How to form an LLC in Pennsylvania?

LLC in Pennsylvania

First-time business owners prefer to form an LLC in Pennsylvania because the state provides effortless access to business resources and the infrastructure necessary for steady operations and company growth. Pennsylvania’s good business location indicators include a strong transportation system, a lower startup cost, a higher skill base, and is currently experiencing remarkable growth through a period of technological renaissance. The state provides a variety of incentive programs and access to funds, which is a crucial element for those planning to start an LLC in Pennsylvania.

What is a Pennsylvania LLC?

A Pennsylvania limited liability company (LLC) is a type of private limited company. It has a corporate structure that helps to protect its owners from any liabilities that the company may be responsible for. The process to register a Pennsylvania LLC will depend on whether it’s a domestic company or a foreign entity. The IRS defines a limited liability company as a “pass-through entity” for tax purposes, and its tax status can also be converted to an S Corporation. You can start an LLC in Pennsylvania as a single-member LLC or a multi-member LLC.

What are the benefits of forming an LLC in Pennsylvania?

A limited liability company is one of the most preferred structures to form in the USA and its formation is governed by state statutes. If you want to form an LLC in Pennsylvania then it’s important to identify the benefits that this type of structure has to offer. Let’s look at some of the top advantages:

• Limited Liability – If you’re planning to form a Pennsylvania LLC online, then one of the greatest advantages of this type of structure is the limited liability protection. This simply means that the owners’ and members’ private assets will not be at risk if the LLC fails. Their personal assets cannot be seized as repayment for any debt obligations or any legal claims.
• Pass-through entity – A pass-through entity is also known as a flow-through entity. It refers to a taxation where all the income is passed on to the members or owners of the business. Unlike a corporation, where the company files a corporate tax, an LLC is not required to file any taxes. Instead, the owners or members are required to file personal income taxes. This helps to avoid double taxation.
• Flexible profit distribution – When you form an LLC in Pennsylvania, one of the many benefits you can look forward to enjoying is that this type of structure allows more flexibility in the distribution of profits to their members or owners. This flexibility exists because a limited liability company has a simple and adaptable business structure.

Forming an LLC in Pennsylvania

Thanks to its strategic location and abundance of a highly skilled workforce, this state is easily the right destination for when you’re ready to start a business in Pennsylvania. You’ll need to be mindful of the various steps and processes required to successfully form an LLC. Let’s take a look at some of the important procedures for starting your LLC in this state.

1. Choose a Pennsylvania LLC name

One of the most important details when forming an LLC in Pennsylvania is to choose your business name. It’s an important step because the new business registration documents will require you to provide your company’s legal name. You’ll need to think of a business name in compliance with the 2022 Pennsylvania Consolidated & Unconsolidated Statutes. Once you’ve chosen your name, you’ll need to conduct a Pennsylvania LLC name search.

2. Choose a Pennsylvania LLC registered agent

When you’re ready to register a Pennsylvania LLC, you will be required to follow several state business laws. One of these mandatory laws is to hire and continuously maintain a Pennsylvania LLC registered agent pursuant to 15 PA Cons Stat § 8825 (2016). The primary role of a registered agent in the state is to provide service of process.

3. File a Certificate of Organization with the PA Department of State

When you decide to form an LLC in Pennsylvania it will involve filing specific registration documents that will depend on whether or not it’s a domestic or foreign entity. If you choose to form a domestic limited liability company then you’ll need to file a Certificate of Organization pursuant to 15 PA Cons Stat § 8821 (2022). You can form a Pennsylvania LLC online, submit the form through the mail, or physically submit it to the office of the Pennsylvania Department of State, Bureau of Corporations and Charitable Organizations. The fee is $125 and you’ll also need to submit a copy of the Consent to Appropriation of Name with any necessary governmental approvals.

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4. Prepare the Pennsylvania LLC Operating Agreement

To form a Pennsylvania LLC, you’ll need to prepare internal documents (shared internally) and documents for submission to the state. One such internal document that every limited liability company requires is the LLC operating agreement. The purpose of this agreement is to protect the limited liability clause and to ensure that you’re in control of the company. If you don’t create a Pennsylvania LLC operating agreement then the state laws, also known as the default rules will govern the operations of the limited liability company.

• Statement of intent
• Business purpose
• Time/period of operation
• Member capital contributions
• How it will be taxed
• New member admissions
• Sharing of profits

5. Obtain Pennsylvania LLC EIN

An Employer Identification Number (EIN) is a unique nine-digit number that is assigned to a limited liability company by the Internal Revenue Service (IRS). It’s also known as the Federal Employer Identification Number (FEIN), and it may not be required by single-member LLCs without any employees. Once you register a Pennsylvania LLC, you’ll need to file different business or state taxes and the EIN will be required to complete the process.

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6. Obtain the necessary business licenses and permits

After you’ve taken the steps to form a Pennsylvania LLC online, the next most important obligation to focus on is making sure you acquire the right business licenses. Many American states offer general licenses but Pennsylvania does not. Permits and licenses can vary depending on particular factors like the primary activity and the location of the business. Obtaining the necessary business licenses is a vital step in your business formation because you will not be able to operate your LLC without valid licenses and permits. The business licenses are categorized under:

• According to Industry – Industry-based licenses are issued to businesses or activities that can be classified under a specific industry or trade. These licenses are issued by different government agencies or bodies based on the industry or activity. If you were to form a Pennsylvania LLC focusing on agriculture then it would be classified within the agriculture industry. The business license for this type of entity would be issued by the Pennsylvania Department of Agriculture.
• According to City/County – The second class of business licenses that your company may need to obtain are the local licenses also known as city or county licenses. The types of licenses, fees, and renewals will depend on the location of the business. Let’s look at an example to understand this.

