- How to Set Up an LLC in Pennsylvania
- Step 1. The Naming of the LLC
- Step 2. Choosing a Registered Agent
- Step 3. Filing the Certificate of Organization
- Step 4. Operating Agreement and Management of the LLC
- Step 5. Getting an EIN/Tax ID Number
- Step 6. Running the LLC
- Paying Federal, State, and Local Taxes
- Filing Annual Registration (For Restricted Professional LLCs)
- Permits and Licenses
- LLC Bank Accounts
- Filing a Decennial Report
- Avoiding Automatic Dissolution
- Beware of Scams
- Further Resources
- Final Thoughts
How to Set Up an LLC in PennsylvaniaThe process to start your LLC in Pennsylvania can be overwhelming at first, but it’s rather straightforward once you learn the steps.
Step 1. The Naming of the LLC
The first step to setting up your LLC is to decide on a name. Your name must be unique and embody what your business stands for. There are other things you need to keep in mind as well.
Legally Required Designation
The state of Pennsylvania has very precise requirements when it comes to naming an LLC.
To start with, it should include one of the following words or their abbreviations:
- Limited Liability Company, L.L.C, or LLC
- Company or Co.
- Limited or Ltd.
Uniqueness of the LLC Name
You have to choose a name that is unique and stands out from the rest.
Other things to keep in mind:
- It should not already be in use by another LLC in Pennsylvania. Remember to do a search before starting your application.
- Make sure the domain name for your desired LLC name is available, so you can buy and use this later if you plan to build a website for your business. Even if you don’t plan on building a website anytime soon, it’s still a good idea to buy the domain name before someone else does—you might be stuck without it, or they may end up selling it to you at a much higher price.
- Names that can get confused with government agencies are prohibited, such as FBI, USPS, State Department, and much more.
Lastly, using restricted words like University, attorney, board and more could lead to additional paperwork to prove that you qualify to use these terms. Furthermore, a licensed individual associated with the restricted word also has to be a member of the LLC.
Step 2. Choosing a Registered Agent
In Pennsylvania, you are required to select a registered office. In other states, it is referred to as a registered agent. This will be your official mailing address for certain legal or tax mail related to your LLC, such as state filings and service of process.
This can be an individual or a business with a street address in Pennsylvania. If you’re operating outside of Pennsylvania and need a registered office, you should look into hiring a registered provider.
On the other hand, if you (or any owner) of the LLC resides in Pennsylvania, you’re more than welcome to appoint yourself and your residence or office as a registered agent. Just remember: no P.O. Boxes.
Step 3. Filing the Certificate of Organization
Now that you’ve chosen a name, it’s time to file a Certificate of Organization. It costs $125 in fees to file a certificate with the Pennsylvania Department of State.
It is advised—but not required—that you seek legal counsel to help your LLC avoid legal issues in the future.
You should also be aware that all information you provide will be available to the general public, so you may get some unsolicited mail, calls, and email from other businesses or people you don’t know.
Here are the pieces of information you’ll need to provide:
- LLC’s name
- LLC’s address
- Registered agent’s name and address
- Filing party’s return address
- LLC organizer names and signatures
- LLC’s purpose
You’ll also need to complete a New Entity Docketing Statement. Here are what you’ll need to provide:
- LLC name
- Initial tax reports person’s name and address
- Description of business activity
- The EIN
- Fiscal Year End (FYE)
How to File
You can file your Certificate of Organization by mail, or online if that’s easier. Both ways charge the same fee, aside from the cost of the stamp if you want to mail the form.
Create an account on the Department of State website. Fill out the online form and wait for an email confirming the approval. It can take at least a week to hear back from them, but the certificate is actually effective upon filing it unless you specify another date.
Download and fill out the form along with your Docketing Statement. Once you’re ready, you can send it to this address:
Pennsylvania Department of State
Bureau of Corporations and Charitable Organizations
P.O. Box 8722
Harrisburg, PA 17105-8722
This will take seven to 10 days.
Step 4. Operating Agreement and Management of the LLC
Although not required, you should create an operating agreement to reduce the risk of future conflicts among the organizers or members of the LLC. It outlines the ownership structure and procedures of the LLC as well as the LLC members’ duties, powers, rights, obligations, and liabilities. Since it’s an internal document, it doesn’t need to be filed with any state or federal authorities.
Here are some of the benefits of having an operating agreement:
- Can help protect the LLC members from liability in the event of being sued
- Outlines how profits will be shared among members
- Outlines how the LLC will pay taxes
Creating an Operating Agreement
You can do this by using an online template or by assigning a legal attorney to help you with the specifics. It is very important that all owners of the LLC sit down and be as thorough as possible in creating this document.
Step 5. Getting an EIN/Tax ID Number
The Employer Identification Number (EIN) is a nine-digit tax identifier assigned to businesses by the Internal Revenue Service (IRS). Think of it as a Social Security number, except it’s for your LLC.
