An LLC is a sensible company structure for people looking to set up a business in the Commonwealth of Pennsylvania. It offers different taxation and ownership benefits and is reasonably straightforward to form.
Individuals usually choose to start their businesses as LLCs or switch to the structure for the following reasons:
- Expanding a company to more than one owner
- Protection from business debts and liabilities
- Tax benefits
The Commonwealth fosters a thriving business environment and encourages entrepreneurs because small businesses are integral to its economy. Many business owners start their companies in the Keystone State because of these advantages and the state’s economic position. Pennsylvania harbors 1.1 million small businesses, the majority of which are LLCs.
People who intend to start an LLC in Pennsylvania must ideally follow a series of steps to comply with the law and form a competitive company. The steps include the following:
- Step 1: Naming the LLC: An LLC’s name must comply with state statutes.
- Step 2: Establishing a Registered Office: A registered office is the business’s address for receiving legal documents or correspondence.
- Step 3: Complying with Regulatory Requirements: Different filing and license requirements exist for LLCs, including restricted professional and foreign LLCs.
- Step 4: Filing Registration Documents with the Pennsylvania Department of State: LLC founders must submit a Certificate of Organization and docketing statement. Other documents include the Foreign Registration Statement for foreign entities.
- Step 5: Obtaining an EIN: LLCs with more than one member or those intending to hire employees are required by federal law to obtain an Employer Identification Number (EIN) from the IRS.
- Step 6: Paying Taxes: LLC founders may need to register for state sales tax, unemployment insurance tax, and other state and local taxes.
What Is an LLC?
An LLC is a business structure that fuses the tax flexibility of a partnership with the limited liability benefits of a corporation. They are legally formed by “organizers” and owned by “members,” who may or may not be organizers.
LLCs protect their members from the business liabilities and lawsuits like corporations. However, they are typically treated as general partnerships and sole proprietorships for tax purposes.
LLCs are governed and regulated by the Pennsylvania Uniform Limited Liability Company Act of 2016. According to 15 Pa. C.S. § 8821 (Title 15, Section 8821 of the Pennsylvania Consolidated Statutes), one or more organizers can form an LLC by delivering a Certificate of Organization to the Bureau of Corporations and Charitable Organizations of the Pennsylvania Department of State. An organizer can be an individual who must be at least 18 years or an association.
Step 1: Pennsylvania LLC Name Search
Pennsylvania law (15 P.A. § 204) requires an LLC to have a name that includes the terms “company,” “limited,” or “limited liability company” or their corresponding abbreviations. The law also permits companies to include words or abbreviations with similar meanings used outside Pennsylvania, such as Ltd. Every business name must be unique and different from names already registered or reserved with the Department.
The Department will reject any new registration if the business name on the Certificate of Organization already exists. According to 15 Pa. C.S. § 202, organizations are prohibited from using the names of other entities registered with the Department of State unless those establishments no longer exist. New business names must differ from registered names, even if the businesses have not begun operations.
Intending LLC organizers and members can use the Department of State’s Business Entity Search tool to confirm that their preferred company name is available.
Alternatively, intending owners can reach the Bureau of Corporations and Charitable Organizations at (717) 787-1057 to confirm their business name.
Step 2: Choosing an LLC Registered Agent in Pennsylvania
The Commonwealth does not mandate businesses to provide a resident agent when registering with the Department of State. However, Pennsylvania law (15 Pa.C.S. § 109) permits a company to use the address of a Commercial Registered Office Provider (CROP) if it does not want to reveal its address or lacks a Pennsylvania address.
A CROP is not a registered agent. That is because while registered agents are a mandatory filing requirement in other states, a CROP is only necessary when a company cannot provide a physical Pennsylvania address on formation paperwork.
Every business must contract with a CROP before using its services. Failure to enter a contractual agreement will expose the company to criminal and civil lawsuits.
A Commercial Registered Office Provider in Pennsylvania can be an organization or individual, must have a physical address in the Commonwealth, and must not list only a P.O. Box.
Intending business owners can search the CROPs page on the Department of State’s website to find a registered office address.
How Do I Change the Registered Agent for My LLC in Pennsylvania?
