If you are a small business owner in Pennsylvania, you need to know how to get an LLC.
An LLC is a Limited Liability Company and is the best option if your company is not yet profitable or has few assets.
This article will give you information about what an LLC does and why it's important that every entrepreneur knows how to obtain one.
What Is a Limited Liability Company in Pennsylvania?
A limited liability company, or LLC, is a legal structure that protects your personal finances from any liabilities created by the business.
IRS taxes LLCs as a sole proprietorship (if it has one owner), partnership (if there are multiple owners), or corporation (for companies with more than half a dozen investors).
LLCs in Pennsylvania are a great option for startups or companies that are not yet profitable.
They protect both the owners and their personal and business assets from any liabilities created by the business.
How to Get an LLC in Pennsylvania?
Any Pennsylvania LLC that wishes to conduct business legally will have to follow the state's laws.
You should complete these three steps before your Pennsylvania LLC gets off the ground.
Step 1: Choosing the Right Name for Pennsylvania LLC
Picking a suitable business name for your PA LLC is one of the most important decisions you need to make when applying for business registration in Pennsylvania.
The name should be unique, memorable, and professional enough to match your business ideas and future goals.
Making up Pennsylvania LLC business names is not easy because many rules dictate what can or cannot be used as an LLC name.
For this reason, you will have to follow naming requirements and best business practices to get the desired Pennsylvania LLC name.
The corporate business law of Pennsylvania is very specific about what you can and cannot use as an LLC business name, so make sure that your desired company or product names do not violate any naming rules. These rules stipulate that:
- You have to include any variation of "limited liability company" in your LLC name (e.g., "LLC," "Ltd," etc.)
- Your business name cannot be the same as any other business registered in Pennsylvania.
- You can't use any variation of words that resemble a government agency (e.g., "Department," "Commissioner," etc.)
Check the State of Pennsylvania's website to ensure another business entity doesn't already use the name you want.
You can also request a reservation for your desired LLC name for up to 120 days.
As soon as you submit a business name reservation form with the state, your desired business name will be in "reservation," which means nobody else can reserve this business name during those 120 days.
The filing fee for the name reservation is $70 and can be filed online or by mail.
Read More: How to Look up an LLC in Pennsylvania?
Step 2: Hiring a PA Registered Agent
A registered office is the equivalent of a registered agent service in other states. These commercial registered office providers are located in every county within the state, and they can help with various tasks, such as opening a business bank account.
When you form an LLC, one of your first tasks is to hire a registered agent service that will serve as your business address and receive official mail for the company throughout its life span.
It's important to understand that this commercial registered office provider is a third party that will help you maintain compliance with the state's business filing requirements.
If they fail to do so, their legal liability could result in your LLC being dissolved by the state.
For this reason, it's crucial to find a reputable provider with a strong track record of commercial registered agent service in the state.
You'll be able to fill the Registered Office position on your Certificate of Organization. In Pennsylvania, you must have a contract to hire the services of a CROP before putting up one.
You may be subject to both criminal and civil penalties if you do not have a contract.
Step 3: Filing Certificate of Organization and Docketing Statement
A Pennsylvania LLC Certificate of Organization is filed with the State of Pennsylvania Department of State Division of Corporations.
You can find the form required for filing your certificate on their website under "Forms."
A docketing statement is a form that is used to establish a new business entity in the state of Pennsylvania.
When you submit your new business with the Pennsylvania Department of State, the docketing statement will be included.
Certificate of Organization is equivalent to a Certificate of Incorporation or Articles of Organization in most other states.
The Pennsylvania LLC needs a Certificate of Organization to become a legal entity recognized by the state and federal government.
A certificate is filed with the Pennsylvania Department of State so it can be available for public review as well as being an official record that your LLC exists.
Your certificate also acts as proof that your LLC exists, so if someone is trying to defraud your business, they will not be able to use this number for their own gain.
The Pennsylvania state filing fee for an LLC Certificate of Organization should cost $125. You can file online or by mail.
Step 4: Drafting an LLC Operating Agreement
Operating Agreements are the rules that govern your LLC. These are written Pennsylvania LLC documents completed by yourself and any co-owners to ensure all parties involved agree with what is laid out within them.
It also sets up how many owners you have (which can be other members or managers) as well as their roles in decision making, responsibilities, profit sharing & ownership.