You’ll need an EIN to do any of the following:
- Open a business bank account
- File and manage taxes
- Hire employees
Getting an EIN is free and can be done online or by mail. However, if you don’t have an SSN, you’ll have to submit the form by mail.
You’ll get your EIN right after completing the steps. You can find the form on the IRS EIN Assistant. Since you won’t be able to save your progress, it’s recommended to only start once you have at least five minutes of interrupted time.
You could also download and fill out this form and mail it to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Step 6. Running the LLC
Now that your LLC is finally official, it’s time to learn how to run and manage it properly. Here, you’ll learn about what taxes you’ll owe, the licenses and permits you need to get, and more.
Paying Federal, State, and Local Taxes
The first thing you need to know is that LLCs are considered pass-through entities for tax purposes by default. This means that LLCs don’t pay income taxes themselves; it’s the owners or members who receive profits that have to pay taxes on their income unless you opt for an alternate tax designation. Any income from the LLC will need to be reported on personal federal and state tax returns.
The amount of income tax you’ll owe will depend on the LLC’s tax structure, your profits, your deductions and allowances such as your business expenses, your current income tax brackets, and how you choose to file (for example, either married filing jointly or separately).
It might be a good idea to bring an accountant in if numbers tend to make your head swim to make sure you’re paying the right amount.
If you have a single-member LLC, the IRS will tax you as a “Disregarded Entity”. They will ignore your business’ structure and instead tax you as an individual. Basically, you’ll pay taxes on all the profits of the LLC.
When you pay yourself with a distribution (or transfer money from your LLC’s bank account to your personal bank account), you won’t have to pay additional federal taxes on the distribution. You will, however, need to pay self-employment tax on what you take out.
The same is true for multi-member LLCs: the members have to pay federal and self-employment taxes on their individual tax returns.
Also known as Federal Insurance Contributions Act (FICA), Medicare, or Social Security tax, it’s what LLC members or owners have to pay when they take profits out of the LLC. The current rate is 15.3%.
If you want to avoid paying self-employment tax, you’ll have to elect to be taxed as a corporation.
S Corporation Taxes
Once you’ve chosen your LLC to be taxed as an S Corp, you’ll be able to avoid paying the self-employment tax. Here’s how it works:
- You’ll pay yourself a reasonable salary and pay income tax and self-employment tax on that income.
- You’ll pay yourself at least $10,000 in distributions and only pay income tax on that amount. It has to be at least $10,000, otherwise you won’t actually end up saving any money. Note that you’ll have to cover the cost of accounting services needed to maintain the S Corp status of your LLC, so be sure this is the right financial move before you designate your LLC as an S Corp.
C Corporation Taxes
C Corp taxation works similar to S Corp taxation in that you’ll have to pay income and self-employment taxes on your salary—which has to be a reasonable amount—but only income tax on the dividends. However, C Corp is different in that it also has to pay a 21% corporate tax on all income.
Essentially, you will be taxed double if you have a C Corp LLC, but you’ll also enjoy more tax deductions. Not to mention that it’s very investor-friendly since investors will only have to pay tax on the dividends the LLC pays them.
As a business owner in Pennsylvania, you are required to pay state taxes on any income you receive from the LLC. This applies to all owning members of the LLC. You will be taxed at the standard rate, which is currently 3.07%.
If your LLC has a C Corp status, you’ll also have to pay a flat 9.99% corporate tax on the LLC’s income.
If your LLC has employees, you’ll need to withhold and pay employee income taxes to the Department of Revenue (DOR). You’ll need to register your business with them so you can set up periodic tax withholding.
You’re also required to pay state unemployment insurance taxes and register at the Pennsylvania’s Department of Labor & Industry (L&I). For more information, here’s a brochure on PA Employer Withholding.
You can use this calculator to figure out how much federal, as well as state and county income tax, to withhold.
Since local taxes depend on your LLC’s county, city or township, and borough, it would be best to contact a professional locally to help you sort through the specifics. Here’s more information about local taxes in Pennsylvania.
LLCs that sell goods to customers are required to collect and pay sales tax. You’ll need to register with the DOR to get your PA Sales Tax License and submit sales tax returns to them periodically via the e-TIDES online system.
Filing Annual Registration (For Restricted Professional LLCs)
In Pennsylvania, LLCs are not required to file annual reports. However, if you’re considered a Professional Limited Liability Company (PLLC) or a foreign LLC, you’ll need to file a Certificate of Annual Registration with the Department of State. You can either download, fill out the form and mail it, or do it online.
Either way, you should be prepared to pay $560 per member of the LLC as an annual fee.
Permits and Licenses
Depending on the nature of your business, you may need to acquire certain licenses or permits. The requirements and fees will depend on the business activity and the agency tasked with issuing your permit or license.