Pennsylvania law (15 P.A. C.S. § 8825) allows companies to change their registered offices and CROPs at any time after forming the business. Changing a Commercial Registered Office Provider in Pennsylvania is similar to changing a business’s registered office.
LLCs seeking to change their CROP must complete Form DSCB:15-1507/5507/8625/8825 (Statement of Change of Registered Office) with the Department. When filling out the form, they must enter the type of business they operate, the LLC’s name, the current CROP’s name, and the new CROP’s name. An LLC’s authorized officer must sign the form. It costs $5.
If a CROP is changing their address, intends to change a receiving address for a business they represent, or wants to terminate their status as Registered Office Provider for the company, they must file a Change of Registered Office by Agent Form with the Department, per 15 Pa.C.S. § 108. Filing the form also costs $5.
Step 3: LLC Filing Requirements in Pennsylvania
People or entities creating a Limited Liability Company (LLC) in Pennsylvania must comply with relevant filing requirements to ensure the organization upholds state and local regulations. The following is an outline of steps that an LLC may need to take in Pennsylvania to comply meet the relevant filing requirements:
Registration of Fictitious Names
Suppose an LLC wants to do business in Pennsylvania using a name other than the one in its Certificate of Organization. In that case, it must register this fictitious name by filling out the Registration of Fictitious Name form. The organization must also follow the rules governing selecting a business name to ensure the preferred fictitious name is unique and contains the right words.
Certificate of Organization
The first step in setting up an LLC in Pennsylvania is filing a Certificate of Organization with the Department of State. The LLC will officially begin to exist when the certificate becomes effective. Organizers can download, fill out the form, and mail it to the Department. They can also submit the form online after filling it out.
The docketing statement includes additional information the Department requires to gather essential business operations and tax-related details. LLC organizers are typically expected to complete this form and submit it alongside the Certificate of Organization.
Foreign Registration Statement
Companies formed in a different jurisdiction from Pennsylvania must file a Foreign Registration Statement before operating in the Commonwealth.
Besides the paperwork for creating an LLC, the company may need to satisfy additional filing requirements. For example, eligible employers must register for Employer Withholding to withhold personal income tax on behalf of their employees. Other examples include:
- Employer Identification Number (EIN)
Every LLC intending to employ staff or having more than one member must get an Employer Identification Number (EIN). The Internal Revenue Service (IRS) uses the EIN to identify businesses for tax administration.
- Local Business Regulations
LLCs must also comply with local business regulations. Depending on the LLC’s county, city, or municipality and its business operations, the company may need to obtain local licenses and permits, register for additional local taxes, and adhere to zoning requirements.
Do You Need a Pennsylvania Address for LLC?
LLCs are mandated by law (15 Pa. C.S. § 8825) to maintain a registered office address in Pennsylvania. The address may be the business’s base of operations, but it must be a physical location and not a P.O. Box. The law allows them to change the address when necessary.
Organizations that do not have a physical street address but want to operate in the
Commonwealth can engage the services of a Commercial Registered Office Provider. The provider will receive legal correspondence and service of process on the company’s behalf and will occupy the address field on the Certificate of Organization.
How To Get a Virtual Address for LLC in Pennsylvania
Virtual addresses are physical street addresses used for receiving general business mail. In Pennsylvania, companies are bound by law to provide a physical office address for the sake of receiving legal documents. If a foreign business entity does not have a physical location in the state, it can use a “c/o” alternative (a Commercial Registered Office Provider or CROP). Individuals who run their companies from home and want to keep their home addresses private can also use the c/o alternative to register their business.
CROPs operate physical addresses in Pennsylvania and companies can use them to receive business correspondence. However, while CROPs ordinarily forward state and legal mail to LLC owners, not all CROPs have a mail forwarding service for regular business mail. In such cases, a person may opt for a CROP that has a premium virtual address service package or another provider that can be found online. Note that while a CROP may forward or scan regular mail, the charge per document is often higher than opting for a separate virtual address plan.
Step 4: How To File for an LLC in Pennsylvania
LLCs must submit a Certificate of Organization and a Docketing Statement to be formed in Pennsylvania. These registration forms can be obtained from the Pennsylvania Department of State’s website.
