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As the most affordable state in the Northeast, starting an LLC in PA is quickly becoming among entrepreneurs looking to start a business up north without the notoriously high cost of living.
This coupled with the fact that it has the 2nd most diverse state economy in the U.S. makes starting an LLC in PA the perfect location for entrepreneurs! It makes sense then that so many entrepreneurs would want to know how to start a Pennsylvania business.
So, let’s dive into how to start an LLC in PA, step by step!
Table of contents
- Choose a Business Entity for Your LLC in PA
- Create a Business Name
- Register Your Business
- Get Your Employer Identification Number or EIN
- Attain Your Business Licenses and Permits
- Get a Registered Agent for Your LLC in PA
- Open a Business Bank Account
- Filing Business Taxes
- Getting Started with Your LLC in PA
Choose a Business Entity for Your LLC in PA
To understand how to start an a business in Pennsylvania, you need to understand entity formation. Limited Liability Companies (LLCs) and Corporations are the most popular business types.
Business formation is important because it sets your company apart as a professional company and not just a hobby.
A corporation is a legal entity created separately from those who own and operate it. A corporation’s debts and taxes are separate from its owners, thereby offering the greatest personal liability protection of all business structures. The two most common types of corporations are S and C corporations.
Limited Liability Company
LLCs are the most popular business structure, blending the aspects of corporations, partnerships, and sole proprietorships into a simple and flexible business entity. Like corporations, LLC formation protects the owner’s personal assets and also shields them from personal liability similar to a corporation. They also possess the “pass-through” tax benefits of a partnership.
There are two types of LLCs…LLC run by just own person (single-member LLC) and LLCs run by multiple people (multi-member LLCs)
Starting a LLC in PA can be difficult and confusing, especially as a first time business owner. But with a company like Inc Authority in your corner, you’ll not only have your LLC formed for you, you’ll get expert guidance beyond business formation, so you never have to wonder or worry about what to do next!
What About DBAs?
DBAs (which stands for “doing business as”) grants business owners the ability to conduct business under an assumed name. A DBA is also referred to as a fictitious business name and is an authorization by the state for your business to operate under an assumed name.
For sole proprietors and owners of LLCs, DBAs offer an affordable way to gain legal recognition for the secondary name of your choice.
- Sole proprietors: For sole proprietors starting a new business, DBAs are a budget-conscious way to gain legal status and work under a creative company name.
- LLC owners: If the name on your LLC paperwork and your business name differ, DBAs offer the opportunity to operate as an LLC under a different legal name.
A DBA provides privileges like the ability to open a bank account, create enforceable contracts and establish federal employer tax status (getting an EIN). It’s possible to file multiple DBAs, allowing a single LLC to operate different businesses under the same legal umbrella. If you’re starting a business or expanding your LLC in PA, get the proper legal recognition early on to start off on the right legal footing.
Pennsylvania State Filing Fee
Furthering its reputation as the most affordable state up North, PA LLC filing only costs $131. When you compare that to Massachusetts’ $500 filing fee, you’ll realize how lucky you are to be in such an affordable state.
Create a Business Name
Forming an LLC in PA also requires you to figure out your corporation or LLC name and reserve that name. Name reservation is actually one of the biggest decisions you’ll make. It may not seem as important as choosing the type business entity, but it is. As a matter of fact, many legal issues can arise from choosing the wrong name for your business startup. So, let’s look at how to register a business name in Pennsylvania:
- First off, come up with a unique business name that captures what your business will do, is easy to pronounce, and isn’t era specific or too niche. This is easier said than done, so take your time.
- Once you’ve decided on a name, search the web to make sure no one is using it. This may force you to go back to the drawing board. Also, check if your desired sire name or URL isn’t taken yet.
- After doing a basic name search, you’ll need to do a more thorough trademark search. This is an important step that can lead to a lawsuit if done incorrectly. A good rule of thumb to follow when doing a trademark search is to search for misspellings, plurals, variations of spelling, an abbreviation, sound-alike, and more…
- The last step is to run your chosen name through the Pennsylvania Secretary of State’s business entity database making sure to follow the same rules mentioned above.
Register Your Business
To register an LLC in PA (or a corporation), you must choose a city as each has different rules and regulations. Philadelphia is a popular location, so let’s look at how to register a business in Philadelphia, including payables such as Pennsylvania LLC cost, PA government fees, and so on.
Articles of Organization
The first step in PA LLC registration is to file your Articles of Organization (or Certificate of Organization) with the State of Pennsylvania. This only has to be done once, but you will need to file a biennial report for your LLC, which has its own fees.
There are three ways to do this. You can download and mail in your Pennsylvania Certificate or Articles of Organization, create an account and file online, or have Inc Authority file do it on your behalf. If you decide to take a crack at on your own, you have two options below:
Option 1: Access the online Articles of Organization forms by clicking here.
Option 2: Access the Articles of Organization PDF from the Pennsylvania Department of State website. This form will need to be mailed to the Department of State’s Division of Corporations.