Some licenses and permits are set to expire after a certain period, so make sure you’re on top of your operational dates. Here’s a list of federal licenses and permits.
Apart from federal licenses and permits, many cities also require businesses to be licensed. For example, you need a Commercial Activity License to operate a business in Philadelphia. In Pittsburg, certain businesses like tow trucks and bed and breakfasts need a license from the Department of Permits, Licenses, and Inspections.
It’s best to contact local county and city officials for more detailed information to make sure you get the permit or license your business needs. Here’s a list of Pennsylvania counties and their websites.
LLC Bank Accounts
There are major benefits to opening and keeping an LLC bank account. Not only will it make bookkeeping and tax filing easier, but it will also keep your personal finances separate from the LLC. In the event that your LLC gets sued, your personal assets will be protected.
To open an account for your LLC, you’ll need to prepare the following requirements:
- A copy of your Certificate of Organization from the state of Pennsylvania
- EIN confirmation from the IRS
- Your driver’s license or passport
If you have multiple members in your LLC, you’ll need an authorization agreement that indicates your co-members authorize you to handle the bank transactions.
In some cases, a bank may require less or more documentation so it’s best to phone your bank for more information. Depending on the bank, you may be able to open the account remotely. However, it can take weeks so you’ll have to call them regularly to make sure your application is being processed.
Conversely, you can talk to a financial adviser or accountant to get advice on how to set an account up.
Filing a Decennial Report
This tends to be overlooked since this isn’t something that must be done annually, but all LLCs in Pennsylvania are required to file a Decennial Report, a state report due once every ten years. The filing fee is $70.
This is how you inform the state of Pennsylvania that your business is still operational, and regularly paying taxes. Assuming you stop filing your Decennial Report, your business might be considered closed, bankrupt, or face charges for tax evasion (if proven guilty).
It’s all a straightforward process, but it’s easy to forget. It would be a good idea to set up a reminder, like scheduling an email to be sent 10 years later.
Avoiding Automatic Dissolution
When you miss one or more state filings, your LLC might be subject to automatic dissolution. This means losing your limited liability protection.
That’s why it’s important to stay on top of your taxes—and if possible, hire an accountant to handle these things for you. It can be difficult to keep up with everything while running a business, so you might need to enlist the help of a professional.
Beware of Scams
Now that your LLC is official and can be searched online, it’s important to be vigilant about phone calls and mail that are nothing but scams. The people behind these scams typically masquerade as government agencies telling business owners that there is an additional requirement they have to meet for their LLC.
In Pennsylvania, the most prominent of these bogus companies is PA Certificate Services. They send new LLC owners official-looking mail stating they need to pay $87.25 to procure a Certificate of Good Standing. However, the Pennsylvania Department of State does not issue Certificates of Good Standing.
If you get a call or an official-looking letter saying you have to pay a fee, make sure to investigate before complying.
- Naming your LLC: Pennsylvania Business Express Business Entity Search
- Domain name search: Name.com
- Commercial registered office providers
- Forming your LLC: Pennsylvania Certificate of Organization and New Entity Docking Statement
- Operating Agreement template
- Getting your federal tax ID number: IRS EIN Assistant
- Employer Tax Withholding Registration: Pennsylvania Online Business Entity Registration (PA-100)
- PA Employer Withholding brochure
- Payroll Tax Calculator and PA Tax Rates
- Local taxes in Pennsylvania
- Filing your Pennsylvania Certificate of Annual Registration: Online or by mail
- Filing your LLC’s Decennial Report: Decennial Report Form
- Obtaining federal licenses and permits: SBA list of federal licensing and permitting agencies
- Websites of Pennsylvania Counties
It isn’t hard to start an LLC in Pennsylvania. It’s a simple and straightforward process, but you will need to be smart about it and make sure to keep up with all the LLC requirements. And make sure to properly file your taxes, otherwise you’ll end up with a large tax bill—as well as interest.
If you’re finding it hard to keep your LLC running smoothly by yourself, you should consider hiring a professional or two to get some of the job done. Not only will you have peace of mind knowing everything will be done right, but you’ll also have more time for things that matter more.
Take a look at the most frequently asked questions below to learn more information about how to start an LLC in Pennsylvania.
It costs $125 to file the Certificate of Organization, which is what you need to get your LLC approved. The fee is the same whether you do it online or by mail, but you’ll naturally have to cover mailing costs if you decide to do the latter.
Filing the Certificate of Organization online is the cheapest way to start an LLC in Pennsylvania, as you won’t have to worry about mailing fees. It’s also the fastest option since the certificate is usually effective upon filing.
Since Pennsylvania LLCs are pass-through entities, they don’t have to pay income taxes at all. The responsibility falls on the members or owners of the LLC, who will need to pay federal, self-employment, state, and local income taxes on the profits they receive.
Pennsylvania LLCs have to file a Decennial Report every 10 years, which costs $70.