Are you looking to form a limited liability company (LLC) in Pennsylvania, but you’re not sure how the process works? There are several important steps to create a compliant Pennsylvania LLC that can do business in the state.
To get started, please reference our 6-step guide below or hire an affordable online LLC formation service.
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What is a Pennsylvania LLC?
The Pennsylvania LLC is one of the most popular business structures in the state. It’s a more casual and flexible type of business than a corporation, but includes the 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.
Setting up a brand-new Pennsylvania LLC in 6 Steps
For the first part of this guide, we’ll cover the 6 essential steps to setting up a Pennsylvania business that doesn’t have employees yet. These steps also apply to businesses with employees, but we’re keeping things streamlined to start. If you do have employees, make sure you complete these steps and the steps for employers (which we’ll cover later in the guide).
Step One: Choose a business name
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 consider when naming your business.
In the state of Pennsylvania, you’re required by law to meet several requirements for your business name. Here’s a quick glimpse at the rules for LLCs:
- Your name must include the words “limited” or “company” or the full phrase “limited liability company” (or matching abbreviations)
- Your name can be any language but it must be expressed in Roman characters, Arabic numbers, or Roman Numerals
- Your name cannot include words like “bank,” “trust,” “insurance,” or similarly regulated industries unless you have the approval of the appropriate governing body to do so
- Your name must be “distinguishable on the records of the department,” or distinct from the names of other entities in the state
For more information on naming rules in Pennsylvania, check out the Names Subchapter of Pennsylvania’s general guidelines for business entities (as included in the Pennsylvania Consolidated Statutes).
Another aspect to consider is including language that explains what your business does ― for example, if you’re starting a coffee shop, put the word “coffee” or “brew” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.” This helps potential customers know exactly what to expect from your business.
Once you’ve picked the perfect name for your business, you don’t want to lose it to another aspiring entrepreneur. Thankfully, Pennsylvania allows you to reserve your business name if you’re not quite ready to register your business. To do that, you’ll need to file the Name Reservation form and pay a $70 fee.
Filing this reservation protects your chosen name for 120 days. You can learn more about name reservations here.
Step Two: Appoint a Registered Agent
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.
When you appoint a Pennsylvania registered agent, here are the state requirements to be mindful of:
- Every entity must list a registered office where one or more people are present to accept service of process during business hours
- The office cannot be a P.O. box
- An entity may also elect to appoint a “registered office provider,” or another business serving as the registered office
- The registered office address must be in-state
- An address must be continuously maintained
You can find a full rundown of the state laws here.
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, you could miss the alert regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
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Step Three: File Formation Documents
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Once you are ready to form your Pennsylvania limited liability company, you will fill out the Certificate of Formation. You can either do this on your own or hire a Pennsylvania LLC service. Some services, like ZenBusiness, even offer discounts on their service.
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
- The name and address of your registered agent
- The name of each organizer
- The effective date for your filing
- The restricted services your business offers (professional service LLCs only)
- The benefits your LLC will provide (public benefit companies only)
- Any additional provisions you want to include
- Signature of each organizer
All told, Pennsylvania actually keeps this filing process pretty simple. They don’t require a lot of complicated information on the form; the only potentially confusing bits are the sections for professional service LLCs and public benefit LLCs, but those won’t apply to most businesses. Other than that, as long as you include all of the requested information, you’re set to go. If you prefer, you can use PENN File to submit this online.
- Total cost: $125
- Processing speed: 10-15 business days
- Expedited processing: (only available with in-person drop-off) $100 for 24-hour processing, $300 for 3 hours, and $1,000 for 1-hour turnaround
Step Four: Draft an 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, 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
Step Five: Get Licenses & Permits
Pennsylvania law requires an LLC to obtain all necessary licenses and permits before starting operations. State law also decrees that an LLC can only provide one specific type of service. All owners of the LLC must be licensed or registered to provide the specific service under which the LLC was assembled.
The type and cost of the permits that your business may require varies depending on the nature of the services your LLC offers. Some businesses won’t even need licenses. That’s especially true since Pennsylvania does not have a general business license that applies to every entity in the state. That said, cities and counties are allowed to require one if they choose, so we recommend consulting with your local government to learn what the requirements are in your area.
There’s also a good chance that your business will need an industry-specific license or permit; Pennsylvania regulates a decent number of trades. For example, Pennsylvania requires licenses for funeral directors, cosmetologists, physicians, and much more. But you’ll need to do some digging to see if your industry is regulated. The Bureau of Professional and Occupational Affairs is a great place to start that search.
Obtain a Business Bank Account
One of the most important aspects of running an LLC is ensuring that your business funds remain separate from your personal finances. And to do that, you’ll need a separate bank account for your business.
Obtaining a business bank account is pretty simple, and you can choose the financial institution you like best. Some banks will ask to review your LLC’s operating agreement, and some also ask to see your EIN (see the Employers section below). Once you have your account, you’ll be able to get checks, make payments using your business card, and so on.