The information below is what you’ll need to complete the form:
- Entity Name
- Location of LLC Office
- Service of Process Address
- Registered Agent
- Management Structure
- Effective and Dissolution Dates
You only need to file your Articles of Organization with the State of Pennsylvania once, but you will need to file a biennial report for your LLC, which has its own fees.
Pennsylvania law also requires you to file something called a docketing statement. This is a supplemental form that is used to create a new business entity in the state of Pennsylvania. The docketing statement will be included with the submission for your new business and certificate of organization when you file it with the Pennsylvania Department of State.
The statement does not require any fee and will be required to include some basic information on your company such as:
- The business name
- Type of organization
- Description of business activities
Once your articles of organization have been filed and approved, you’ll need to properly organize your LLC with an Operating Agreement.
The state of Pennsylvania requires every LLC business owners to file an Operating Agreement, regardless of whether the company has one or multiple members. Your Operating Agreement will outline the structure and purpose of your company as determined by your LLC members and will bind all the members of your LLC.
Issues that should be defined by your LLC Operating Agreement include:
- Member powers
- Rules for meetings
- Members’ voting rights
- How your LLC will be managed
- Guidelines for losses and profits
- Buyout provisions
Once the Operating Agreement has been adopted, it will provide protection for the members of your LLC. When the members of your LLC have agreed to the terms of your Operating Agreement and have signed the document, you should keep the agreement in a secure location.
Inc Authority can remind you to do or do for you if you choose to have us handle the paperwork.
Get Your Employer Identification Number or EIN
The next step you’ll want to tackle is getting your EIN or Tax ID number (TIN). This number is like your business’s social security number, separating you from your business. This protects you from fraud and identity theft.
Additionally, an EIN is required by your bank to open a Business Checking Account, file tax returns, obtain payroll services and credit cards, and pay for any LLC cost PA laws require.
To apply for your EIN, you’ll need to complete form SS-4, which can be found on the IRS website.
Attain Your Business Licenses and Permits
You must also learn is how to get a business license to start your LLC in PA (or corporation). Getting the proper licenses and permits for your small business, authorizes your company to do business in your city/county.
Pennsylvania uses an easy-to-use system called PALS to help entrepreneurs easily discover what licenses/permits they need. Using this Penn file system also tells you the fees (LLC cost, PA state fees, etc.) involved. This will vary depending on your operating city county and industry.
Keep in mind that local permits and licenses can vary between locations. So, be sure to check with local small business offices, often part of the County Clerk or branch of the city government, to learn more. The Small Business Association (SBA) also offers expertise in finding local forms and permits or you can use an online business license service provider to obtain the proper licenses and permits for you.
Lastly, remember that licenses and permits will need to be renewed annually or in some cases, biennially. You can note these renewal dates on your own, or let Inc Authority send you reminders as it gets closer to the date.
Get a Registered Agent for Your LLC in PA
There are an estimated 38 million home-based businesses in the U.S., so if you’re thinking about starting a business in your home, you’re definitely not alone.
But, did you know that all businesses are required by law to have an address where they can accept service of legal documents (like a service of process) from the state or government agencies during normal business days and hours? Without an office, that would be your street address or P.O. box.
As you can imagine, that’s not always possible (or advisable) with a home-based or foreign-filed business. That’s where a registered agent comes in.
A registered agent is a responsible third-party in the same state as your business who receives official government notifications (usually tax forms and notice of lawsuits) on behalf of your LLC in PA .
Even if you aren’t planning on starting a home-based business or foreign LLC, having a registered agent is still advisable because it will:
- Limit third party access to your personal information
- Ensure that you never miss important documents
- Protect the privacy of owners
- Eliminate junk mail
- Ensure you’re never served with legal papers in front of your clients
- And more!
How to Set up Registered Agent Service
While it is possible to act as your own registered agent, it is not advisable. That’s why most companies hire a third-party (a professional service) to act as their registered agent.
Why not let Inc Authority act as your registered agent. We’ll be the buffer between your business’ legal matters and your physical place of business. That way, anyone trying to locate you, or the LLC must first come through us.
Learn more about our registered agent services here.
Open a Business Bank Account
To keep your personal and business expenses separate and to stay in good standing with the Internal Revenue Service (IRS), you need to open a business bank account for your LLC or corporation.
Setting up a separate bank account for your company makes it easier to for you do business, manage a cash balance, complete and file your income tax returns with the Pennsylvania Department of Revenue, deduct business expenses for taxes, conduct proper accounting, and execute employee payroll. Bank accounts also provide better protection in the event of legal action.
Additionally, business bank accounts create historical relevance through the relationship established with the bank, and can create unrestricted access to long-term funding options, business credit cards, and other financial solutions.
Types of Business Bank Accounts
Not all business bank accounts are created equal. That’s why it’s important to distinguish between the good, the bad, and the best business bank accounts.