Filing the Certificate of Organization
Organizers must provide the following information while filling out the form:
- The name of the LLC: People filing an LLC can use their reserved name if they filed a form to reserve a business name with the Department. They must follow the name rules if entering a new name.
- The registered office address: Filers can enter the name and county of a Commercial Registered Office Provider if the LLC does not have a physical address in the Commonwealth.
- The name(s) and addresses of the company’s organizer(s): Every organizer must enter their name and physical address.
- When the certificate goes into effect (when the business starts to exist): Registrants can indicate whether they want the company to become effective upon filing with the Department or by a future date).
- Professional service: If a company intends to provide a professional service, its organizers must indicate the service on the certificate.
- Public benefits provided by the company (if any).
- Signature of the organizer(s).
Individuals may attach other documents to the certificate, such as a statement indicating whether they want the company to be member-managed or manager-managed.
Filing the Docketing Statement
Registrants must provide the following information in the Docketing Statement:
- The name of the LLC
- The name and address of the person filing the business’s initial tax returns
- Description of the LLC’s business dealings
- Federal Tax Identification Number/EIN
- Fiscal or Tax Year End’
(Note: A Fiscal Year End Date is the end of the accounting period that an LLC uses to prepare its financial statements and accounts. The IRS allows entities to choose whether to use a fiscal or calendar year for tax purposes. This date will also be used when filing tax returns.)
After completing the forms, they can file online or mail them to the Bureau at:
Pennsylvania Department of State
Bureau of Corporations and Charitable Organizations
P.O. Box 8722
Harrisburg, PA 17105-8722
How To Create an LLC Online in Pennsylvania
Organizers seeking to start an LLC in Pennsylvania can file formation paperwork online. To begin, interested individuals select “Forms” and then “Certificate of Organization – Limited Liability Company” to access the Pennsylvania Business One Stop Shop platform. One must create an account (if they do not already have one) to access the portal.
Once the Certificate of Organization form opens, registrants will see different input fields and options that mirror the standard form, except for minor differences such as:
- Choosing the type of filing (domestic or foreign LLC) and the LLC subtype (whether it is a professional, benefit, or standard LLC).
- Company name: Registrants can indicate whether the company name was reserved. The Business One Stop Shop platform will only allow registrants to proceed if the business name is available. However, they can indicate if they have consent to use an already existing name and upload the consent form, court order, or other relevant paperwork that legally permits them to use the name.
- Effective Date: Registrants can easily select when they want the filing to be effective.
- Notifications: Users can opt to receive email or mail notifications from the Department.
- Docketing Statement: The online registration process merges fields in the Docketing Statement with the LLC Certificate of Organization. However, there is a different section for the Docketing Statement containing the same fields as the standard form.
- Attachment: Organizers who want to add documents and statements to the form can upload them directly.
- Signature: Instead of pen on paper, registrants can sign the document electronically.
- Processing Fee: Registrants can pay online using a credit or debit card and select any expedited option.
The input fields are generally more detailed and coordinated online. For example, there are separate boxes for entering an organizer’s first, middle, and last names and their address.
After signing and confirming the document, organizers can submit it online or print out their application and mail it to the Department.
Can You Have Multiple Businesses Under One LLC in Pennsylvania?
Yes, the law permits LLCs to have other businesses in Pennsylvania. Companies can create a fictitious name to allow them to run other operations or create an entirely new LLC.
An LLC can be a member and organizer of another LLC. By being a member, the new business becomes its subsidiary. It will not share the same liabilities as the new LLC but can enjoy the pass-through and tax advantages.
How Long Does It Take To Set Up an LLC in Pennsylvania?
The Bureau of Corporations and Charitable Organizations may take up to 15 business days to return filed business documents. The number of days could be higher depending on the number of filings the Bureau has to process.
However, organizers can expedite their application by filing an Expedited Service Request (Form DSCB:15-153(a)(15)) alongside other filings. In this case, they must file their paperwork in person.
Registrants can also expedite their applications if they complete their Certificate of Organization and Docketing Statement filing online.
