Are you about starting a business in Pennsylvania and want to form an LLC? If YES, here is the legal requirement to start an LLC in Pennsylvania and how much it cost. Do you intend forming an L.L.C. in Pennsylvania and have no idea of what to do? You have come to the right place.
In this article, we will be sharing a step-by-step guide on how to form a Limited Liability Company in Pennsylvania. However, before we get started, let us take a quick look at Pennsylvania and the benefits of creating an L.L.C. in the city.
Pennsylvania is a perfect place to start a Limited Liability Company. It is affordable, and paperwork is limited. For starters, to make sure we are on the same page; a limited liability company is a business structure that can be owned by a single person or group of persons. Forming a business as an L.L.C. helps protect the owner(s) against a lawsuit, cuts down the expenses of paperwork, makes the company more credible, and prevents it from being taxed twice.
Forming an L.L.C. in Pennsylvania is affordable and simple. However, it comes with a filing different from other states in the united states. Read on to discover the things you need to do.
A Detailed Guide to Starting an LLC in Pennsylvania
STEP 1: Choose A Name for Your Limited Liability Company (LLC)
Under Pennsylvania law, your LLC name must contain the words “Company,” “Limited,” or “Limited Liability Company,” or an abbreviation of one of these three choices. The statute does not provide examples of acceptable abbreviations for these words; however, it is likely that “Ltd.” and “Co.” can be used, but not “Liab.”
Your LLC’s name must be distinguishable from the names of other business entities already on file with the Pennsylvania Department of State. Names may be checked for availability by at the Pennsylvania Department of State business name database.
You may reserve a name for 120 days by filing a Name Reservation (Form DSCB:15-208) with the Pennsylvania Department of State. The filing fee is $70. The form can be filed online or postal mail.
So also, you must make sure that the name you want to use is not already taken. You can be check if the name is unique by searching for the name on the State of Georgia Website. Also, make sure your business can use its name as a web domain. Even though creating a business website is not on your plan, it is best you purchase the URL to stop others from using it.
After you have registered a domain name, consider creating a professional email account. A professional email that makes use of your domain name is vital to establishing trust between a business and its customers. In this modern era where scam is on a high, companies need to make use of a professional email address to provide a sense of professionalism and credibility.
When you choose your name, then you must reserve the name. When you have chosen a name, reserve it by filing a Name Reservation form (Form DSCB:15-208) with the Pennsylvania Department of State. Your reservation will hold for 120 days while you register your business. With your form, pay a filing fee of $70.
You can fill this form out online or print it and mail it to Pennsylvania Department of State Bureau of Corporations and Charitable Organizations, P.O. Box 8722, Harrisburg, PA 17105-8722. Use black or blue ink if you are filling the form out by hand. Bank applications are held for six months.
Step 2: Appoint A Registered Agent in Pennsylvania
Next, you are required to choose a registered agent for your L.L.C. in Pennsylvania. Every Pennsylvania LLC must have an agent for service of process in the state. In Pennsylvania, this is called a registered office.
A Resident Agent is the person or company who receives your LLC’s documents, notices and legal mail (called Service of Process). Because of this, the Resident Agent must have an actual street address in Pennsylvania (PO boxes are not allowed by the state). Picture your registered agent as your company representative to the state.
It is important to note that not everyone can be a registered agent. For a person to be eligible to become a registered agent, the person or corporation must be a resident of Pennsylvania. That is to say, the individual or corporation must have a physical address within the state.
If any of your staff knows what it takes to be a registered agent, you may elect him or her rather than hiring one. This will help you save some dollars, especially if you are running a small business. However, hiring a seasoned registered agent offers tons of benefits like privacy and peace of mind. Please note that you, your friend or family members are qualified to be your LLC’s Resident Agent.
Step 3: File a Certificate of Organization
A Pennsylvania LLC is created by filing a Certificate of Organization Domestic Limited Liability Company (Form DSCB:15-8913) with the Department of State.
