Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.
If you are an aspiring entrepreneur in Pennsylvania, you will likely be looking into starting an LLC (Limited Liability Company). One of the main benefits of forming an LLC is the personal asset protection you get. You will also get the tax advantages that business owners often see.
Starting a business can be daunting, and if you’re unsure where to start, don’t worry! In this article, you will find everything you need to know about forming an LLC in Pennsylvania.
Step 1: Choose a Name For Your LLC
Choosing a name for your new business is the first step in forming an LLC. There are several requirements you need to consider when deciding on a name.
- The name must contain one of the following words: LLC, L.L.C, Company, Limited, or Limited Liability Company.
- The name you choose must be entirely unique and not be a name that has already been registered with the Pennsylvania Department of State. Use the search function on the Pennsylvanian Department of State’s business name register to check if a name is registered.
Once you have decided on a name, you can reserve it for up to 120 days. The forms can be found on this link. To reserve a name, you will pay a filing fee of $70. This may be a worthwhile purchase if you are worried someone will take your business name before you can file with your chosen name.
There is also the option to register a fictitious trade name, also known as a DBA. This can be filed online through the Registration of Fictitious Name or via mail. You will need to pay the $70 filing fee for this too.
Step 2: Choose a Registered Office
After deciding on the name of your LLC, you will need to appoint a registered office, also called a registered agent, for your business. A registered office is somewhere all legal documents for your LLC can be sent. This office will handle and accept the service of process on behalf of your business.
You can even act as your own registered office. However, since this will mean that your address will be on public record, it is highly advisable to hire a third-party service to act as your registered office instead.
To be eligible to be considered a registered office, a physical street address must be registered. A P.O. box will not be accepted.
Step 3: File the Certificate of Organization and the New Entity Docketing Statement
The next step to forming an LLC is to file the Certificate of Organization with the Pennsylvania Department of State’s Bureau of Corporations and Charitable Organizations. This Certificate will allow you to officially operate your business in Pennsylvania. This form can be sent online for a quicker processing time or via mail.
The Certificate of Organization will need to include the following information:
- The name of the LLC
- The name and address of your registered agent
- The name and address of each member of the LLC
- A brief description of what services and industry the LLC will operate in
- The signatures of the organizers
You will also need to include a completed New Entity Docketing Statement along with the Certificate of Organization.
This statement will include the following:
- The name of the LLC
- The name and address of the person/people who are responsible for the initial tax reports
- A brief description of the LLC
This can all be filed online or by mail for a fee of $125.
Once the State approves your filings, you will be sent a stamped copy of the filings authorizing you to do business in Pennsylvania. When you receive your Certificate, your LLC will officially be formed.
Step 4: Draft Up an Operating Agreement
While the State of Pennsylvania does not legally require you to create and submit an operating agreement, it is good business practice. An operating agreement is essentially a document containing all sorts of information about the LLC and how it runs. This can be helpful if you are sued or are involved in a financial dispute. It can also come in handy when handling internal disputes within the company.
An operating agreement can have but is not limited to the following information:
- The names and addresses of all members of the LLC
- If the LLC is manager-led, their name and address should be included
- Information on each member’s stakes in the LLC
- The procedure for hiring new employees and for letting employees go
- The meeting schedule, voting procedures
- The signatures of all members of the LLC
All members of the LLC need to agree to the operating agreement. It may help to have a lawyer present as a witness.
Step 5: Obtain an Employer Identification Number
LLCs with more than one member will need to apply for an Employer Identification Number (EIN) from the IRS. Think of this 9-digit number as a social security number for your business. This number can be obtained online through the IRS at no cost.
An EIN can be used for the following:
- To open a business bank account
- To pay federal and state taxes
- Hiring new employees
Cost to Start an LLC in Pennsylvania
There are several costs involved when forming an LLC, but at the very base level, the filing of the Certificate of Organization and the New Entity Docketing Statement costs $125.
If you decide to reserve your name before filing or to register a fictitious trade name, you would need to pay an additional $70. Other costs to consider include registered agent fees and any fees for LLC formation services if you choose to hire one.