There are different levels of expedited services with corresponding additional fees. The costs are as follows:
- $100 for same-day processing
- $300 for three-hour processing
- $1,000 for one-hour processing
Companies can only expedite five filings at any time in person (over the counter). That said, there are no limits for expediting filings online.
Step 5: How To Get an EIN for LLC in Pennsylvania
Every LLC with more than one member or that intends to be an employer must obtain an EIN. The IRS mainly issues the nine-digit unique identifier for tax purposes, but the Department of Revenue also uses it for state tax administration. The EIN is also called the Federal Tax Identification Number. LLC members can find details about obtaining an EIN on the IRS’s website.
Step 6: Do LLCs Pay Taxes in Pennsylvania?
Yes, LLCs are mandated to pay federal and state taxes. Sometimes, they must also pay local taxes, depending on the jurisdiction.
LLCs are primarily subject to pass-through taxation. This means profits and losses of the LLC go to members (owners), and they report the entity’s taxes on their personal tax returns. However, an LLC’s tax status can change if members file a form with the IRS to change its classification.
How Are LLCs Taxed in Pennsylvania?
Pennsylvania levies the tax of the LLC as individual income tax on the business’s members. The state does not impose tax at the corporate and individual levels, as seen with C Corporations.
The IRS also taxes LLCs as “disregarded entities” by default if they have only one member. If more than one individual or entity owns an LLC, the IRS will tax it as a partnership by default.
In taxing an LLC as a disregarded entity, the IRS allows members to report the company’s taxes on their personal tax returns. Members of an LLC with multiple owners will also show their pro-rata share of the income, deductions, and credits from the business and pay self-employment taxes.
LLCs can request to be treated as C or S corporations for tax purposes by filing Form 8832 with the IRS. If an LLC files the form, the Pennsylvania Department of Revenue will treat it as a corporation and mandate it to pay the Commonwealth’s corporate net income tax.
Tax Benefits of an LLC in Pennsylvania
The LLC structure offers businesses lower and more flexible tax options. An LLC’s deductions, profits, and losses are transferred to its owners, and taxes are deducted as personal income taxes. The company will not be taxed separately like a corporate entity.
LLCs also have the flexibility of adopting a corporate tax status. They can elect to be treated as a C or S corporation for taxation purposes if it benefits them.
Do You Have To Renew LLC Every Year in Pennsylvania?
Yes. Professional LLCs and foreign entities providing professional services must file form DSCB:15-8221/8998 (Certificate of Annual Registration) on or before April 15 each year, accompanied by the required fee. Neglecting this requirement will accrue additional fees, interest, and penalties, and a Uniform Commercial Code lien will be imposed on the company until the debt is settled.
Benefit LLCs must also produce an Annual Benefit Report outlining their efforts to create public benefits in the preceding year. This report, which costs $70 to file, must be sent to the Department of State, posted on the company’s public website, and made available to its members to ensure transparency and accountability.
In some situations, businesses may need to obtain a Certificate of Subsistence (Good Standing) or Certificate of Registration (for foreign entities registered in the Commonwealth) in Pennsylvania. The certificate proves that a business is currently approved to operate in the state and is still operational. Obtaining the certificate is not a legal requirement. However, an LLC may need it to enter a contract or secure a loan.
How Much Does It Cost To Start an LLC in Pennsylvania
Pennsylvania encourages entrepreneurship and small businesses by making business registration painless and affordable. The initial cost of starting an LLC in Pennsylvania is $125, which covers filing the Certificate of Organization and Docketing Statement.
However, companies may accrue more costs if they want to expedite the registration process or have to obtain additional local or state licenses and permits.
Can You Form an LLC In Pennsylvania for Free?
No. LLC organizers must at least pay filing fees to legally form an LLC.
How To Start an LLC in Pennsylvania for Free/At Minimal Cost
Every LLC must pay $125 to file a Certificate of Organization in Pennsylvania. However, they can avoid extra costs by using the standard processing times and shunning the expedited option.
However, veterans and reservists (members of the National Guard or a U.S. Armed Forces reserve component) are granted a waiver from the LLC business filing fee.
LLC owners can also consider prudent business strategies, such as outsourcing, to keep costs down.
