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If you’re thinking of starting a business in Pennsylvania—or you’re an unincorporated business owner—forming an LLC might be a worthy step. The LLC business structure is one of the most commonly used, as it’s easy and inexpensive to form, yet offers numerous benefits for entrepreneurs.
How to start an LLC in Pennsylvania
- Name your Pennsylvania LLC
- Create a business plan
- Get a federal employer identification number (EIN)
- Choose a registered office address in Pennsylvania
- File documents with the state
- Obtain business licenses and permits
- Understand Pennsylvania state tax requirements
- Prepare an operating agreement
- Examine business insurance options in Pennsylvania
- Understand financial considerations
- Market your LLC
What is an LLC?
A limited liability corporation (LLC), as the name suggests, is a type of business structure that limits its owners’ legal and financial liability in terms of both debts and legal proceedings. This means that the owner(s) of the business cannot be held financially responsible if legal claims are brought against the business.
This type of business can be formed by one or more owners. Each owner is a “member.” If you’re the only member, your business is considered a single-member LLC. Otherwise, it’s called a multi-member LLC.
When it comes to taxation, LLCs are by default pass-through organizations: Owners of the LLC distribute the profits among themselves, and then they are taxed on those profits individually as personal income. But LLCs can also choose to be taxed as another entity type, such as an S corp.
Is an LLC right for you?
- Liability protection versus administrative overhead: Forming an LLC means your personal assets are protected against any defaulted loans or lawsuits brought against your business. However, this protection is contingent upon completion of paperwork and the complete separation of your business finances from your personal finances. Does liability protection outweigh the administrative overhead?
- Favorable taxation for owners versus fundraising: Corporations are taxed twice—the company pays taxes on profits, and then shareholders (owners) pay personal taxes on the share of profits they receive. But LLCs are only taxed once—when profits “pass through” to owners and are recorded as income on their personal taxes. The drawback is that LLCs cannot issue shares like corporations can, which limits their ability to fundraise. Which is more important to you: favorable taxation or the ability to sell stock to investors?
1. Name your Pennsylvania LLC
The first step in establishing your business in Pennsylvania is to name it. Your business name must:
- Represent your product or service
- Be memorable
- Include the words “company,” “limited,” or “limited liability company”
- Be unique in Pennsylvania
You can check the availability of your name within the state of Pennsylvania in this state database.
2. Create a business plan
A good business plan lays out why your business exists, why it will succeed, and how you plan to make that happen. Sections of a business plan can include:
- Executive summary
- Founder bio, highlighting your experience
- Company description with business structure
- Market analysis
- Products and/or services, and the value proposition of each
- Customer segmentation report
- Marketing plan
- Logistics and operations plan
- Financial plan
3. Get a federal employer identification number (EIN)
Just like you have a Social Security number, your business needs to have a federal employer identification number (EIN). This is a nine-digit number the federal government uses to identify your business for tax purposes. It’s easy to register for one and is a fairly short process.
4. Choose a registered office address in Pennsylvania
Pennsylvania doesn’t require you to designate a registered agent like other states. Instead, you must indicate a registered office address on any forms submitted to the Pennsylvania Department of State.
5. File documents with the state
In order to register your business, the state of Pennsylvania requires that you file a Certificate of Organization and a docketing statement with the Bureau of Corporations and Charitable organizations. These forms tell the state government what you do, where you’re located, and who from the business they can contact and send documents to. The Secretary of State offers fillable PDFs on its website.
Once you’ve completed and printed them, the state requires that you mail them to the Bureau of Corporations and Charitable Organizations, 206 North Office Building, 401 North Street, Harrisburg, PA 12120.
6. Obtain business licenses and permits
Pennsylvania doesn’t require an overall license for businesses generally, but does require licenses for certain types of businesses and professions, including barbers, doctors, pharmacists, social workers, and real estate agents. Licenses to practice in Pennsylvania are issued by the Department of State. If you’re unsure of whether you need a license, you can consult the state’s checklist.
7. Understand Pennsylvania state tax requirements
No one likes dealing with business taxes, but Pennsylvania at least streamlines many of the accounting, licensing, and tax-related tasks required of small business owners with its PA-100 form. Filing a PA-100 for your business with the Department of Revenue creates accounts for you to conduct essential business like:
- Withhold state taxes from employees
- Collect sales tax (generally 6%)
- Obtain a license to sell tobacco products
- Pay your workers’ compensation contribution
You can get started by filling in the details of your business online.
