Starting an LLC in Pennsylvania is a great move if you want to separate your private and business assets. An LLC offers flexible tax options and makes your business more attractive to investors. If this sounds good, this post covers everything you need to know to start an LLC in Pennsylvania.
Why Starting an LLC in Pennsylvania is Worth It
One of the main reasons to start an LLC in Pennsylvania is for limited liability protection. This protection means that your personal assets are shielded from liquidation if your business can’t pay its debts or is sued. Like all other states, Pennsylvania separates your personal and business assets when registering a Limited Liability Company (LLC).
Another critical benefit of forming an LLC is pass-through taxation. Pennsylvania allows business owners to receive profits and report taxes on their individual tax returns. Business owners can avoid double taxation, once at the company level and again on individual tax returns.
Pennsylvania also allows flexible ownership. You can form a single-member LLC or multi-member LLC. A single-member LLC offers limited liability protection while allowing you to file taxes as a sole proprietor. Multi-members LLCs are taxed as partnerships.
Furthermore, forming an LLC will boost your business credibility. An LLC is a formal business structure that is more attractive to investors. You may have difficulty convincing venture capitalists to invest in your sole proprietorship or partnership.
Finally, Pennsylvania offers numerous LLC tax credits and programs. There are at least 13 incentive programs targeting LLCs in Pennsylvania, including:
- Keystone Innovation Zone Tax Credit
- Educational Tax Credits
- Research and Development Tax Credits
- Entertainment Production Tax Credit
- Pennsylvania Resource Manufacturing Tax Credit
- Neighborhood Assistance Program
- Historic Preservation Tax Credit
- Malt Beverage Tax Credit Program
Pennsylvania invests heavily in the state’s economic development. As a result, you might be eligible for tax benefits depending on your type of business.
The Investment Needed to Start an LLC in Pennsylvania
Naturally, starting an LLC requires an investment. Most of these costs are optional. However, these investments can make your life easier. They may also guarantee compliance with Pennsylvania’s LLC requirements.
The most obvious cost is the state filing fee. For example, it costs $125 to file a Certificate of Organization with the Pennsylvania Department of State. However, the registration fee is $250 for a foreign LLC. The filing fee is mandatory if you hope to form an LLC in Pennsylvania.
You’ll also need a Registered Office to form your LLC in PA successfully. The state allows you to be your own Registered Office, which would be free in this case. However, you should consider using a Commercial Registered Office.
Reputable companies like ZenBusiness offer registered agent services. This service currently costs $199 per year and only takes a few minutes to set up.
You’ll also need an Employer Identification Number (EIN). This number is required to identify your business. You’ll also need it to hire employees or open a business bank account. You can get your EIN free from the IRS.
Finally, you might need a tax attorney. Pennsylvania LLCs may be subjected to multiple taxes, including corporate income tax, withholding taxes, state unemployment insurance (UI) taxes, and sales tax. You can also find information about the specific taxes from the Department of Revenue (DOR).
Finally, we highly recommend using an LLC formation service. Again, ZenBusiness is our top recommendation. You can check out our review of the best LLC services compared here. ZenBusiness LLC’s formation services start at $0 plus state fees.
6 Steps to Start an LLC in Pennsylvania
If you’re ready to start, here’s what you need to do to create an LLC in Pennsylvania.
#1 – Sign Up For ZenBusiness
We recommend using an LLC service like ZenBusiness to set up your LLC in Pennsylvania. It’s more expensive than manual filing. But, the benefits far outweigh the cost of paying for an LLC filing service.
ZenBusiness will take over the filing process on your behalf. You only need to provide a few details about your business, and the filing service will take care of the rest.
ZenBusiness offers three packages. The packages include:
Starter – This package starts at $0 plus state fees and comes with all the basics you need to start your LLC. ZenBusiness will prepare and file the LLC formation paperwork on your behalf. The service also files your annual report so you can stay compliant. You can renew this plan for $199 per year.
Pro – This package costs $199 per year. Again, ZenBusiness prepares and files your LLC paperwork. You also get additional perks like expedited filing and a virtual business guide.
Premium – This package costs $299 per year. Again, you get additional services like rush filing service and business domain name, website, and email address.
Simply visit the ZenBusiness website to get started. Then, you’ll fill out a simple automated questionnaire to help you find the appropriate package depending on your LLC formation needs. Remember, you’ll still need to pay the $125 state filing fee on top of the package cost.
#2 – Pick a Name for Your LLC
If you haven’t already, you’ll need to name your business before filing for an LLC. Pennsylvania has multiple naming requirements, including:
- The business name must not be already registered in Pennsylvania
- The business name must include the words “limited liability company,” “limited,” “LLC,” or “company.”
- The businesses name cannot be misleading as to the nature of the business
- Certain words such as University, Bank, or Attorney are restricted and may require filing additional paperwork
The naming requirements are outlined in 15 PA Cons Stat 202-204.