The certificate must include: the LLC’s name and address; the name and address of the LLC’s registered agent; the name and address of each organizer of the LLC; whether the LLC will be run by a manager; and whether the LLC will provide professional services (applicable to certain restricted professional companies). The certificate must be accompanied by a completed New Entity Docketing Statement (Form DSCB:15-134A).
This form must include the LLC’s name, the name and address of person responsible for initial tax reports; its purpose; its effective date, if any; its EIN, if any; and its fiscal year end. The certificate and docketing statement may be filed online or by mail. The filing fee is $125.
Step 4: Prepare and File the Pennsylvania Articles of Organization and Transmittal Form
For successful registration of your L.L.C., you will be required to file articles of organization and transmittal form. These forms will help you to set up your L.L.C. officially.
Step 5: Create an Operating Agreement
An Operating Agreement lists the rights and obligations of the members of the LLC. These include rules on how the LLC should be run, how taxes are to be paid, and how profits / losses are to be shared among the members.
The Operating Agreement also contains the list of members of your LLC and how much their stake is in the business. Even if you have a Single – Member LLC (you’re the only owner), it’s still best practice to have an Operating Agreement.
Please note that it is not mandatory to send the Operating Agreement to the Pennsylvania State Department of Assessments and Taxation, or to any other state agency. Just give a copy to any necessary members and keep a copy with your LLC’s business records.
The bottom line is that in case your LLC is sued, having an Operating Agreement shows that your LLC is operating properly. This helps maintain your personal liability protection.
Step 6: Acquire an Employer Identification number
An Employer identification number (E.I.N.) also known Federal Tax Identification number is a 9 – digit number similar to a social security number. The Employer identification number will be used to identify your business. It is like a social security number for your company.
An Employer Identification number is essential because you will need it to open a business account for your company, to hire employees as well as tax purposes. You can obtain your E.I.N. from the I.R.S. after creating your company. You can do it via mail or online. Note: It won’t cost you a dime to get an E.I.N. from the I.R.S.
You can obtain an EIN from the IRS either
- Via mail (approval takes 4 weeks)
- Via fax (approval takes 4 business days)
- Via online application (approval is instant at the end of the application)
Step 7: Pennsylvania LLC Annual Report and Personal Property Tax Return
Additional tax and regulatory requirements may apply to your LLC. These may include:
EIN: If your LLC has more than one member, it must obtain its own IRS Employer Identification Number (EIN), even if it has no employees.
If you form a one-member LLC, you must obtain an EIN for it only if it will have employees or you elect to have it taxed as a corporation instead of a sole proprietorship (disregarded entity). You may obtain an EIN by completing an online EIN application on the IRS website. There is no filing fee.
Business Licenses: Depending on its type of business and where it is located, your LLC may need to obtain other local and state business licenses.
Department of Revenue: In some cases, for example if you have employees or will be selling goods and collecting sales tax, you’ll need to register with the Pennsylvania Department of Revenue (DOR). (Pennsylvania also has other LLC-related taxes and DOR filings not covered here.) In many of these cases, the process starts by registering online through the Revenue e-Services Centre or mailing in Form PA-100.
Step 8: Securing Business Licenses and /or Permits
The next step you are expected to take is to secure your business license and permits as the case may be. The type of business licenses and / or permits your LLC will need to legally operate in Pennsylvania will depend on its location and the industry it is involved in.
The details of business licenses and permits vary from state to state. Make sure you read carefully. Don’t be surprised if there are short classes required as well. Fees for business licenses and permits will vary depending on what sort of license you are seeking to obtain. To find out more, contact your local agencies in the city, town or county where your LLC is located.
Step 9: Sort Out Taxes
Federal taxes: LLCs have “pass through” taxation. Profits or losses flow through to your personal tax return and are usually listed on a Schedule C.
State and local taxes: Pennsylvania LLCs must register and pay taxes with the PA Department of Revenue, as well as your local municipality (city, town, county, etc.). Depending on the nature of your business, you may be required to register for one or more forms of state tax.
