Congratulations on taking steps to become a business owner in Pennsylvania. By starting an LLC in Pennsylvania, you are on your way to selling products and/or services to the public. The acronym “LLC” means limited liability company. An LLC is a type of business entity developed to provide business owners with a level of liability. This means you face lower caps on the amount of debts your company incurs. In other words, creditors must go after company assets and not your personal income for any unpaid debts the LLC owes.
Another reason to for a Pennsylvania limited liability company is to operate as a holding company. A “holding company” is simply used to hold assets that you don’t want to put in your name, but want to own. These assets include vehicles, aircraft, real estate and boats.
Types of LLCs in Pennsylvania
Many business owners seek out Pennsylvania LLCs because they have elements of a partnership and a corporation. However, it has more protection than a sole proprietorship. In the Commonwealth, you have many LLC options to choose from when forming an LLC Pennsylvania. If you have more than one business partner, you may choose a partnership LLC for tax purposes. This is also called a multiple member LLC. If you are the sole owner of your LLC, you are considered a single-member Pennsylvania LLC.
Now that you know a little more about the purpose of forming an LLC in Pennsylvania (PA), you must follow four steps to legally form your LLC. These four steps are the Pennsylvania LLC filing requirements. In addition, you must complete four more steps to complete and maintain your Pennsylvania LLC in the Commonwealth.
The Four Pennsylvania LLC filing Requirements
Creating an LLC in PA, takes the following steps:
- Completing a Name Search
- Securing a Registered Office
- Filing LLC Forms with the Commonwealth
- Creating an Operating Agreement
It’s important to complete each step before moving on to the next one. For example, if you file your forms with the Commonwealth before completing a name search, your LLC may be rejected. This often happens if there’s an existing Pennsylvania LLC with the business name you’ve chosen. In Pennsylvania, every business name must be unique and different from the other. This means no two businesses share the same name.
1. Completing a Name Search
Choosing a business name is the most important step when starting your Pennsylvania LLC. It’s important to choose a business name that follows Pennsylvania business naming requirements. This ensures your business name is unique and easily searchable by potential customers and clients. Pennsylvania has the following naming requirements guidelines:
- Include the phrase “limited liability company” in your business name. If you don’t want to use the phrase, you can use an abbreviation. Some abbreviations include L.L.C or LLC.
- Choose a name that doesn’t include words that will confuse your LLC with any government entity. Examples of government agencies include the State Department, Treasury and FBI.
- Avoid words considered “restricted” by the Commonwealth. Using these words require additional paperwork. In addition, you must be a licensed individual such as a lawyer or doctor to use the terms. For example, some restricted words include university, bank and attorney.
Once you’ve chosen a business name, make sure it’s available in Pennsylvania. This means checking to make sure the business name isn’t in use. This is done via a Pennsylvania LLC search.
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Using the PA Business Entity Search Tool
To ensure your potential name is unique, it’s best to think of a few names that fit the Commonwealth’s criteria. The next step in the name search process is to go online to the PA business entity search tool. The online database as all the business names that are inactive and active. Thus, the results will show you whether your desired business name is available.
When typing your potential business name into the search box, leave out the LLC designator. This means that you type in your business name without indicating it’s an Pennsylvania LLC. Also, leave out any punctuation marks like hyphens, periods, apostrophes or commas. It doesn’t matter if you use lowercase or uppercase letters when typing your name into the database. It ignores all capitalization.
Determining the Business Name Search Results
After you hit the “search” button, you’ll receive one of four possible results. The type of result you receive will determine the next step in your name search. The following are the four options:
- The results show names that aren’t too similar to your potential business name. This is the best case scenario. You can use your potential business name.
- If the search results yield “No results found for search term” message, then this is another best case scenario. Your potential business name is available to use.
- If your potential business name appears in the search results exactly as you typed, then it’s not available to use. You’ll need to choose another potential business name.
- The search results show your business name is deceptively similar to other business names in the database. The term “deceptively similar” doesn’t mean that you did anything wrong. It means that your potential business name sounds too much like other business names. You can’t use the potential business name. Thus, you’ll need to alter the name so that it doesn’t sound too similar to other business names or choose a new name.
Once you’ve found a unique business name to use, you’ve completed this step.
Remember that this is a very important step in starting an LLC in Pennsylvania. Pennsylvania’s LLC filing fee is non-refundable. This means that if you avoid completing this step or decide to use an existing business name, your LLC form will be rejected. Thus, you’ll have to refile and pay the filing fee again to form your LLC.
