How to Form an LLC in Pennsylvania: The Affordable Way

Are you looking to form a business in Pennsylvania? Great! You need to first decide on the structure of your business. Forming a Limited Liability Company (LLC) has many benefits. It helps with the protection of personal assets from business liabilities, needs less paperwork and filing costs than a corporation, and enjoys tax savings.

Pennsylvania is a great place for your business. It has a booming economy with a regulatory set-up favoring small businesses. However, the procedure for setting up an LLC in the State may seem confusing and complicated. We are here to break it down and guide you through each step involved in the process.

Name Your Pennsylvania LLC

As the first step towards forming your LLC, you must select a name for it. A good name will help your LLC to have brand value in the market. Make sure you choose a name that is catchy and easy to remember. 

The name you select must comply with all the naming requirements that the State of Pennsylvania mandates.

Naming Guidelines

Your LLC’s name must be unique. Your LLC cannot have a name already used by some other entity in the State of Pennsylvania. 

In addition to not being identical, the name should also not be similar to the name of another entity in Pennsylvania. This means that the name you select should not be such that it can be confused with the name of another business.

For example, the name “Googal,” though it has a different spelling, can be easily confused with the name “Google.” Therefore, you cannot simply use suffixes, conjunctions, singular/plural forms, abbreviations or punctuations to distinguish a name from another name already registered with the State. 

The name of your business should have the words “limited liability company” or one of its abbreviations (LLC or L.L.C.).

Your LLC’s name cannot have words that can result in confusing your LLC with a government agency. Words like ‘FBI,’ ‘State Department,’ and ‘Revenue Service’ can cause people to confuse your LLC with a government agency. Using such words in the LLC’s name is not allowed.

You must first file for additional paperwork and permissions if you want to include words like ‘Bank,’ ‘Attorney,’ ‘Academy,’ or any other word suggesting the line of work your LLC is related with.

Does Your Business Require a DBA?

A “Doing Business As Certificate,” or DBA, enables you to operate your LLC under a different name. This means that if you have a DBA, your LLC would be incorporated under one name and conduct business under another. DBA is sometimes referred to as a ‘fictitious name,’ a ‘trade name,’ or an ‘assumed name.’ A trade name is best used for branding purposes, especially when you wish to diversify your business or decide to sell new products. 

Creating and registering a DBA in Pennsylvania does not protect your assets. To avail of the protection of limited liability, you need to form an LLC. In Pennsylvania, you are required to apply for obtaining a DBA name with the Bureau of Corporations and Charitable Organizations.

Doing a Name Search and Name Reservation

It would be best if you made sure that the name you select for your LLC is truly unique, or else you risk the possibility of having your name reservation application rejected. You can ensure that the name you have chosen is not identical to any other name already registered using Pennsylvania’s business entity name search portal. 

Pennsylvania allows you to reserve a valid name for 120 days. You must apply to the Bureau of Corporations and Charitable Organizations for this purpose.

Registering Your Business Domain

You can register a domain name for your LLC if you wish to have a website. It is always a good idea to check available domain names and register one while selecting a name for your LLC. Doing so would ensure that domain names relating to the LLC’s name are available. 

Even if you do not wish to have a website for your business, you should get your preferred domain name registered. It ensures that the domain is reserved for the future when you want a website. Having a website is advisable because it adds professional credibility to a business.

Choose a Registered Agent for Your Pennsylvania LLC

A Registered Agent is an individual or another business entity responsible for receiving all official communication on behalf of the LLC. The laws of Pennsylvania mandate that all LLCs must have a registered agent. 

The main job of a registered agent is to be a point of contact for all official correspondence from the Pennsylvania Secretary of State. This may include certificates of good standing, service of process in any lawsuit, etc.

Who Can Be A Resident Agent?

The State of Pennsylvania provides specific requirements that your registered agent must comply with. So while appointing an agent for your LLC, you have to keep in mind the following points:

• The registered agent can be either a natural person or an artificial entity.
• If the registered agent is a natural person, they must be over the age of 18.
• The registered agent should have their registered office at an address in Pennsylvania.
• If the registered agent is a natural person, then it is required that they should have a registered office in Pennsylvania.
• If the registered agent is an artificial person, it is required that it be permitted to conduct business in the State of Pennsylvania.
• The registered agent must be available to accept official correspondence at the registered office during business hours.

 Individual v. Registered Agent Service

A registered agent can be either an individual (like a friend, a family member, any member of the LLC, etc. ), or it can be a registered agent service that you can hire. You can also be your registered agent if you meet Pennsylvania’s requirements.

