noted which institution is the best fit for your company.

Want to learn more? Read our full Open a bank account for your LLC

Step 7: Register for Taxes

Finally, we are down to the last stage before you can start operating in PA- staying compliant! You need to have an eye out for the following:

Permits & Licenses

While the company registration gives you the right to start your business operations, you might need more than that. It all comes down to the nature of your work. For example, if you will handle food, you need to get health permits and other such certifications to start operating. Look into which licenses you might require as well as the costs of acquiring them.

Taxes

State

These payments include sales, unemployment insurance and withholding taxes. The nature of your work dictates what you pay. Say for example that you deal with physical goods. In this case, you would be liable to stay on top of your sales taxes to remain compliant. Read about the different taxes and their payment terms to understand if you are liable for any of them.

Federal

The IRS requires that you report your income every year by filling a form (1065 partnership return or 1040 schedule C). The filing also depends on the payment structure you use in paying yourself and other members. Your accountant will come in handy in determining what you report.

Reporting

Additionally, you need to keep up with your decennial report which you should do by mail. You will need to pay $70 for this, and mail the complete report to:

Pennsylvania Department of State
Bureau of Corporations and Charitable Organizations
P.O. Box 8722
Harrisburg, PA 17105

Please note that failure to keep up with your filings can lead to the loss of your license and can limit your protection.

Want to learn more? Read our full Taxes and license fees

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Frequently Asked Questions

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