A business checking is the most common type of business bank account and the first one you’ll want to open for your business. This because business check accounts allow you to:
- Accept deposits (over-the-counter cash, checks, credit card, and electronic deposits).
- Pay for business-related expenditures (payroll, taxes, business insurance, vendors, lenders, and everything imaginable that you’ll need to operate your business).
- Keep detailed records of all expenses and income.
- Protect your money. This account is Federal Deposit Insurance Corporation (FDIC) insured, meaning you’re covered up to $250,000 by the federal government should anything happen to the bank or your money.
- Support dual signatures. If you have a partnership or employees, you may wish to make it required that two signatures be present whenever a withdrawal or deposit is made.
This one should come as no surprise. A business savings account (like a personal savings accounts) lets you safely save money in a bank. You don’t need this right away though, only when you have an abundance of capital sitting in your business checking account, will you need to open a savings account. It allows you to:
- Make saving money a habit. The most successful companies (think blue chips like Wal-Mart, Amazon, General Mills, Hershey’s, and General Electric) all have solid reserves of capital.
- Protect your business during a cash-crunch. Incidentally, 80% of businesses fail because of cash flow problems.
- Save money so that you don’t have to take out expensive business loans.
- Maintain liquidity. With a business savings account, you can liquidate assets to buy equipment, purchase real estate, and make other big purchases for your business.
- Build business credit. Yes, having a business savings account can actually help you establish and build business credit.
Business Certificate of Deposits
A business certificate of deposit (CD) is a term account that offers maximum security and a guaranteed rate of return. You agree to lend your business’s money to the bank for a set period of time at an agreed-upon interest rate. The interest rates are usually higher than you’d receive from a business savings account or interest-bearing business checking account.
Here are the main features of a business certificate of deposit:
- It pays out 1% or more in interest. Some CDs pay over 2% in interest
- You cannot liquidate the account until the term expires. This means you can’t spend the money.
- The longer the term, the higher the interest rate.
- Different banks offer different term limits. Some CD terms are for a week, months, or even years.
Money Market Accounts
This is a lesser known type of business a bank account and isn’t for every business owner. You’ll want this type of account if you have a lot of money saved, want higher interest rates than a business savings account or interest-bearing business checking account, but still want some access to your money.
Here are the main features of a business money market account:
- Six withdrawals per month.
- Deposit money anytime.
- Deposit as much money as you like.
- Higher interest rates (currently between .1% and 1.6% APY)
- Require a minimum balance.
- Penalties if you withdraw more than six times in a month. Ask your banker what the penalty is if you withdraw more than six times.
How to Open a Business Bank Account
Opening a business bank account is as simple as gathering some information together and completing an application. Here are the steps to open a business checking account:
- Do your due diligence. Research different banks and discover what each one offers. Then decide which one will work best for your business type. An easy way to do this research is to check out some of our business bank reviews.
- Get a tax ID number. You can get one free EIN from the IRS. If you think you already have one, here’s how to look up an EIN.
- Gather your business formation documents.
- Gather your business license or business name filing paperwork.
- Call the bank and find out what other items you’ll need to open a business bank account. Every bank has different requirements, so make sure you check with them first before attempting to open a business bank account. Sometimes this information will be listed on the bank’s website.
- Go in person or online to complete all necessary paperwork and submit your business documents.
At Inc Authority, we make getting a business bank account easy. How so? Well, when you form your business with us, you gain access to a free Bank of America business checking account. So, don’t wait! Form your LLC in PA today!
Filing Business Taxes
As in most states, Pennsylvania treats LLCS as corporations or limited liability partnerships. Because of this, they are subject to Pennsylvania Personal Income Tax and Corporate Franchise Tax, which conforms to federal income tax classifications. Depending on the type of taxation you chose for your LLC, the tax responsibilities are as follows:
- An LLC treated as a limited liability partnership. Pennsylvania LLC owners are required to file the Form IT-204, or Partnership Return Form with the Pennsylvania Department of Revenue
- An LLC treated as a C corporation for federal tax purposes, or an S corporation. Pennsylvania State requires LLC owners to file a Pennsylvania State Corporation Franchise Tax Return.
- An LLC treated as a sole proprietorship. These LLCs must report all business income and expenses via the sole proprietor’s personal income tax returns.
In some cases, you as the LLC owner will be required to pay a filing fee or an estimated income tax on behalf of certain partners or members.
Getting Started with Your LLC in PA
Forming a professional LLC or corporation in PA is an exciting opportunity, but like starting any business it can be overwhelming. Why not let the business experts at Inc Authority do all the heavy lifting for you?
We’ll form your LLC or corporation, run a business name check, get your EIN, and make sure you have all the licenses and permits needed to run your business in PA. We can also advise you on the things you need to pay, such as LLC cost, PA state fees and other payables.
Not to mention we offer a ton of free management and report tools to help make running your business as simple as possible. Please contact us or visit our website today to get started!
Incorporating is the most powerful thing you can do to legitimize your business. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your free LLC today and enjoy the protection due to you and your business under the law.