There are several types of LLCs in Pennsylvania, including single-member and multi-member.
The operating agreement for a multi-member LLC (the most common) should state how members will run the business with voting rights or managers who have the power to make decisions.
It also sets up whether it can be sold at any point and what would happen to the LLC assets.
An operating agreement is essential for an LLC, especially if there are multiple members or managers involved, as it ensures everyone has a say in how they will run their business together.
It also sets up rules around voting rights, profit sharing, and more depending on your company structure (and state).
An LLC operating agreement doesn't have to be filed with the Pennsylvania state government or the IRS, but it's a good idea to have one for your own records.
You can find operating agreement templates online for every possible LLC structure (single-member LLC, multi-member LLC, etc.).
Step 5: Obtaining an EIN
Under Pennsylvania law, a business registered in Pennsylvania and has a valid Employer Identification Number (EIN) from the Internal Revenue Service may choose how to be taxed.
Employer Identification Number (EIN), also known as FEIN (federal employer identification number), is a number issued by the Internal Revenue Service to businesses, sole proprietorships, and corporations for identification purposes.
An EIN comprises nine digits in which the first two digits are always "00". You can find it on any tax form submitted by an employer or corporation.
Every business needs one of these to hire employees, open a business bank account, etc.
You can apply for an EIN by mail or request it online through the IRS website. This service is free of charge.
Step 6: Obtaining Licenses and Permits
Professional limited liability companies in PA are legally required to have a LLC license for each business service they provide.
A professional limited liability company is an LLC that provides services to customers. In Pennsylvania, these business entities are known as restricted professional company that provides restricted professional services.
The first thing you have to do is check with the state board of occupational and professional licensure for a list of all the restricted professions in Pennsylvania.
There are around 40 listed, including some occupations like barbers, architects, engineers, surgeons, chiropractors, etc.
An LLC that conducts business as a restricted professional company must include a detailed description of the services to be provided by the LLC in the certificate of organization.
You may be required to obtain a different business license depending on the federal, state, or county level or regulations. For federal licenses, consult the U.S.
Small Business Administration (SBA) or the Pennsylvania Department of State website for state licenses. Local county clerks can fill you in on the details about local permits you might need.
Pennsylvania LLC Taxes
In Pennsylvania, limited liability companies are treated as pass-through tax entities, meaning that they are not subject to an entity-level tax.
Instead, the profits and losses of the LLC "pass through" to its members, who report it on their personal returns.
State taxes may vary depending on your business structure and the nature of your LLC.
Sales tax is imposed on the sales of tangible goods. If you're selling a tangible item, you must first obtain a seller's permit from the Pennsylvania Department of Revenue through its website.
The state sales tax rate for PA is currently six percent (effective January 2018).
Federal income taxes are based on your pass-through business entity type. If you're not a corporation, you will be considered either a sole proprietorship or an unincorporated association and taxed accordingly.
In cases when owners opt for corporate taxation, they need to file IRS Form 2553.
In these instances, the LLC must file a separate tax return. The State of Pennsylvania has a corporate income tax that is generally set at 9.99% of taxable income as reported on the company's federal tax return.
To pay the tax, use the state's corporation income tax return (Form RCT-101).
State employer taxes consist of unemployment insurance, workers' compensation, and state disability taxes.
You can learn more about these payroll taxes by contacting the Pennsylvania Department of Labor & Industry or visiting their webpage.
Benefits of Getting an LLC in PA
There are a few benefits to forming an LLC in PA, including personal and business assets aprotection from business lawsuits and tax-related issues when conducting business activities domestically.
The LLC business structure offers liability protection from lawsuits based on your company's activities, but you must register with the state to obtain this protection.
LLC owners don't pay taxes on business income and instead pass profits to individual members who report their share of earnings or losses on personal tax returns.
This can help your small business reduce its overall tax liability by effectively lowering the amount it must pay in corporate taxes each year.
Another benefit of forming an LLC in PA is that it offers more flexibility compared to other business structures. In addition, LLC formation is a very straightforward process and can be completed in a matter of days.
Disadvantages of Getting an LLC in PA
While LLCs in Pennsylvania have a lot of advantages, there are certain situations where a corporation or sole proprietorship may be preferable.
One of the main disadvantages of PA LLCs is that it takes some initial investment to form, which can be a significant drawback for small companies.
