Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on March 16, 2022 Updated on April 4, 2024
An LLC, or a limited liability company, has become a favored business structure for new ventures in the United States due to its liability protection for ownership and increased flexibility, particularly in terms of taxes, compared to a corporation. It should be noted that the LLC itself is not taxed, as it operates as a “pass-through” entity, allowing the income to pass directly to the owner(s), who then report it on their personal tax returns.
Forming and maintaining an LLC is straightforward, with each state having its own specific requirements and forms that must be fulfilled. One can either complete the process independently or utilize professional online Pennsylvania LLC formation services.
Here are the steps you need to take to form an LLC in Pennsylvania.
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Should you find video content more appealing, we’ve provided a comprehensive visual tutorial on creating an LLC in Pennsylvania.
Step 1: Choose a Name for Your Pennsylvania LLC
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Next, input a business name or entity ID number into the search bar. You can refine your search by selecting options such as active businesses or specific search types from the drop-down menu.
The search results page will display all Pennsylvania entities matching your search criteria. Click on the Business Entity Name or Entity Number to access the details of a specific business.
On the business details page, you’ll find important information about the Pennsylvania entity, such as its status and registration details.
If you find the name during your search, you’ll need to go back to the drawing board and choose a different name.
You should also confirm that the name you want to register conforms to Pennsylvania regulations on business names.
In Pennsylvania, your LLC name must include the phrase “limited liability company,” or one of its abbreviations (LLC or L.L.C.), and it cannot include words that could confuse your Pennsylvania LLC with any government agency.
Your business name also cannot include words like bank, insurance, university, cooperative (or any similar names) without approval from certain state authorities. Your business name can also not contain any terms that imply that your LLC is a corporation.
Additionally, your business name must be distinguishable from all other business names in the state.
It’s also a good idea to check for nationally trademarked names, to ward off any potential problems later if your business expands, and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Once you’ve found a name that clears these hurdles, go ahead and reserve the name with this Name Reservation Request form on the Pennsylvania secretary of state website.
Step 2: Choose a Registered Agent (Commercial Registered Office)
In Pennsylvania, a registered agent is not required but you can choose to have one. A registered agent is a person or business authorized to accept legal, tax, and financial documents on behalf of your business, and communicate with the state on relevant matters.
The purpose of a registered agent is to ensure compliance with state laws and make sure official documents are handled in a timely manner. Having one person or entity to handle important documents helps to ensure nothing is missed, helping avoid potential potholes.
In Pennsylvania, you can be your own registered agent for your LLC, or it can be another member of the LLC. An individual who is not a member or a professional agency can also serve as the registered agent for your LLC.
In Pennsylvania, the requirements to be a registered agent are:
Must be 18 years or older
Have a physical address in the state
Be personally available during normal business hours
If the agent is a business entity, it’s registered to operate in the state
Many LLCs choose a member who is highly involved in the business to be the registered agent, although a registered agent service saves you time and ensures compliance.
Advantages of a Registered Agent Service
A registered agent service is a professional service that will handle official correspondence and documents for your business. Registered agents ensure that all official correspondence is handled on time and keep copies of documents for you. They also keep track of deadlines and send reminders of things you need to file, such as tax forms and annual reports.
A registered agent service will help keep you in compliance with the law and save you time by keeping track of key documents and filing deadlines. This also frees you up to focus on growing your business. The agency will also offer support if problems or questions come up.
Using an agency enables you to have flexible hours. If you’re your own registered agent, you must be personally available from 8 AM to 5 PM at your registered agent address. If you use an agency, they are available during those hours so that you don’t have to be.
An LLC offers its owner or owners considerable flexibility in terms of management. You can choose your management and operational structure.
LLC owners are known as members. In a member-managed LLC, the members run the business. In a manager-managed LLC, non-members are hired to oversee and run the business.
In a member-managed LLC, members are involved in day-to-day operations. Most LLCs are member-managed because the majority are small businesses that cannot afford to hire a management team.