What Businesses Should Consider Forming an LLC in Pennsylvania?
Every business, except banks and insurance companies, can switch to the LLC structure. Individuals currently running sole proprietorships and general partnerships can easily change their businesses to LLCs to enjoy liability protection and management flexibility.
What Are the Benefits of an LLC in Pennsylvania
The following are the benefits of an LLC in Pennsylvania:
Limited personal liability: LLCs provide significant protection for their members. Owners are generally protected against the business’s debts and legal liabilities. While the business’ losses mean owners are potentially losing a revenue stream, those losses will not affect their finances unless they hedge the company’s debts with their assets.
Pass-through taxation: Pass-through taxation enables the company’s profits or losses to pass directly to the LLC owner (member) and reflect on their tax returns. This setup means owners will not have to pay taxes on the business’s gains and dividends.
Flexibility in tax status: LLCs can choose to be taxed as a sole proprietorship (if it is a single-member LLC), a partnership (for multi-member LLCs), or even as an S-corporation at the federal level. The Pennsylvania Department of Revenue will adopt the same tax status for state taxes. This flexibility allows LLC members to choose the most beneficial tax structure for their specific circumstances.
Business expenses: LLC members can deduct legitimate business expenses, such as office supplies, travel, computers, and internet services, before determining the net income subject to tax.
How Does an LLC Work in Pennsylvania
LLCs are like corporations because they are legal entities separate from their owners (members). This structure means the business’s liabilities will not affect the owners’ assets unless they personally guarantee the company’s debts.
However, LLCs are more akin to general partnerships and sole proprietorships because they allow members to pay the business’s taxes as personal income. This provision is called a “pass-through” tax setup because the profits and taxes of the organization go to the individual and reflect on their tax returns. An LLC’s management structure is also flexible, but they do not need publicly traded stocks like corporations.
Most LLCs have operating agreements, which are recognized by law, albeit not mandated. The agreement outlines the company’s structure and rules, serving as a contract that binds the members, managers, and business. According to 15 P.A. C.S. § 8815, the operating agreement can establish the following:
- How members interact with each other
- The roles of members and managers
- The operations of the company and how its activities should be managed
- How to change any portion of the operating agreement
- How to approve transactions and company dealings
Different rules apply to LLCs offering professional services and public benefits regarding their formation and ongoing operation.
Restricted Professional LLCs cater to specific professional services such as law, medicine, psychology, and dentistry. 15 15 Pa. § 8894 mandates these associations to obtain specific licenses, and their Certificate of Organization must outline the professional service or services they offer. Restricted professional companies can only have licensed members and managers.
Benefit LLCs are designed to positively impact society and the environment, a purpose known as creating a general public benefit, per 15 Pa. § 8894. This impact is evaluated against a third-party standard. They can also aim to create one or more specific public benefits, including services for environmental preservation, services for underserved communities, promoting arts and sciences, and more.
LLC VS S Corp in Pennsylvania
S-Corps and LLCs are often confused because of some tax setup similarities. The truth is these business entities are not in the same business category.
An S-Corporation is a corporation with a special tax classification (also called S-Corp tax classification). On the other hand, an LLC is a business structure that can elect to be treated as an S-Corp for tax purposes.
Companies adopting the S-Corp classification and those on default LLC tax status are similar because they are subject to “pass-through” taxation. The company’s profits are taxed as owners’ personal income (members or shareholders).
Regarding tax classification, there are differences between a regular LLC and an S-Corp-taxed entity. For example, when an LLC elects to be taxed as an S-Corporation, members can pay themselves salaries and pay payroll taxes on those salaries, which means they can avoid paying income taxes. This can be beneficial, depending on the level of income. However, Pennsylvania has a higher tax rate for companies classified as S-corporations by the IRS.
To qualify as an S-Corp, a company must meet the following requirements:
- Be a U.S business entity
- Have a maximum of 100 shareholders
- Must not have non-US-residents, partnerships, and corporations as shareholders
- Must have only one class of stock
LLC vs. Sole Proprietorship in Pennsylvania
LLCs may adopt some good sides of sole proprietorships, but both business structures have various differences. These distinctions include:
Personal Liability: There is no legal difference between a business and its owner in a sole proprietorship. The owner can be sued for the business’s activities, and the debts and financial liabilities of the business will be passed on to them. With a limited liability company, owners are separate from the company and not liable for its legal troubles and financial setbacks.
