How to form an LLC in Pennsylvania in 6 easy steps
Many entrepreneurs want to start a business but aren’t sure of all the steps they need to follow to get the company up and running. Whether you offer professional services or sell a product, there are several great ways to structure your business, including forming an LLC.
Not only does the business structure offer options for companies with one employee — single-member LLCs —but it is also perfect for larger organizations. It also provides an extra layer of liability protection for personal assets.
The following step-by-step guide will walk you through the essential items you need to know before establishing your domestic limited liability company.
1. Check if your business name is available
When choosing your LLC name, you will carefully consider several factors. The name you choose should reflect the services or products you offer customers.
If the LLC you are establishing offers accounting services, you may consider using your name and an industry designation (CPA, CFP, etc.). Another option is to use words that describe your business offering. Regardless of what you decide for your Pennsylvania LLC name, you want to keep it simple so everyone understands what your business does.
Here are a few things to keep in mind when selecting a name for your LLC business:
- You must end your name with “Company,” “Limited,” or “Limited Liability Company” or use abbreviations like “Ltd.” or “LLC”
- The word "corporation" can not appear in your company name
- Business names must be distinguishable from other business entity names
- Avoid any phrases that could imply you are part of a government agency
Once you have a list of potential business names, it is time to perform a business name search. This will help you determine if there is already another company with the same name you want to use. Keep in mind that if your preferred business name is already in use, the Pennsylvania Department of State will make you pick a new name.
2. Claim your name
After you have settled on an available name, the state of Pennsylvania gives you the option to reserve the title for 120 days. Utilizing the name reservation guarantees that another company won’t take your name while you complete the LLC state filing process.
Another option available to you as an entrepreneur is setting up a trade name for your LLC to use. These fictitious names, also known as “DBAs,” can be used instead of your legal name when conducting business in the marketplace. This provides flexibility if you prefer your legal name to reflect a more inclusive company regarding products and services.
To claim your DBA, you will need to register your new business trade name with the Pennsylvania Department of State.
3. Write your operating agreement
Like many states, Pennsylvania doesn't require your LLC to have an operating agreement. However, that doesn't mean you shouldn't have an LLC operating agreement. Having this document in place is pivotal for laying the foundation for your business to run.
With an operating agreement, you and the other members of your limited liability company can establish what powers, duties, obligations, liabilities, and rights each person has. Once the document is complete, every member needs to review and sign off. This will help prevent any disagreements about roles in the company later on.
Below are a few essential items to keep in mind when writing your operating agreement:
- The operating agreement is an internal document and doesn't need to file with the Secretary of State
- Ensure that your operating agreement outlines the procedure for admitting new members to your Pennsylvania LLC
- Included in the document should be each members' capital contribution, ownership stake, profit shares, and voting rights
4. File your Statement of Information
Another critical step in creating your business is submitting the certificate of organization. If you open a business in a different state, you may often hear this called the articles of organization. Both documents serve the same purpose of allowing you to operate in the state where the LLC formation occurred.
When submitting your certificate of organization, you will want to ensure you include the following information:
- The full name of every LLC member
- The date you formed the LLC
- The name and primary location of the business
It is also important to note that whoever completes the form will also need to sign off on the certificate of organization even if there are multiple members.
Along with this document, you will need to submit a statement of information or, as it's referred to in Pennsylvania, a docketing statement to the Bureau of Corporations and Charitable Organizations. This DSCB form will provide the Employer Identification Number and the fiscal year you plan to operate.
5. Pay your taxes
As with any business, any profits you make will need to be reported to the Internal Revenue Service (IRS) and will be taxed. The good news is that since most LLCs are pass-through entities, the business itself won't pay any income tax. Instead, it is the members that carry the tax responsibility.
The one exception to your LLC being taxed as a pass-through entity is if you elect to tax it as a C-corporation. In this scenario, the business would instead pay Pennsylvania corporation taxes instead of the members paying income tax.
Many factors could lead to situations where you would need to pay other types of taxes. For example, if you have employees working for you, you will need to withhold payroll taxes and be prepared to pay unemployment taxes.
Regardless of the type of taxes you need to pay, you must have a plan for paying them. Most owners who operate a single-member LLC or a sole proprietorship often get into trouble because they don't save enough money to cover their tax obligations each month or quarter.
One easy way to prevent this is to establish a business bank account during the early stages of your business formation. Having a business bank account can be great for a couple of reasons, including:
- Assists in preparing business taxes and company tax returns
- Keeps business and personal assets separate
- Helps track business activity and spending over a given period
- Builds rapport with banks and makes it easier to establish a line of credit
The last thing to remember is that Pennsylvania law requires that you file a certificate of annual registration each year as an LLC along with taxes and state fees. Along with filing the legal document, you will be required to pay a filing fee of $560 per LLC member.
6. Wrap up other regulation and sales tax requirements
Unlike other states, Pennsylvania doesn't require every business to pay sales tax on goods sold. Popular staples such as food, clothing, pharmaceutical drugs, oil, gas, and electricity are exempt from the tax.
The Pennsylvania Department of Revenue provides a complete list of what products are and aren't exempt from sales tax.
One essential item you will want to research is whether or not the state requires you to obtain a special business license or permit to operate in Pennsylvania. For example, you may only need a general business license if you have a professional company; however, a restaurant could be required to obtain additional health and safety licenses.
For a recently formed LLC, you will need to obtain a local business license and provide the following information:
- Business street address, including P.O. Box if necessary
- Federal Employer Identification Number or Social Security Number if used
- State tax number
- Business name
- Contact information
- Type of business
Get LLC insurance in minutes by following these steps
Once you have spent the time to get your business up and running, it is vital to make sure you have the proper LLC insurance in place to keep it protected. Huckleberry has several insurance options to help create the perfect lineup of insurance products, including workers' compensation, commercial auto insurance, professional liability insurance, and general liability coverage.
See how Huckleberry can help you find the best small business insurance policy for your LLC:
- By visiting Huckleberry.com, you can quickly select the insurance coverage you need and receive a free quote within minutes.
- Huckleberry allows you to enter important and relevant information like your type of business during the free estimate process to ensure you receive the most accurate information.
- The entire quote process from start to finish takes less than 5 minutes.
- Huckleberry provides a worker’s comp estimator tool to help you get a general idea of what you might pay for coverages.
Now that you have established your Pennsylvania LLC, you have the freedom to run the company the way you want and make an impact in your local community. However, you will want to ensure that you have the appropriate coverage to keep your company safe. Often a small business insurance policy is a great place to start.
Regardless of the type of coverage you need, Huckleberry is here to help you every step of the way. Our goal is to provide an easy-to-use platform where business owners can quickly find the insurance they need within a matter of minutes. Try out one of our free estimators today and see what quotes you qualify for.