If you are an existing LLC, you must go through the same name search process. Business names can be used in different states. So, you can name your business “ABC L.L.C.” in Nebraska. You file paperwork to become a business owner in Pennsylvania and want to use the same name. However, “ABC L.L.C.” is already in use by another business owner. You can’t use the business name. You’ll have to choose a different name to operate an LLC in the Commonwealth.
Wait for your LLC approval before buying a domain name, business cards, signs, letterhead or marketing materials. You can check for your potential business name online, but if your LLC is rejected, you can’t use it for your business.
2. Securing a Registered Office
Prior to submitting your Pennsylvania LLC forms to the Commonwealth for approval, you’ll need to select a registered agent. According to Pennsylvania law, you’re required to include an address of your commercial registered office provider or registered office with your Pennsylvania LLC form.
If you have an LLC in another state, you may be confused may the term “registered office.” Most states require you to select a registered agent for your LLC. This person accepts all legal documents for your LLC. However, in Pennsylvania, the term used is “registered office.”
A registered office address is the street address where your legal documents are delivered. The address must be located within the Commonwealth of Pennsylvania. The address can’t be a post office box. This office serves as a general point of contact for any legal documents your Pennsylvania LLC receives. This includes legal documents such as payment reminders, tax notices, state documents and lawsuits.
The Commonwealth requires you to have a person, who acts as the LLC’s agent, to be at the registered office address during normal business hours. These normal business hours are typically during the week from 9:00 am to 5:00 pm. They must be there so they can accept legal documents. This is called Service of Process.
Before selecting a registered office address, it is important to know that your LLC address will be public record. Some business owners use their home address as their registered office address. This means that their home address will be publicly listed. You have the option to hire a Commercial Registered Office Provider.
This is a company that is legally allowed to operate in the Commonwealth. The business uses its address as your LLC’s registered office. Also, it accepts all legal documents on your LLC’s behalf. Commercial Registered Office Providers charge an annual fee for their services. The fees vary. Thus, talk to each provider to obtain their fees.
You also have the option of using the address of a family friend or relative. If you choose this path, your friend or relative must be available during normal business hours. Also, they must agree to accept legal documents on your LLC’s behalf.
3. Filing LLC Forms with the Commonwealth
Filing your Pennsylvania LLC forms involve completing a Certificate of Organization and docketing statement with the Commonwealth. You can file by mail or online. If you choose to mail the forms, you’ll send them to the Pennsylvania Bureau of Corporations. These two documents officially form your Pennsylvania LLC.
There are a few things you need to indicate on the Pennsylvania LLC forms prior to submitting them. For example, you need to indicate whether you are a domestic or foreign LLC. The term “domestic LLC” simply means that you are conducting business in the state where the LLC was formed.
A foreign LLC doesn’t mean that your company was formed and/or operated in another country. Instead, it means that you already have an existing LLC formed in another state. You are expanding your business. An example of a foreign LLC is when you formed an LLC in Ohio, then decided to expand your business to Pennsylvania. Your LLC in the Commonwealth is considered a foreign LLC.
In the process of forming an LLC, one of the most important decisions you’ll make is how the company is managed. This decision must be made prior to submitting your LLC forms. You have two options: member-managed and manager-managed LLCs.
A member-managed Pennsylvania LLC is sometimes called a “decentralized LLC management” because all members have administrative powers. This means they make decisions together instead of one member making all the decisions about the LLC. You’ll typically choose a manager-managed LLC when you have more than one co-owner. Another reason to choose this type of LLC is when each co-owner is willing and able to make decisions in the day-to-day operations of your LLC.
A manager-managed Pennsylvania LLC is totally opposite of the member-managed structure. In the manger-managed LLC, member gives the administrative power to one specific person. The individual, called a manager, handles the day-to-day operations of the company. This means they make all the business decisions without consulting co-owners. This type of LLC structure is called “centralized management.” It’s centralized because the administrative power is only in one person’s hands.
You may choose the manager-managed LLC structure when you have a large business. Another reason to choose the manage-managed option is you (as the sole owner) and/or your co-owners don’t want to be involved in the day-to-day operations of the LLC.
Also, it is important to include your Pennsylvania LLC’s name exactly as you want it. Include your preferred capitalization. Select your desired designation such as LLC or L.L.C. In the next section, you list your Registered Office Address and the agent or company hired as your point of contact.
There’s one part that does confuse people. It’s the Organizer section. An organizer is simply the title of the person submitting the forms to the Commonwealth. In this section, you’re required to select “Individual Name” if you are the person forming the Pennsylvania LLC. The organizer isn’t required to be the owner. Also, listing your name in this section doesn’t automatically make you an LLC member either.