Taxation: Sole proprietorships and LLCs share taxation similarities. In both cases, the business profits go to the owners and reflect on their income tax returns. However, an LLC can change its tax status to be treated as a C or S Corporation by the IRS, whereas a sole proprietorship cannot.
Management: Sole proprietors are in total control of their businesses, while organizers and members of an LLC can choose to put managers in charge of the company instead of members (owners).
Formation: Sole proprietors do not have to file any paperwork to start their business, whereas intending LLC owners must file a Certificate of Organization and Docketing Statement to form the LLC. Similarly, an LLC must go through complex legal and corporate processes to dissolve a business, while a sole proprietorship can end without paperwork.
LLC vs. Corporation in Pennsylvania
LLCs and C corporations (regular corporations) are similar in two ways:
Liability: Both LLCs and corporations are independent business entities. They protect their owners from their debts and liabilities.
Taxation: An LLC can change its tax status, allowing the IRS to treat it as a corporation when filing taxes.
That is essentially where their similarities end. Both business structures are different when it comes to formation, management, ownership, and specific aspects of taxation:
- A corporation is formed when the Bureau of Corporations and Charitable Organizations receives Articles of Incorporation (signed by incorporators) and a Docketing Statement. An LLC begins to exist when the Bureau processes a Certificate of Organization (signed by organizers).
- Members own an LLC, and shareholders own a corporation (through shares).
- Board of directors (which can consist of shareholders) and board-appointed officers (such as CEOs who can also be shareholders) manage corporations, but members or managers run LLCs.
- By default, an LLC is subject to pass-through taxation, while a corporation is taxed at the corporate level. The dividends of shareholders are also taxed at the personal income level.
- Corporations can sell shares of stocks, while LLCs do not have stocks.
Business License vs. LLC in Pennsylvania
Government authorities issue permits and licenses to specific businesses to allow them to operate in a jurisdiction. For example, businesses offering professional services, such as dentistry, law, and accounting, must be adequately licensed before operating in Pennsylvania. The license proves that the company complies with laws and regulations.
Meanwhile, an LLC is a business entity authorized to offer services to consumers in the state. In most cases, the only requirement to start an LLC is filing its Certificate of Organization. However, LLCs are among the business organizations required to obtain licenses if they provide specific professional services.
Do I Need a Business License If I Have an LLC in Pennsylvania?
Some LLCs must secure business licenses to do business in a specific jurisdiction. For example, if an LLC intends to offer professional services, its members must be licensed within the particular field. In this case, the LLC is regarded as a Restricted Professional Limited Liability Company.
Local governments can also require businesses to obtain special licenses and permits. Allegheny County is a good example. The county requires companies that operate in areas like food, hotels and motels, and hospitality (personal care homes and nursing) to meet its health department’s licensing requirements.
How To Dissolve an LLC in Pennsylvania
Certain conditions are grounds for dissolving a limited liability company per 15 Pa. C.S. § 8871. According to the law, a company can be dissolved if:
- The members agree to dissolve it.
- A provision for dissolution established in the operating agreement has been met.
- The company goes 180 consecutive days without a member.
- A judge rules to terminate the company because it engaged in unlawful activities or cannot continue to operate per its operating agreement or Certificate of Organization.
To start the process of dissolving the company, an LLC’s members or appointed transferees must file a Certificate of Dissolution (Form DSCB: 15-8872 (b)(2)(i)) with the Department of State.
After that, they can file a Certificate of Termination when the company has taken care of its obligations and liabilities, settled its debts, and shared remaining assets and properties.
The certificate contains the name of the company, its official address (it can be the address of its Commercial Resident Office Provider), and the following declarations:
- All liabilities, debts, and obligations have been discharged.
- Members have received their fair share of the company’s remaining assets and property.
- The company is not currently facing any action in court or has made adequate provisions to satisfy any judgment or settlement.
- The LLC is terminated.