Many LLC owners prefer to have a member-managed structure because they want to be in control of decision-making and directly involved in operations. Unlike corporations, most LLCs do not have boards of directors to oversee the management. This means that whoever manages the company is in control of all decisions.
In Pennsylvania, LLCs are considered member-managed by default unless they have specified that they are manager-managed in the formation documents or operating agreement.
In a manager-managed LLC, non-members are hired as managers. Some members still may be managers alongside the non-member managers, or none of the members can be managers. In this structure, any members who are not managers are passive investors and have no role in the operations of the company.
This structure works best when some or all of the owners want that passive ownership, or if there are a large number of members – too many to all effectively manage the LLC. Another reason to choose a manager-managed structure is when members simply don’t have management skills. Having a great business idea and the capital to start a company does not necessarily mean that someone can run a company. In such cases, hiring professional managers can give the company a better chance of success.
Step 4: File a Certificate of Organization with the Pennsylvania Secretary of State
To make your LLC official, you’ll need to file a Certificate of Organization with the state. This is the legal document that officially creates your LLC as a legal entity in Pennsylvania. The Certificate of Organization includes information about your LLC, such as its address and owners.
The fee is $125 and you should receive confirmation within 15 days.
Step 5: Create an Operating Agreement
An operating agreement is not required in Pennsylvania but is highly recommended. It is not filed with the state, but instead kept in your LLC’s records and used to resolve disputes, even in court.
An LLC operating agreement is an important legal document that details who owns the business and provides essential information pertaining to member duties. An LLC operating agreement establishes the financial relationship between members and the basics of the working relationships between those members and the managers who oversee daily operations.
It’s advisable to hire an attorney to ensure your operating agreement is thorough and legally binding.
The operating agreement should clearly define:
The percentage of each member’s interests in the LLC
How profits and losses will be allocated to each member
Each member’s rights and responsibilities
The management structure and management roles of members
The voting rights of each member
Rules for meetings and voting
What happens when a member sells their interest, becomes disabled, or dies
If the LLC has a board of directors, the operating agreement will also include the role and responsibilities of the board members and how they are compensated.
An LLC operating agreement provides legal and financial recourse for a number of situations. If conflicts arise between LLC owners pertaining to any of the above issues, the operating agreement will provide clarity and guidance.
Though Pennsylvania has default rules on the books that address some of the potential challenges that might arise between LLC members, the LLC operating agreement has the potential to override such presumptions.
Step 6: Apply for Business Licenses
In Pennsylvania, forming an LLC doesn’t require a business license, but you’ll need to follow Pennsylvania state procedures, as you may need local, state, or federal permits depending on your type of business. Fees for these vary, but most costs are minimal.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific permits. Refer to the SBA guide for federal licenses and permits to determine if your business activities are regulated by a federal agency.
While Pennsylvania doesn’t mandate a universal business license, certain professions and types of businesses do require specific licenses. These professions include barbers, doctors, pharmacists, social workers, and real estate agents, among others. The Department of State in Pennsylvania issues these professional licenses. If you’re uncertain about the licensing requirements for your business, you can refer to the state’s checklist for guidance.
For any local licenses and permits, you should check with your local government offices or their websites. The specific requirements may vary based on your location and industry.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties. If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Your Pennsylvania Employer Identification Number, or EIN, is like a social security number for your company, allowing the IRS to easily identify your business. It is also known as a Federal Tax Identification Number (FTIN), or sometimes for corporations it’s called a Tax Identification Number (TIN).
An EIN is used to identify US businesses and contains information about the state the company is registered in. It also identifies the taxpayers who are required to file tax returns for the business.
It is used by employers for filing taxes and is generally required for businesses when they open a business bank account.
All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner or trustor. This individual or entity, which the IRS will call the ‘responsible party,’ controls, manages, or directs the applicant entity and the disposition of its funds and assets. Unless the applicant is a government entity, the responsible party must be an individual (i.e., a natural person), not an entity.