If you failed to get a business bank account, you would technically be blurring the line between your personal accounts and your business accounts. That compromises your personal asset protection.
Next Steps for Newly-Formed LLCs
1. Prepare for tax time
Regardless of how far away April 15th is, it’s never too soon to prepare for tax time and setting up accounting software. As an LLC owner, the exact tax rates you’ll pay depend on the taxation structure you choose for your business. If you choose to be taxed as a corporation, the LLC itself will pay taxes from its own funds. Meanwhile, LLCs taxed as pass-through entities don’t technically pay taxes; its members do. The profits are distributed to the LLCs members, and each member reports that income on Schedule C of their personal taxes.
If you choose to be taxed as a corporation, you’ll pay the following rates:
- Federal: 21%
- State: 9.99%
Meanwhile, LLCs taxed as pass-through entities pay these rates:
- Federal: 10-37%, rising on a fixed-bracket scale
- State: 3.07%
In order to compliantly file and pay your taxes, you’ll fill out a complete copy of federal Form 1065 including all federal K-1s, statements, and attachments. Businesses taxed as corporations use Form RCT-101, while businesses taxed as pass-through use form PA-40. If you’re anticipating these requirements, they’ll be much easier to manage when their due date comes.
If you’re involved in retail sales, you’ll need to collect and pay the state sales tax (6%). Beyond that, there are industry-specific taxes that may or may not apply to your business. For example, Pennsylvania has fees for malt beverages, medical marijuana, and more. For more information on business taxes in Pennsylvania, check out the Pennsylvania Department of Revenue.
Because taxes can be incredibly complicated, we highly recommend consulting with a business attorney or accountant to ensure that you cover all requirements on the state and federal level.
2. Be ready to file your periodic report
All business owners operating in Pennsylvania must periodically file a report. In a lot of states, this report is due every year or every other year. But in Pennsylvania, this report is only due every 10 years. Not only does it help the state know that your business is still open and compliant, but it also keeps the state informed of some vital information about your business that might change over the years.
This Decennial Report is due on years ending in “1,” so it won’t be due until 2031. There is a $70 fee for this document.
3. Consider business insurance
The big advantage to the LLC is that it offers you personal asset protection. But that doesn’t mean that mishaps won’t happen along the way. We highly recommend obtaining a general liability policy with the right coverage for your business.
In the event of a mishap or natural disaster, an insurance policy can help you navigate unexpected expenses. Be sure to compare your different options to get the best coverage for your particular type of business.
Extra Steps for Businesses with Employees
When you’re operating as a one- or two-person show, operating a business is relatively streamlined. Things get more complicated when you bring employees into the picture, but employees also help raise your business to new heights. But to reach those heights, you need to comply with employee-related legal requirements.
Step One: Address employee-related taxes
Any business with employees must obtain an EIN, or an Employer Identification Number. This is a free registration with the IRS, and the number acts a lot like a social security number for a business. Obtaining the number also lays the groundwork for other taxes, such as social security and withholding taxes. For example, you’re required to withhold income taxes from employee paychecks, make social security and medicare tax payments, and pay unemployment fund taxes. For more information on employer taxes at the federal level, look here.
There are similar taxes on the state level. For example, Pennsylvania requires withholding taxes, contributions to the unemployment insurance tax fund, and more. We recommend consulting with the Department of Revenue and the Office of Unemployment Compensation to learn what taxes apply to you and your business.
Step Two: Obtain additional insurance
Every Pennsylvania business with employees is strictly required to get workers’ compensation insurance. For more information on this policy, check out the Workers’ Compensation page by the Department of Labor and Industry.
If you haven’t already obtained a general liability policy, we highly recommend that you do so when you bring employees into the business. The more people you have involved in a business, the higher your risk of needing general liability insurance.
Of course, proper care and discretion will eliminate most problems, but incidents happen—from faulty products to an employee slipping and falling and theft and many places in between. And in some cases, insurance can be the difference between a minor hiccup and a budget-breaker.
Step Three: Enlist Help
For some entrepreneurs, part of the fun of running a business is the opportunity to wear lots of different hats: accountant, manager, marketer, quality control expert—it’s a near-endless list. And if your business is still pretty small, you might be able to handle many of these tasks yourself, especially if you’re prepared with a business administration degree.
But if you aren’t (and it certainly isn’t a prerequisite), some of these tasks may leave you feeling overburdened or out of your depth. For instance, navigating employer-related taxes might steal valuable time that you’d rather spend promoting your business or developing a new product. An accountant or tax attorney, however, knows those tasks like the back of their hand. You may decide it’s worth the added expense to enlist their help.
Ultimately, it’s your decision whether to bring in professionals or DIY. But in our opinion, it’s often worth it to get help from specialized pros.