Forming an LLC in Pennsylvania
When starting a new business, one of your first decisions will be which legal structure to use. A limited liability company (LLC) is a common legal structure for entrepreneurs and small business owners. The advantages of LLCs include limited personal liability and convenience. LLC formation is easy in the state of Pennsylvania. Just follow along with the six steps below to create your own LLC.
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Step One: Choose a Unique Name for Your LLC
- Be available: Your name must be different from other registered Pennsylvania business names.
- Make it clear that your business is an LLC: Your LLC name has to contain either the words “company," “limited," “limited liability company," or an abbreviation of those words. Acceptable abbreviations typically include “Ltd." and “Co."
You can check for business name availability by conducting a name search on the Pennsylvania Department of State website. If there are any exact (or confusingly similar) names on this database, you will need to choose a new name.
You should continue checking for availability outside of Pennsylvania by doing a simple internet screening search. To do this, type your desired name into your favorite internet search engine. This is an easy way of finding out if any major businesses are already using your name. If they are, you should come up with a new name.
Next, it's a good idea to check the United States Patent and Trademark Office (USPTO) trademark database. The USPTO keeps records of all registered United States trademarks. If there are any matches for your name on this database, you will need a different name. This will avoid legal trouble for trademark infringement.
Finally, it would be wise to find out if your domain name is available. Even if you don't start a business website immediately, you should reserve your domain name to prevent anyone else from taking it. When you are ready to launch your web presence, it will be helpful to have a reserved domain name ready to go.
Step Two: Select a Registered Office
Under Pennsylvania law, your LLC must maintain a registered office. Your registered office is the address where service of process would be delivered if anyone sues your LLC. You may hear people refer to this as a registered agent. The registered office:
Can be a Pennsylvania resident or business entity authorized to do business in Pennsylvania
Must have a physical street address in Pennsylvania
You can use your LLC's main office as your registered office. If you prefer, you have the option of using a Commercial Registered Office Provider (CROP). People may refer to this as a registered agent service.
If you use a CROP, you will contract with another company. The other company will act as your registered office in exchange for a fee. When you submit your certificate of organization in step three, you need to make it clear if you are using a CROP as your registered office.
Step Three: Submit a Pennsylvania Certificate of Organization
To officially create your LLC, you need to submit a certificate of organization to the Pennsylvania Department of State. A certificate of organization is like a company charter. Some people may call this document articles of organization. It will contain basic identifying information about your LLC. Under Pennsylvania Statutes, this document must include:
- Your LLC's name
- The address of your registered office
- A $125 filing fee
- Your LLC members' names
- The effective date of your certificate of organization
- A docketing statement
You will probably find it easy to create your certificate of organization yourself. With Pennsylvania's certificate of organization form, you will need to fill in the blanks. The form contains instructions on how to file either by mail or online.
Step Four: Create an Operating Agreement
You are not required to create an LLC operating agreement in Pennsylvania, but it's wise to have one. An LLC operating agreement is an internal company document that forms a contract among LLC members on important issues. In this sense, it's similar to corporate bylaws.
In your operating agreement, you can put various company issues into writing. This may include:
- Member rights and responsibilities
- Ownership percentages
- Management style
- Procedures for bringing in new members
- A buyout agreement
- Any other matters that are important to your LLC
Once you have drafted and signed this document, you should store it with your other essential company records. There is no need to submit it to the state. However, you may need to show your operating agreement to receive services from professionals like attorneys and accountants. Financial institutions may also ask to see your operating agreement before opening a business bank account for you.
Single-member LLCs should have operating agreements too. As a single-member LLC, you won't form agreements among members. But you can use your operating agreement to describe the purpose of your company, its duration, its powers, and more. Drafting this document helps to show that you treat your LLC as a legal entity separate from yourself. This is important because it protects your limited liability status.
Step Five: Comply with Tax and Licensing Requirements
Your licensing and tax obligations will vary depending on the type of business you run and your location. It's essential to follow these rules closely to avoid penalties and future legal hassles.
You may have to obtain local, state, and federal business licenses. To find out if you will need local licenses, you should check with the town or city where you will be operating.
To learn about your state licensing requirements, you should visit the Pennsylvania Business One-Stop Shop.