Hiring a registered agent service is safer than appointing an individual or yourself as the registered agent. A professional registered agent service ensures that you don’t fail to duly respond to any notice or other communication that may be sent to your LLC. They remind you when your returns and other filings are due and help ensure you don’t miss any deadlines. 

Additionally, if you are someone who works out of your home or a private office, having a professional registered agent service will help you maintain privacy, as it will be their address that is made available in the public domain. 

Also, hiring a registered agent lets you focus your energy and time on core areas needed to grow your business.

Filing the Certificate of Organization with Pennsylvania

A Certificate of Organization is a legal document to be filed with the Secretary of State’s office to incorporate your LLC. This is by far the most important step in the process of setting up your business. Once this is completed, your LLC is registered and is recognized in the eyes of the law. It is required to include the following particulars:

• The name that you have selected for the LLC
• The registered agent’s name, address as well as contact details.
• Is the effective date applicable as the date of certification? If not, mention the date of certification you want.
• Would the LLC provide any professional services? If yes, mention the same,
• Weather LLC is going to be a public benefit company.
• Signatures of the organizers of your LLC.

In the State of Pennsylvania, the Certificate of Organization must also have attached a New Entity Docketing Statement, which can be found under Form DSCB: 15-134A. The New Entity Docketing Statement must include:

• The name of the LLC.
• The address and the name of the person responsible for the initial tax reports.
• A brief explanation of the business activity that your LLC conducts
• The Employer Identification Number (which will the discussed later in this post)
• The fiscal year end of the LLC.

Expedited Formation

The State of Pennsylvania allows you to file for expedited service for an additional fee. You can opt for same-day service or a within three hours service. The fee is different for both options. To avail of this service, you must fill out and submit the Expedited Service Request Form.

Publish Notice of Formation

Pennsylvania does not require its newly formed LLCs to publish a notice declaring their formation.

Create an Operating Agreement for your Pennsylvania LLC

An Operating Agreement can be explained as a basic agreement between the managers and members of the LLC. It lays down the rules of your LLC’s internal operation and functioning. It usually covers things such as the initial members of the LLC, the allocated profits, capital contributions, management structure, and liabilities. 

Most States, including Pennsylvania, do not make having an Operating Agreement mandatory. Despite that, it is advisable that you draft an Operating Agreement for your LLC. Having an Operating Agreement is good because it ensures that the members, as well as the managers, have no confusion about how your LLC is to be run. 

An Operating Agreement reduces disagreements or clashes in the future. An operating agreement acts as a guiding force in matters of the day-to-day functioning of the LLC. It offers credibility to your enterprise. You will need an operating agreement for opening an account with the bank.

There are no prescribed templates for an operating agreement, and you may draft one according to the needs of your business. However, irrespective of the nature of your business, it shall be advisable for your operating agreement to cover the following matters:

• Organization Details 
• Ownership 
• Duties of Members and Managers
• Management and Voting 
• Capital Contributions
• Division of Profit and Losses
• Bookkeeping Procedures
• Procedure for adding new members
• Requirements concerning Meetings and Procedures thereof
• Dissolution

Writing The Operating Agreement Yourself v. Hiring a Service

You can create your operating agreement, or you can purchase templates that you can customize to draft the operating agreement of your LLC.

It is, however, recommended that you seek the help of an attorney or a professional in preparing your operating agreement. Make sure you hire someone who is an expert in the laws of Pennsylvania. An expert would make it easy for you to draft an Operating Agreement, given their experience and expertise.

Limits of Operating Agreement

There is no fixed format for this agreement. You have all the freedom to include the terms of the agreement you feel are necessary for your LLC. However, the terms are limited to the law.

Your Operating Agreement cannot preclude your LLC, its members, or its employees from the laws of Pennsylvania, as stated under S. 8872(a)(4) of the Consolidated Statutes of Pennsylvania.

The comprehensive list of things that cannot be included in an Operating Agreement can be found under Section 8815(c), Chapter 88 of the Consolidated Statutes of Pennsylvania.

Obtaining an EIN for your Pennsylvania LLC

EIN is short for ‘Employee Identification Number.’ It is issued to LLCs by the Internal Revenue Service. An EIN for an LLC can be best explained as a social security number for a legal entity. Its job is to serve as an identification number for a business so that it is easy for the IRS to identify it for filing and tax purposes. 

An EIN is required by your LLC for things like applying for licenses & permits, opening a separate bank account for your LLC, and obtaining business loans. You should only apply for an EIN only once the State approves your Pennsylvania LLC. If the LLC does not get approved, then you will end up possessing an EIN for a non-existent business. The IRS issues an EIN, and you can apply for it online or through the mail.