Complete the Effective Date of Certificate of Organization
You have a couple of options when deciding your formation date. You can go with the date approved by the state. You can also choose a future effective date.. You have to choose a date when you want your LLC formed.
If you choose a future formation date, you want to pick that is earlier in the year. If you choose a date between August and December, you may want to wait until the next year. You’ll have to file taxes on January 1st for the following year. This means that you won’t have the hassle of reporting and filing taxes for the months when your business has no activity.
Fill out Your Docketing Statement
When filling out your docketing statement, include your name, address and description of your LLC. You can explain the purpose of your business in a sentence or a couple words. The Commonwealth doesn’t allow you to write a general purpose statement. You must be as specific as possible or your filing will get rejected.
You have three options when filing your forms:
- Online. You’ll pay the filing fee at the time your submit your forms.
- By mail. You will send the filing fee with your paper forms.
- Walk-in. You’ll pay the regular filing fee and an expedited fee at the time you submit your forms.
You’ll wait seven to 10 business days to find out if your LLC filing was approved or rejected. The walk-in option is the only way to get your LLC approved before the seven to 10-day period. The amount you pay to expedite the LLC formation process depends on whether you want it done the same day, within a 3-hour period or within an hour. The latter will cost approximately $1,000. If you choose this option, you must submit your formation papers before 4:00 p.m.
If you choose to wait the required business days to receive a decision, you’ll receive a letter in the mail. The letter is sent to your legal registered office address. Once you’re approved, you can begin operating your LLC in the Commonwealth. However, if your LLC forms are rejected, you must correct any mistakes outlined in the rejection letter.
4. Creating an Operating Agreement
An operating agreement is a legal document that describes the operating procedures and ownership of an LLC. This agreement is a comprehensive document to ensure that you and/or your partners are on the same page. It also reduces the risk of any future conflicts.
Pennsylvania (PA) doesn’t require you to file your operating agreement when filing your LLC forms. The legal document is for internal use only. In the operating agreement, you should include:
- Whether your LLC is a single-member or multi-member LLC. A single-member LLC mean that you are the sole owner. If you have co-owners, you have a multi-member LLC. If you are part of a multi-member LLC, you should describe the type of ownership each member has. Ownership is separated into units or percentage.
- The date when your LLC was formed. This is the effective date.
- How the LLC will be managed. This means whether owners will share management duties or if you’ll appoint a manager.
- Voting rights for each member. Whether or not your multi-member LLC is managed by a manager or not, you’ll need to decide if some members will receive more voting power than others. Every member typically gets one vote. However, some members are given more voting power than other members for a specific reason.
- The type of capital contributions included in your LLC. Each member typically invests in your business. However, you’re required to determine how additional funds are raised in the future to fund your LLC.
- Lists how profits and losses are distributed among each member. The most common type of distribution is every member receives equal losses and profits. If you want profits and losses distributed differently, list that in your operating agreement.
- How membership structure changes are handled. Members may come and go during your LLC’s lifetime. You must know the process of replacing and/or buying out an LLC member. You must know how the ownership is transferred in the event that a member dies or leaves the company.
- Outline how your LLC will be dissolved. At some point, you may decide to dissolve, or end, your LLC. If you no longer want to conduct business in Pennsylvania, you must officially dissolve it. It’s better to do outline the process now instead of trying to figure it out later. In this section of your operating agreement, you outline several different hypothetical processes to end your LLC.
You Must have an Operating Agreement
No matter the type of LLC you’re starting in Pennsylvania, you want to create an operating agreement. The following are three specific reasons why an operating agreement is important to a sole owner or an LLC with multiple owners:
- Pennsylvania Consolidated Statutes Section 8812(a) recommends every LLC owner enter into an operating agreement to regulate the company’s internal affairs.
- You prevent conflicts between you and your business partners. If you have a multi-member LLC, you must have an operating agreement. The agreement outlines information about your company that will prevent misunderstandings, outline member responsibilities and set clear expectations.
- Preserve your company’s limited liability status. If you are the single-member LLC owner, you still need an operating agreement. The agreement helps you protect your limited liability status if your LLC is ever sued. It provides documentation that your personal and business finances are separate.
When completing an operating agreement, you have two options: boilerplate and customized forms. A boilerplate form is a legal document where you fill in the blank in certain areas such as the LLC’s name or percentage member’s own. In other words, it has all the legalese you need to create an operating agreement. A customized form is a legal document created scratch. All the legal information is included in the document at the time it’s prepared. A customized operating agreement is a perfect option when you want greater control of what’s in the operating agreement instead of using the fill-in-the-blanks version.