Your LLC may be subject to federal licensing requirements if you are engaged in certain business activities. These activities include aviation, mining, broadcasting, and many more. To see a complete list of business activities that require federal licenses, you can visit the Small Business Administration (SBA) website.
If your business sells goods or you have employees, then you'll likely have to register with the Pennsylvania Department of Revenue (DOR). You can register for sales tax and employer withholding tax at the DOR's website.
To learn how to comply with your federal income tax obligations, you should visit the Internal Revenue Service (IRS) Small Business and Self-Employed Tax Center. If you have any questions or concerns about your business taxes, it would be a good idea to consult a business attorney for assistance.
Unless you are a single-member LLC with no employees, you will need an Employer Identification Number (EIN). An EIN is a unique number that the IRS issues to businesses. They use the EINs to distinguish between companies for tax purposes. You can think of an EIN as a Social Security Number for your LLC.
You will need your EIN for:
- Employee payroll
- Opening company bank accounts
- Applying for company credit cards
It's fast, easy, and free to get an EIN from the IRS. You can apply by mail, fax, or online.
Step Six: File Decennial Reports
To keep the exclusive rights to your business name, Pennsylvania law requires that you file a report with the Department of State in every calendar year that ends with the numeral "1." In other words, you should file decennial reports in 2031, 2041, and every ten years after that.
You must send your decennial report by postal mail. The Pennsylvania Department of State website provides a decennial report form that you should fill out for this purpose. You will need to include a $70 state filing fee.
You may receive a reminder postcard from the Department of State about your decennial report. However, it's best to mark your calendar as a reminder to submit your report every ten years. Even if you do not receive your reminder postcard, you can still lose the exclusive rights to your LLC name for failing to submit your report.
Pennsylvania LLC FAQs
Why should I start an LLC?
An LLC is a popular business structure with small business owners. Its advantages include limited liability and ease of formation.
With limited liability protection, LLC members are only responsible for the company's debts, lawsuits, and other obligations up to the amount they invested into the business. This protects your personal assets from business liabilities. In other words, if someone sues your LLC, your personal bank account, home, and vehicles will not be at risk. Not all business structures provide this type of personal liability protection. If you have a sole proprietorship, your personal bank account, cars, and home could be at risk to cover business lawsuits or insolvency.
Another advantage of LLCs is their simple, easy-to-create structure. If you want to streamline your business operations and protect your personal assets, you should consider starting an LLC.
Can I reserve my LLC name?
Yes. If you want to reserve your name before starting your LLC, you can file a Name Reservation with the Pennsylvania Department of State. You will need to submit a $70 fee along with the form. This will hold your name for 120 days.
Should I start a restricted professional LLC?
You should start a restricted professional LLC (PLLC) if your LLC members are licensed professionals offering services to clients. Licensed professionals include doctors, veterinarians, dentists, lawyers, and others. Generally, you are a licensed professional if you had to apply for a professional license from the state of Pennsylvania to practice. When you have a PLLC, all LLC members must offer the same type of professional service.
If you want to start a professional LLC, you will follow the five steps above. When completing your certificate of organization, you will indicate that your professional company is a PLLC on the form.
Under Pennsylvania law, PLLCs must submit a Certificate of Annual Registration to remain in good standing. In this annual report, you will need to submit a bit of basic information about your business and a state fee.
Can I operate an out-of-state LLC in Pennsylvania?
Yes, but you will need a Pennsylvania registered office. You also need to register your out-of-state LLC (foreign LLC) in the commonwealth of Pennsylvania. To do so, you will complete a Foreign Registration Statement and submit a $250 fee. The form contains additional instructions, and you can submit it by mail or online.
How much does it cost to start an LLC in Pennsylvania?
You will need to submit forms and payments for state fees to start an LLC. The cost of submitting your certificate of organization is $125.
If you want to reserve your LLC name, you will need to pay a $70 fee. If you have a foreign LLC or a PLLC, there will be additional annual fees. You can get a full Fee Schedule at the Pennsylvania Department of State website.
Are You Ready to Start Your Pennsylvania LLC?
Fortunately, forming an LLC can be a straightforward process with FindLaw’s Business Formation Service. However, you might have specific concerns about PLLCs, operating agreements, or other matters that require legal expertise. A skilled Pennsylvania attorney can help you with business formation issues and answer any other legal questions.
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