If your LLC operates as a C corp, the business’s gains are subject to the state’s corporate net income tax of 9.99%.
Regardless of your specific type of business, if you have employees, you should expect to pay the state quarterly unemployment compensation taxes as well as income tax withheld from employees’ pay according to these guidelines. Each employer’s unemployment tax rate varies, since the rate is assigned by the state.
As of 2022, for new employers, the rate is 3.689% for non-construction employees and 10.2238% for construction employees. If the state assigns you a standard rate after you’re no longer a new employer, the rates are 6.1916% and 10.1968%, respectively. You can pay all of this through the state’s online tax portal.
8. Prepare an operating agreement
Pennsylvania doesn’t require small business owners to file an operating agreement, but it’s a good idea to create one anyway—especially if your LLC has more than one member. This document is a legally binding agreement outlining how your LLC will be run. A few items to consider including are:
- Basic company information, including legal name and address
- A description of each member’s rights, powers, duties, liabilities, and obligations
- Documentation of initial investments
- Voting rules
- Plans for member compensation
- Procedures for the departure or addition of members
- Requirements for amending the agreement
9. Examine business insurance options in Pennsylvania
The following two types of insurance are required in Pennsylvania:
- Workers’ compensation insurance. If operating a business in Pennsylvania with employees, the state does mandate you provide this type of insurance, which provides medical and salary benefits in the event that employees get sick or injured on the job.
- Health insurance. In Pennsylvania, if you employ more than 50 people full time, you’re required by federal law to provide medical insurance.
Other forms of insurance are optional
- Professional liability insurance. Professional liability insurance offers coverage for your business in the event that a customer files suit against you for subpar or negligently provided goods or services. Pennsylvania doesn’t require professional liability insurance, but you might want to purchase it anyway if you work in a field where the risk of being sued is of concern—for example, the medical profession.
- Disability insurance. Disability insurance provides income for people who are unable to work as the result of a medical condition. Although Pennsylvania doesn’t require employers to provide this insurance to employees, some do so anyway.
If you use personal assets like your house or car for business purposes, your personal policy may not provide coverage for you within the state.
10. Understand financial considerations
Businesses naturally involve expenses. A firm financial foundation is essential before incurring significant costs on inventory or payroll. Luckily, there are many ways your business can raise money.
- Personal savings. It’s common for founders to use their own money when starting a business.
- Crowdfunding. Some startups use crowdfunding platforms like Kickstarter to raise money.
- Friends, family, or private investors. Friends, family members, angel investors, and even venture capitalists might consider investing in your business. If your investors want to be compensated with a share of the business, make sure your business structure allows you to issue shares.
- Traditional small-business loans. Offered by banks and backed by the federal government, small-business loans are hard to come by but can be a great way to fund a new venture.
- Nontraditional small-business loans. Programs outside of the banking system may be able to offer funding that is easier to obtain and allows for more flexibility in payment plans. Pennsylvania also offers several programs aimed at helping certain groups—like minority business owners—more easily access loans and capital.
11. Market your LLC
Once you’ve dotted all the i’s and crossed all the t’s, it’s time to invest time and money to get the word out about your offerings. A strong marketing strategy might include any of the following tactics:
- Offering loyalty programs to returning customers
- Referral bonuses for customers who bring in friends as new customers
- Free samples of a new product giveaways
- Encouraging “follows” on social media with contests and giveaways
- Sponsoring local events
- Hiring influencers to connect with key segments of your target market
- Leveraging social media to engage with customers about company brands, product launches, and events
Starting an LLC in Pennsylvania FAQ
How much does it cost to start and maintain an LLC in Pennsylvania?
The Pennsylvania Department of State provides a detailed list of all of the costs associated with filing your LLC paperwork. You should expect to pay several hundred dollars at the outset. But if you belong to a restricted profession like veterinarians and medical practitioners, the state charges a $500 annual registration fee.
Do you need a registered agent for your LLC in Pennsylvania?
You don’t need a registered agent in Pennsylvania, but you do need a registered office address, which amounts to more or less the same thing.
How do state taxes work for LLCs in Pennsylvania?
LLCs are pass-through entities, so there is no corporate tax on business profits. Rather, profits pass through to members and are taxed at the state income tax rate of 3.07%. If the LLC has employees on payroll, the business must also pay the state unemployment taxes and payroll taxes (Social Security and Medicare) on employee wages.