Sales Tax: If you are selling a physical product, you’ll typically need to register for a sellers permit through the Pennsylvania Combined Registration Online Application website. This certificate allows a business to collect sales tax on taxable sales. Sales tax, also called “Sales and Use Tax,” is a tax levied by states, counties, and municipalities on business transactions involving the exchange of certain taxable goods or services.
Employer Taxes: If you have employees in Pennsylvania, you will have to register for the Unemployment Insurance Tax, and the Employee Withholding Tax through the Pennsylvania Department of Labor, Licensing, and Regulation.
Step 10: Open Your LLC Bank Account
In order to keep your business finances apart from your personal finances, it is advisable that you open a separate bank account for your Pennsylvania LLC. It will indeed help you maintain your personal liability protection. A separate bank account helps maintain your liability protection and it also makes business accounting and taxes a lot easier.
The items needed to open an account in Pennsylvania are your approved Articles of Organization, EIN Confirmation Letter from the IRS, and your driver’s license or passport. We also recommend calling the bank ahead of time to find out if additional documents are required.
Tips: Look for free business checking: Call a few banks in Pennsylvania and take down notes for comparison. Some banks charge monthly maintenance fees for your LLC’s checking accounts, others don’t.
- Debit card: A debit card for your LLC will be issued when opening the account.
- Credit card: If you want to start building business credit for your Pennsylvania LLC (or get travel and cashback rewards), you can get a credit card or two for your LLC.
Step 11: Apply and Obtain Your Business Phone Number
Instead of using your home telephone number or your cell phone, you can purchase an affordable “virtual business number” specifically for your Pennsylvania LLC. You can set this virtual business phone up to forward to your cell phone, go through voice prompts, or configure it any way you’d like.
You can check out Phone.com as they have the cheapest plans and their customer service is excellent. They offer local phone numbers as well as 1-800 toll-free numbers. You can easily setup call forwarding, pre-recorded prompts, and get voicemail messages forwarded to your email.
Getting a separate business phone number for your Pennsylvania LLC is also a good idea in order to keep your actual number private from those pesky “public record” websites.
Step 12: File Your LLC Annual Report
Only foreign LLCs and Pennsylvania LLCs engaged in certain specified restricted professional services must file a Certificate of Annual Registration (Form DSCB:15-8221/8998) with the Department of State. These must be filed with the Corporation Bureau by April 15th of every year. The registration is filed online or by postal mail. An annual fee of $520 times the number of members of the LLC must be paid.
Unlike most states which require an Annual Report, Pennsylvania just has a Decennial Report. This report is due once every 10 years, in years ending with a “1” (2021, 2031, etc.).
- Purpose: to keep the state updated with your LLC’s contact information.
- Reminders: the Pennsylvania Bureau of Corporations will mail reminders 2 months before the due date.
- Penalty if not filed: forfeiting the rights to your LLC name.
Step 13: Hiring of Employees
Of course, registering an LLC means that you will need employees and in order to get it right, you should ensure that you stay on the side of the law and here are some steps you should follow:
- Verify that new employees are able to work in the US
- Report employees as “new hires” to the State
- Provide workers’ compensation insurance for employees
- Withhold employee taxes
- Print compliance posters and place them in visible areas of your workspace
Lastly, ensure that you find out more information from the Pennsylvania Department of Labor, Licensing, and Regulation website.
In conclusion, After you have successfully formed your LLC in Pennsylvania and you are up and running, then you should ensure that you apply and obtain a Certificate of Good Standing.
A Certificate of Good Standing, known in Pennsylvania as a Certificate of Status, verifies that your LLC was legally formed and has been properly maintained. Several instances where you might need to get one include: Seeking funding from banks or other lenders, forming your business as a foreign LLC in another state and obtaining or renewing specific business licenses or permits.
N.B: Please, note that the information in this article is provided only for general purpose and it is no way a legal advice. No lawyer – client relationship is established or should any such relationship be assumed. For legal advice, please consult a professional lawyer.