File Decennial Reports in Pennsylvania

Pennsylvania makes it mandatory for their LLCs to file a decennial report. These reports are a way for the authorities to keep a record of all businesses in the State. 

Your LLC will have to file this report with the Pennsylvania Department of State every ten years. The filing fee is $70. You can do the filing using the Pennsylvania Online Business Document Filing System or download the form and, after duly filling in the details, mail it to the Pennsylvania Department of State Bureau of Corporations and Charitable Organizations P.O. Box 8722 Harrisburg, PA 17105. However, if you are a professional LLC, you must file the document every year on or before April 15th. 
Please review the Department of State’s Decennial Report FAQ for more information.

Tax Liability For Your Pennsylvania LLC

Filing taxes is mandated by law, and not doing so can be fatal for your LLC. Therefore, it is important to get a decent idea of the taxes that would be levied after your LLC has been established. Your LLC can be taxed in four ways:

• Sole proprietorship: a single-member LLC
• Partnership: a multiple-member LLC
• A C-Corporation: the LLC and its members are taxed separately
• An S-Corporation: the members of the LLC are taxed separately

Federal Tax Liability

Depending on how you treat your LLC for taxation purposes, its tax liability would change. 

To have your LLC taxed as a sole proprietorship, you’ll have to file your taxes with the IRS under Schedule C, Schedule E and/or Schedule F of Form 1040. 

For your LLC to be taxed as a partnership, along with filing Form 1040, you’ll have to file your taxes under Form 1065 and provide information in the K-1 form of each partner. 
To have your LLC taxed as a C-Corp or S-Corp, file your taxes under Form 8832 and Form 2553, respectively.

State Tax Liability

If your LLC is engaged in selling certain physical products or specific services, you will be required to pay Sales Tax in Pennsylvania. For this purpose, you must obtain a seller’s permit from the Department of Revenue website.

Before 2017 the State had also imposed a Franchise tax. It is a tax on the right to operate a business in the State. Pennsylvania abolished this tax in 2017.

Miscellaneous Tax Liability

Your LLC would be required to pay certain other taxes, depending on the business it undertakes. For example, importing and exporting businesses have to pay import/export duties, fuel sellers pay taxes on the sale of fuel, etc.

Additionally, if your LLC has hired employees, you must sign up for Unemployment Insurance Tax and Employee Withholding Tax.

Permits & Licenses

Your LLC would need permits and licenses according to the type of business that it conducts. Accordingly, your business will be subject to three licensing jurisdictions: Federal, State and Local.

Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.

ome business activities requiring Federal Licenses and Permits are:

• Agriculture
• Alcoholic beverages
• Aviation
• Firearms, ammunition, and explosives
• Fish and wildlife
• Commercial fisheries
• Maritime transportation
• Mining and drilling
• Nuclear energy
• Radio and television broadcasting
• Transportation and logistics.

The State of Pennsylvania has local-level business license requirements. Your LLC might be required to get a business license depending upon what line of business it is in. Additionally, if your LLC is engaged in selling any specific product or services subject to sales tax, you will be required to obtain a seller’s permit.

Contact the Pennsylvania State Agency to know if your business is required to get any specific license. 

You might also be required to get building and zoning permits. The county planning department controls zoning-related issues. You should check with your county to see what permits and licenses your LLC could need.

For more information regarding;

• Pennsylvania Licensing System website
• Federal Permits and License

Business Bank Account & Phone Number

You will need a separate bank account for your LLC. This is important because a separate account would make it convenient to file tax returns, manage cash balances, and deduct expenses for your LLC. A separate bank account would also protect your personal assets from the LLC’s liabilities.

To get a new bank account for your LLC, you would need to provide the bank of your choice with your LLC’s EIN and other documentation, depending on the bank.

You should get a separate phone number for your LLC. You can either get a new number or opt for a virtual service. Several vendors provide virtual phone services. Getting a different phone number would look professional and protect your privacy.

Final Thoughts

There are a lot of advantages of forming an LLC in Pennsylvania. In addition to having a great business environment, Pennsylvania also provides beneficial incentives and benefits to its businesses, such as:

Opportunity Zones – based on economic data, the State of Pennsylvania has created designated opportunity zones. If you fall in these zones, you enjoy benefits such as deferral of gain invested in the zone property.

JCTC: Short for the Job Creation Tax Credit program, the JCTC aims to create jobs. You will be eligible if your new business can create 25 or more jobs in three years. Under this, you can claim a tax credit of up to $1000.

It would be best if you also were very careful regarding all the compliance requirements for your business. Be sure that after starting your business, you stay attentive to any new schemes and benefits that may be introduced.

All the best!