Another disadvantage is that the ownership transfer is more complex than with other business structures
Related Article: How to Dissolve an LLC in Pennsylvania?
How Much Will LLC in PA Cost Me?
The initial fee to form a Pennsylvania limited liability company is $125.
You are required to pay this amount when submitting the LLC's Certificate of Organization to the Pennsylvania Department of State.
The same amount is paid even if you want to set up a foreign LLC in PA.
There might be additional fees for restricted professional companies depending on the business license or permit needed for that particular entity.
How Long Does It Take To Set Up an LLC in Pennsylvania?
Online and mail applications are processed within a week to 10 business days.
The official registration is complete once you submit the Certificate of Organization and Docketing Statement to the Pennsylvania Bureau of Corporations once you've completed it.
Do I Have to File Annual Registration for LLC in Pennsylvania?
No, Pennsylvania does not require LLCs to file an annual report. However, Professional and foreign Pennsylvania LLCs engaged in professional services must file a Certificate of Annual Registration with the Pennsylvania Department of State.
How Much Does a Tax ID Cost in PA?
Tax ID in Pennsylvania is free of charge.
Does PA Require a Registered Agent for LLC?
Yes. In Pennsylvania, a registered agent, known as a Registered Office / Commercial Registered Office Provider (CROP) in the state, is required by Pennsylvania law for each formal business.
How Do I Find a Registered Agent in PA?
In order to find a registered agent in Pennsylvania, you can either perform a free search on the PA Department of State website or use an online service that offers this type of assistance.
There, you can find a list of qualified registered agents.
Once you have decided which option is best for your needs, make sure they possess all the necessary qualifications.
The cost of an agent varies depending on the features and services they offer. The cost is around $50 annually for most agencies but can be higher.
Can You Be Your Own Registered Agent in Pennsylvania?
Yes, a registered agent in Pennsylvania may be anyone who is at least 18 years old and has a physical address in the state.
However, it would help if you always considered hiring a professional unless you are familiar with LLC formalities.
Can I Use a Virtual Address for My LLC in Pennsylvania?
No. Your LLC in Pennsylvania is required to have a physical street address.
What Is a PA Certificate of Good Standing?
A certificate of good standing from the state of Pennsylvania validates that an LLC was lawfully created and has been adequately maintained.
How Do I Get a Certificate of Good Standing in PA?
In Pennsylvania, you may obtain a certificate of good standing, commonly known as a certificate of subsistence, by filing paperwork with the Department of State.
The filing fee for the Certificate of Good Standing is $40. This document is required in case you need to apply for business loans, business insurance, or register your PA LLC in another state.
How Do I Get a Copy of My Certificate of Organization in PA?
A certified copy of your Certificate of Organization can be requested by mail, online, or in person.
Online document processing costs $40 and is usually quick. Standard processing takes between 2 and 5 days to complete, plus mailing time, although you can opt for expedited service available for an additional fee.
In that case, you need to submit DSCB:15-153(a)(15)(Expedited Service Request).
Does PA Recognize Series LLC?
No. The state of Pennsylvania still doesn't allow the formation of Series LLC.
You can, however, register a Series LLC in a state that permits it (Delaware, Texas, Nevada) and then register your foreign LLC in PA.
The decision to utilize the Series LLC must consider the benefits and the limitations and uncertainties linked with this form.
Using a Series LLC may not offset the risk if limited liability among the various series is vital to the owners' goals.
How Do I Change the Name of My LLC in PA?
Changing the name of your Pennsylvania LLC requires submitting a Certificate of Amendment along with your application to the Corporation Bureau and Charitable Organizations.
Adding a partner to an LLC in Pennsylvania implies following the steps outlined in your LLC's operating agreement.
How Do I Add a Partner to My Pennsylvania LLC?
Although the process of adding a new partner, also known as a member, is usually addressed in your operating agreement, it's possible that yours does not.
Without an LLC operating agreement, you must adhere to Pennsylvania's legislation governing limited liability companies.
Setting up a Pannsylvania LLC can be challenging, but you should avoid making mistakes in the process with these steps and tips. No matter what, it's important to stay organized and get legal help if needed.
The process can be confusing, but you don't want mistakes in the paperwork or your operating agreement to affect the business' future.
Once you have everything set up correctly, a Pennsylvania LLC can bring protection to your business, which is why staying organized and on top of the paperwork during this process is important for all businesses.