The application is free and can be found on the IRS website. The application is form SS-4, and it can be mailed to the IRS or submitted electronically. Once your information on the application has been validated, your EIN is assigned immediately. The EIN will never expire, and is never duplicated, even if you go out of business.
Next Steps
Opening a Business Bank Account
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
In Pennsylvania, banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN, Certificate of Organization, and other legal documents and open your new account.
Getting Small Business Insurance
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
Business Property: Provides coverage for your equipment and supplies.
Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
Worker’s compensation: Provides compensation to employees injured on the job.
Property: Covers your physical space, whether it is a cart, storefront, or office.
Commercial auto: Protection for your company-owned vehicle.
Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.
Decision on LLC Tax Status
LLCs are unique in terms of taxation as their owners have a choice about how the company will be taxed. By default, an LLC is taxed like a sole proprietorship if it has one member and a partnership if it has more than one member.
In both cases, business income “passes through” to the members, while profits and losses are reported on their individual tax returns. The LLC itself is not taxed, which simplifies the process for members. Also, losses and operating costs of the business can be deducted personally by the members. Taxes are paid at the personal tax rate of the members, although the owners may also have to pay self-employment taxes.
Note that a multi-member LLC must also file form 1065 with the IRS, which is the U.S. Return of Partnership Income. Attached to this will be form K-1s for each member showing their share of the business income.
But LLCs owners can instead choose to be taxed as a corporation. To do so, the LLC must file a document, referred to as an election, with the IRS. The LLC must then decide if it wishes to be taxed as an S corporation or a C corporation.
C-Corp status means profits are taxed at the current rate for corporations (21% as of early 2022), which is significantly lower than the typical individual taxpayer rate. But keep in mind, C-Corp shareholders, which includes members, must also pay taxes on their distributions (but not self-employment taxes). Thus, the C-Corp is subject to what is sometimes referred to as double taxation.
As with sole proprietorship and partnership status, S-Corp taxation considers the LLC a pass-through entity, which means income passes through the company and into the hands of the owners. At this point, taxes are applied at the same rate as those of individual taxpayers.
S-Corps use Form 1120S to file their taxes, which is used to report the income, losses, and dividends of shareholders. S-Corp shareholders do not pay self-employment taxes, which is the primary advantage of S-Corp status compared to sole proprietorship or partnership.
Generally, S-Corp tax status is beneficial if the company is profitable enough to pay the owners a salary and at least $10,000 in annual distributions so the owners can be taxed as employees and not pay self-employment taxes. It costs more to run an S-Corp than an LLC due to additional bookkeeping and payroll expenses. Thus, the tax benefits should be more than the additional costs for an S-Corp status to make financial sense.
File a Decennial Report
In Pennsylvania, LLCs need to file a Pennsylvania decennial report to remain in good standing. The fee is $70 and the report is due in every year that ends with 1 (i.e. 2021, 2031).
Starting an LLC in Pennsylvania is a straightforward process, but it does take time and involves several filing fees. Here are the costs associated with starting an LLC in Pennsylvania. To make sure you’re in full compliance with the law, you might want to consult an attorney or hire an online LLC formation service. The last thing you want is for your newly created LLC to run afoul of the law and face fines or other restrictions.
Pennsylvania LLC FAQs
How much does it cost to start an LLC in Pennsylvania?
It costs $125 to form an LLC in Pennsylvania. If business licenses and permits are required for your business, you’ll pay additional fees when you apply for them.
How long does it take for an LLC to be approved in Pennsylvania?
Times vary based on the volume the office receives, but it generally takes 15 days.
Is there an annual fee for an LLC in Pennsylvania?
No, there is no annual reporting requirement in Pennsylvania. However, LLCs need to file a decennial report. The fee is $70 and the report is due in every year that ends with 1 (i.e. 2021, 2031).
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