You can perform a name search on the State of Pennsylvania database to confirm that the name you want isn’t already taken. ZenBusiness includes a name search in all its LLC formation packages.
Additionally, consider reserving your business name if you aren’t ready to form your LLC. This precaution ensures that no one can take your business name until you’re prepared to file your paperwork. ZenBusiness also offers business name reservation services.
You’ll need to fill out and submit a business name reservation form if you prefer to file it manually. The PA Department of State charges a $70 filing fee. The state will reserve your business name for up to 120 days.
Finally, consider reserving your domain name with a host such as GoDaddy. It’s a good idea to ensure that your URL is available when you’re ready to create a business website. It’s ideal if your domain name matches your business name.
You might also want to consider changing your business name if the domain name is unavailable. It’s difficult to imagine a successful business without a website and matching domain. Alternatively, check if you can purchase the domain from the current owner before changing your business name.
#3 – Designate a Registered Office
All Pennsylvania LLC must elect a registered office. A registered office is the point of contact between your business and the state of Pennsylvania. The registered office is responsible for receiving official and legal paperwork, including service of process documents, complaints, subpoenas, and state filings.
The registered office must have a Pennsylvania street address. A P.O. Box doesn’t qualify for a registered office. Finally, the registered office must be available to receive official and legal documents during business hours.
Pennsylvania allows you to act as your registered office. However, it’s better to outsource the job to a third-party such as ZenBusiness. There are many downsides to acting as your own registered office.
For one, it’s easy to forget to file annual reports and other compliance paperwork. Filing this paperwork on time helps avoid potential fines. It also ensures that your business is always in good standing.
A registered office like ZenBusiness will file compliance paperwork on your behalf. The agent has automated alerts and reminders for this. And, you can access the filed paperwork from your portal when needed.
Additionally, using a professional registered office lets you maintain your privacy. The registered office street address is public information. Anyone can find your home or office address with a quick Pennsylvania business entity search.
Finally, a designated registered office means you don’t personally receive the service of process documents. Therefore, it can save you the embarrassment of being served in front of important clients.
ZenBusiness offers registered agent services that can easily be added to your plan when you’re going through the formation steps. You can also avail of the à la carte registered agent service at $199 per year.
#4 – File a Certificate of Organization
You must file a Certificate of Organization with the Pennsylvania Department of State to register your LLC. Some states call it an Article of Organization. You can submit your application by mail or online.
Some of the details you’ll need to provide in the Certificate of Organization include:
- Entity name
- Registered office name and street address
- Effective date
- A description of your business activity
- Employer Identification Number (EIN)
You’ll also need to file a supplemental form known as a Docketing Statement. The document contains basic information, such as the business name, the type of organization, and a description of your business activities. There’s no extra charge to file the Docketing Statement.
Again, a $125 filing fee is payable to the Pennsylvania Department of State. You can submit the documents online or by mail. The state filing fee is non-refundable, so ensure you have all the correct details before submitting.
Again, ZenBusiness will prepare and file the appropriate document on your behalf. It’s convenient since you don’t have to worry about entering the correct information. You’re also guaranteed that the application will go through.
#5 – Wait for the Application to Be Processed
The PA Department of State takes roughly one week to process the Certificate of Organization. You’ll receive a copy of the filed certificate in your mail if your application is successful.
The Department of State will also issue reasons for declining your application if it doesn’t go through. You’ll also have an opportunity to resubmit your paperwork.
If you’re using ZenBusiness, the filing service will receive the filed certificate on your behalf. The service will then upload the certificate to your online portal. Finally, ZenBusiness will help you re-submit your application for free, excluding the state filing fee if your application is rejected.
#6 – Draft an Operating Agreement
An operating agreement is not mandatory. You also don’t need the operating agreement to form an LLC in Pennsylvania. Still, it’s a crucial document that you shouldn’t overlook.
The operating agreement outlines how the LLC is run and managed. It includes details such as:
- A description of the company’s products and services
- Member names and addresses
- Manager’s name and address for manager-managed LLCs
- Member’s capital contributions to the LLC
- Voting rights, profit shares, and ownership stakes
- Procedures for admitting new members
- Meeting schedules and voting procedures
- Election procedures, where applicable
- Terms for dissolution of the LLC
It’s also worth getting the operating agreement notarized to make it more official. Naturally, all the members should review and sign the operating agreement. The document may be used for legal or arbitration purposes.
ZenBusiness offers operating agreement templates, which you can access from your portal.
The next step is to open a business bank account. It’s the only way to guarantee limited liability protection. Mixing your personal and business finances may pierce the corporate veil. It would leave your personal assets vulnerable in case your company goes bankrupt or is sued.
Next, file for the necessary business licenses and permits. An LLC is simply a business structure. It doesn’t allow you to operate the business. Again, ZenBusiness can help you research and obtain the necessary licenses and permits for your state and type of business.
Finally, check out our top list of the best LLC services here to find other terrific ZenBusiness alternatives.