Additional Requirements for Forming and Maintaining an PA LLC
1. Apply for a Tax ID Number (EIN)
An Employer Identification Number (EIN) is issued by the Internal Revenue Service, not Pennsylvania. The number acts as your LLC’s social security number (SSN). Once you receive the number, you’ll use it to open your LLC’s bank accounts and file taxes. You will also use the number to hire employees for your LLC.
Applying for an EIN is simple. You can apply by filling out a form and mailing it to the LLC. You can also apply online. You’ll receive your number immediately. You’ll have to apply during business hours during the week. Both options are free. There’s no charge to obtain an EIN. However, the IRS requires you to have an SSN to apply. If you don’t have one, you’ll have to apply for your Pennsylvania LLCs EIN by mail.
Once you have your Pennsylvania LLCs EIN, you can open business bank accounts. This will help you keep your personal and business accounts separate so that you aren’t accused of piercing the corporate veil. The term “piercing the corporate veil” refers to commingling personal and business assets together. When this occurs, your business can lose your LLC status. Also, if your LLC has unpaid debts, creditors can go after your personal assets to get paid. Thus, getting an EIN is an important step in protecting, maintaining and growing your business.
2. Filing a Decennial Report
Once your LLC is formed in Pennsylvania, you’re required to file a Decennial Report. A Decennial Report is done to keep your LLC in good standing and compliance. You must file this report with the Pennsylvania Bureau of Corporations along with the required filing fee. The Commonwealth requires you to file in the years that end with “1.” For example, you’d file your Decennial Report in 2021.
You can file your report any time during the year as long as it’s done by December 31. If you file it January 1, 2022, you’ll receive a penalty and be marked delinquent. You can’t file your report earlier than the year ending in “1.”
If you miss one or more of the report filings, your LLC faces automatic dissolution. This means you risk losing your limited liability protection.
3. Obtaining Licenses and Permits
The Commonwealth requires you to comply with all city and county permit and license obligations. The type of permits and licenses you must obtain depends on your industry and where your LLC is located within the Commonwealth.
Some types of permits and licenses include, but are not limited to:
- Building permits
- Health permits
- City business licenses
- City tax permits
- Signage permits
- Occupational permits
- Alarm permits
- Zoning permits
- Sales tax permits
- seller/reseller permits
- Alcohol and tobacco permits
4. Filing Taxes
Whether you’re required to file taxes depends on the nature of your business. You may be required to register for various state taxes. For instance, if you plan to sell goods and products, you must register for a sellers permit via the Pennsylvania Department of Revenue. Once you apply and are approved, you’ll receive a certificate. This allows your LLC to collect sales tax on taxable goods.
If you plan to hire employees, you’re required to register for Employee Withholding Tax via the Pennsylvania Department of Revenue. Unemployment Insurance Tax, obtained through the Pennsylvania Office of Unemployment Compensation, is another tax you’re required to pay if you hire employees.
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Forming a Pennsylvania Limited Liability Company
Congratulations again for working hard to become a business owner in Pennsylvania. The commonwealth allows you to form an LLC to protect your personal assets from your business structure in the event your business is sued. You’ve decided to operate your LLC as a business or decided to use it to hold assets such as real estate. Whatever your reason for forming your LLC, you must follow all the guidelines the Commonwealth requires. If you choose to get an EIN before conducting a name search, you may have to start the process over again if the forms are rejected.
An LLC in PA takes a lot of work to form and maintain. For example, after your LLC is approved, you should get business insurance. Business insurance helps you decrease the risks associated with business losses such as lawsuits. This means you can focus on growing your LLC in the Commonwealth. One type of insurance you should obtain for your LLC is general liability insurance. General liability insurance is a wide-range insurance policy that protects your LLC from lawsuits.
Professional liability insurance is for service providers such as accountants and consultants. This insurance protects them from malpractice claims and other business errors. Workers’ Compensation insurance is required when you have employees and need to protect against job-related injuries, illnesses or deaths.
Pennsylvania LLC filing requirements are complex. If you miss one step, your LLC forms may be rejected. This means you must restart the process of forming your business in the Commonwealth. You don’t want to go through the process of trying to complete every step when you’re trying to start and/or grow your business. The ideal option is to hire a professional service to make the process easier and stress free. The professional LLC formation service does the work for you.
Whether you are setting up a business in Lancaster, Pittsburgh or Harrisburg-York-Lebanon, you’re ready to succeed in business. That means creating an LLC and getting your business up and running with as minimal challenges as possible. Contact a professional LLC formation service to help you get your business up and running today. The Rhode Island LLC guide is available next.