  Example: If you start an LLC in Pennsylvania and the company is based in Philadelphia then you will need licenses or permits issued by the city. Every business in this city is required to obtain a Commercial Activity License. Apart from this, if you are specializing in the entertainment business then you will need to apply for a separate permit or license for the same. These permits or licenses will be issued by the Philadelphia Department of Licenses and Inspections (L&I).

• Professional license – Lastly, certain businesses in Pennsylvania may also require Professional licenses. These licenses are issued by the Bureau of Professional and Occupational Affairs, which includes 29 licensing boards as well as commissions.

7. Open a bank account for PA LLC

Finance is one of the most important aspects of running any business successfully. In order to manage finances properly and segregate personal gains and expenses from business gains and expenses, it’s recommended to open a separate bank account. This is known as a business bank account and you can open it before or after you register a Pennsylvania LLC. The key benefits of a business banking account are that it will help automate bookkeeping and establish a good credit history for the limited liability company. This will eventually make your LLC tax preparation easier.

8. Comply with taxes and other regulations

Once you start an LLC in Pennsylvania, you’ll be required to comply with annual state maintenance requirements. One of the important annual requirements is the Pennsylvania annual report. Pennsylvania is one of the few states that requires you to submit a Decennial Report although this will be replaced by an annual report from 2025 onwards. A Decennial Report has to be filed once every 10 years.

Learn more about starting an LLC in Pennsylvania!

A Pennsylvania LLC registered agent can help you with the process of forming a limited liability company in the state, but you may still have several queries regarding this type of entity. Hence, we’ve created a special section of “Frequently Asked Questions” to address some of these queries.

Is Pennsylvania a good state to form an LLC?

The state of Pennsylvania is home to several top companies like Comcast, PNC Financial Services, Rite Aid, Aramark, and AmerisourceBergen among others. This state provides new and existing LLCs with several benefits and advantages. Some of the reasons for why entrepreneurs prefer to form a Pennsylvania LLC include:

• The state has a low personal income tax rate of 3.07%.
• It is the sixth-largest economy in the nation with a real GDP of $726.04 billion.
• The state is home to a strong workforce of 6.3 million highly skilled individuals.
• It’s proximity to major cities like New York City, Boston, and D.C.
• The state provides access to a strong transportation and logistics infrastructure.
• Pennsylvania has port access to the Great Lakes (Erie), the Gulf of Mexico (Pittsburgh), and the Atlantic Ocean (Philadelphia).
• It’s one of the top U.S. states for graduates who specialize in the STEM (science, technology, engineering, and mathematics) industry.
• The state offers several business incentive programs including the Small Business Advantage Grant, the Enterprise Zone Tax Credit (NAP/EZP), and the Business Opportunities Fund (BOF).

How do I know if my Pennsylvania LLC name is available?

Once you’ve identified or chosen a business name in compliance with the state naming guidelines, you’ll need to conduct a Pennsylvania LLC name search. The name availability search combs the database of the Bureau of Corporations and Charitable Organizations. If the desired name is available then you’ll be allowed to reserve the same.

How much does an LLC cost in Pennsylvania?

When you decide to start a limited liability company in Pennsylvania, you’ll be required to submit a Certificate of Organization for a domestic entity. The initial cost to register a Pennsylvania LLC is $125. The additional fee to expedite the process depends on the expedited service selected. For example, the fee for a same-day service is $100 while the fee for a one-hour service is $1,000. In addition to the initial cost to form a Pennsylvania LLC online, the name reservation, the annual statement, and the application for business licenses and permits will also include fees.

Do I need a business license for my Pennsylvania LLC?

Yes. A business license is required for your LLC to be considered legally operational. You may incur fees or penalties if you conduct business without the proper licenses or permits.

Can I set up a single-member LLC in Pennsylvania?

Yes. You can set up a single-member LLC (SMLLC) in Pennsylvania and most documentation will remain the same. You’ll need to reserve a business name after conducting a Pennsylvania LLC name search. This step will ensure that the chosen name is distinguishable on the records of the Department of State (DOS). You will then be required to file a Certificate of Organization, and apply for the appropriate licenses.

What taxes does an LLC pay in Pennsylvania?

You’ll want to keep in mind that when you start an LLC in Pennsylvania, you’ll be required to file personal income taxes because this type of structure is known as a pass-through entity. Depending on the business activity, you may be required to file other taxes applicable in the state, such as a sales tax for example.

Can I register a foreign LLC in Pennsylvania?

Yes. You can register and operate a foreign LLC in the state of Pennsylvania. The registration of a foreign LLC is governed by the 2022 Pennsylvania Consolidated & Unconsolidated Statutes, Title 15 – Corporations and Unincorporated Associations, Chapter 4 – Foreign Associations. You’ll have to file a Foreign Registration Statement along with a fee of $250.

How do I dissolve my Pennsylvania LLC?

Once you start an LLC in Pennsylvania, you may have reasons for dissolving the said company. According to state laws, 15 PA Cons Stat § 8872 (2022), you’ll be required to file a Certificate of Dissolution along with a non-refundable fee of $70. It needs to be submitted to the Pennsylvania Department of State, Bureau of Corporations and Charitable Organizations.

Ready to form a Pennsylvania LLC?

A Limited Liability Company is considered to be one of the most popular structures in the nation due to the many advantages it has over other structures. You can form a single-member or a multi-member LLC as well as a domestic or foreign entity in the state. IncParadise can help you form an LLC in Pennsylvania and assist you through the entire registration process for this state.