Are you looking to form a limited liability company (LLC) in the state of Pennsylvania, but you’re not sure how the formation process works? There are several important steps when it comes to creating a Pennsylvania LLC that is compliant and able to do business in the state.
To do this, please see our 6-step guide below or hire an affordable online LLC formation service.
Why an Pennsylvania LLC?
The Pennsylvania LLC is one of the most popular business structures in state. It’s a more casual and flexible type of business than a corporation, but includes personal asset protection that’s lacking from sole proprietorships and general partnerships.
LLCs in Pennsylvania have simple formation and maintenance requirements, several options for how they can be taxed, and flexible management. From one-person businesses to multi-member LLCs with several owners, the LLC is a popular choice for a reason.
Start an LLC in Pennsylvania in Few Steps
1-Name Your Pennsylvania LLC
Your LLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
In the state of Pennsylvania, every limited liability company is required to have either the initials “LLC” or the phrase “limited liability company” in the name. In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of businesses (like “bank” or “law office”).
Another aspect to consider is including language that explains what your business does ― for example, if you’re a plumber, put the word “plumber” or “plumbing” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
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2-Choose a Registered Agent in Pennsylvania
Every LLC in Pennsylvania is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
According to the Pennsylvania Department of State,
Our records indicate a registered office address. Service of Process may be sent to the registered address of the entity that appears on our records. The Secretary of the Commonwealth may accept service as ordered by a Pennsylvania judge. The court order accompanied by the complaint should be sent certified mail to the Department of State; return receipt requested. The statutory fee is $70 for each defendant to be served.”
Without a registered agent, you could lose your good standing with the state of Pennsylvania, and the state also has the right to dissolve your LLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
3-File Formation Documents with State
Once you are ready to form your Pennsylvania limited liability company, you will fill out the certificate of organization.
This is THE document that will register your LLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Name and address of your registered agent
- Management style (member-managed or manager-managed)
- Name(s) and address(es) of the LLC’s manager
- Name and address of the LLC’s organizer
- Signature of organizer and registered agent
- Effective date
You can file this form by creating an account here or downloading the correct form and mailing it to the Secretary of State. Pennsylvania also requires a Docketing Statement for new business entities.
Cost to Form an LLC: The state of Pennsylvania charges a $125 fee to form an LLC.
Processing Time: It can take 1-2 weeks for the state to process your mailed-in Pennsylvania LLC formation paperwork and get your finalized documents back in the mail to you. If you’re able to deliver your documents in person, you can have pay to have your filings expedited. For $100, you’ll have a one-day turnaround. $300 will have your files back in 3 hours. And if you’re in a real hurry, you can shell out $1,000 and have your filings back in an hour. Please note that the estimate of business days begins once ALL required paperwork is in order and filed correctly.
4-Create Your Pennsylvania LLC Operating Agreement
After you register an LLC in Pennsylvania, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for this document in order to open an account. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your Operating Agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your Operating Agreement or create one from a free template online. You can read more about Operating Agreements here, but some of the basic information you’ll want to have includes:
- Individual members’ ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the LLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
5-Handle Taxation Requirements
The vast majority of LLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important LLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
When it comes to state-level LLC taxes, Pennsylvania levies these taxes based on the nature of your business. If your LLC is considered a pass-through entity—usually a sole proprietorship or partnership—you’ll pay income taxes on your individual tax returns. However, LLCs which choose to be taxed as corporations will be subject to the state’s corporate income taxes. The corporate tax is 9.9%. You can learn all about Pennsylvania’s corporate income taxes here.
LLCs involved in retail sales are also required to file for and pay sales taxes. The current rate is 6%; you can look here to learn more about the state sales tax.
LLC owners with employees are also required to pay a number of taxes. First, employers are responsible to pay withholding taxes on employee wages. Essentially, you’ll keep back a portion of an employee’s wages and forward that tax to the state. You can learn more about Pennsylvania’s withholding taxes here. Similarly, Pennsylvania employers are also required to make payments to the state’s unemployment insurance. While it’s not technically a tax, you do need to pay it on a regular basis, so we’ve included it in this section. You can learn more about this fund at the Pennsylvania Office of Unemployment Compensation.
In addition to these general taxes, Pennsylvania also requires taxes specific to particular industries. For example, there are taxes on malt beverages, small games of chance, and more. You can browse the state’s business taxes here.
Depending on where in Pennsylvania your business is located, you could also need to pay some local taxes. For example, counties can require additional income taxes and withholding taxes. We recommend that you contact your local government office to determine what local taxes you’ll need to pay.
6-Obtain Business Licenses and Permits
The state of Pennsylvania does not have a statewide general business license that each LLC needs to acquire in order to do business.
However, Pennsylvania upholds the licensure required by the federal government for certain occupations, including agriculture, aviation, and more. Please consult the Small Business Association’s listings for federally-regulated industries requiring licensure.
And much like the state has industry-specific tax requirements, it also has licenses and permits that are required for businesses in certain industries. Pennsylvania has hundreds of these licenses, so there’s a good chance at least one of them applies to your LLC. We recommend that every LLC owner search through the state database of licenses for businesses here, and don’t forget that your local government may require licenses or permits as well.
What is Next
What to do After Creating an Pennsylvania LLC?
Open a business bank account
We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Get Business Insurance
Every Pennsylvania business with employees is strictly required to acquire workers’ compensation insurance. For more information on this policy, check out the Pennsylvania Department of Labor and Industry. Essentially, this policy helps to pay your employees when a work injury or illness keeps them from working. After you obtain these legally required policies, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies.
Understand income reporting
Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year. The state of Pennsylvania offers information on rules and fees for your business’s income reports here.
Understand annual reporting
Pennsylvania is unique in that it requires that all LLCs file a decennial report, not an annual report. You can read more about it here. In other states, the annual report essentially serves to update the state on any pertinent information regarding your business that has changed over the course of the year. This process is conducted less often in Pennsylvania.
Find an accountant
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how best to manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.