What To Do After Forming Your LLC in Pennsylvania
Officially forming your business is only the beginning. Now, you must complete a few other steps to get your business up and running. Here are just some of the things you can do.
Open a Business Bank Account
Opening a bank account for your business is an excellent way to separate your personal assets and helps you keep track of business expenses and earnings, especially in the tax filing season. You will need an EIN and a copy of your Certificate of Organization to open a business bank account.
And while you’re at it, getting a business credit card may also be a good idea. Tracking your expenses will be much easier, and you can even build your business’s credit score.
To protect your business from liability claims and accidents, it is recommended that you invest in business insurance. There are many different insurance packages, so it can be overwhelming to pick the best one for you. If you aren’t sure what to get, it is best to contact an insurance broker for professional advice for advice.
Hire an Accountant
Money and taxes can get confusing. Hiring an accountant is a great way to ensure you don’t make any expensive mistakes and ensure your LLC is tax-compliant. You can either hire a third-party accountant or get one on your payroll. They can even take care of payroll for you, so you have one less thing to worry about.
File Your Decennial Report
Whereas most states have an annual report, Pennsylvania has a decennial report, meaning you only file one every ten years. They are due every year that ends with the number 1, so the last one due was in 2021. Filing this report ensures that your business information stays updated in the State’s records.
How to Keep Your LLC Compliant in Pennsylvania
Keeping your LLC compliant is very important if you want to avoid dissolution. There are many things you need to do to achieve this:
- Report any new hires to the Pennsylvania New Hire Reporting Program
- Pay all taxes on time
- File the annual registration (for restricted professional LLCs)
- Ensure you have the correct licenses and permits
- File the decennial report
- Stay up to date on any changes in business law in Pennsylvania and in the broader United States
- Seek legal advice if necessary
Tax Filing Requirements for LLCs in Pennsylvania
In the State of Pennsylvania, all Limited Liability Companies are treated as pass-through entities, meaning they don’t have to pay federal taxes. Instead, the owners of the LLC will include the profits in their personal income tax filings.
Aside from federal taxes, state taxes also need to be filed. Most notably, you will need to pay state employer taxes and sales taxes. If your LLC has employees, you must register and pay employee income taxes to the Department of Revenue. To pay these taxes online, you will need to use the form PA-501 available on the DOR’s online e-tides system (this system will be moving to a new website in November of this year).
To collect and pay sales tax, you will first need to register with the DOR and be given a PA Sales Tax License. You will then need to submit sales tax returns on a monthly or quarterly basis online via their e-tides system.
You can visit the Pennsylvania DOR website for more information on state taxes.
Frequently Asked Questions
How long does it take to register an LLC in Pennsylvania?
You can form your LLC in Pennsylvania online or by mail. Depending on your filing method, the time it takes to register differs slightly. In general, however, it takes a bit longer to register an LLC in Pennsylvania than in most other states.
Although no official timeline is mentioned, the filed Certificate of Organization can take up to 4 weeks to be approved. If you mail in your Certificate, expect it to take an additional week or two as you need to account for mailing time. Unfortunately, there is no expedited service currently offered in the state.
What tax structure should I choose for an LLC in Pennsylvania?
To simplify things, the State of Pennsylvania automatically treats single and multi-member LLCs as pass-through tax entities. This tax structure is recommended for first-year business owners as there is a lot of flexibility, no double taxation, and tax is only submitted in the owner’s personal income tax.
However, there is an option to be taxed as a corporation. Although the tax requirements can be more confusing, this tax structure can be a good option for businesses with higher revenue.
If you are still unsure of what tax structure to choose, it may be a good idea to seek the advice of a professional tax practitioner.
Should you hire an LLC formation service in Pennsylvania?
The answer all depends on your own personal needs. Forming an LLC is not difficult; it just requires a lot of paperwork and organization. Whether you’re not sure if you want to handle paperwork or if you would instead focus on other aspects of your business, hiring an LLC formation service can be a great option. Many of the best LLC services also provide registered agent services, so you can kill two birds with one stone.