How to Form a LLC in Pennsylvania

A limited liability company (“LLC”) is a specific type of business structure that may be formed. According to United States business law, if someone files a lawsuit against a corporation and the lawsuit is successful, only the corporation will be liable to pay money out of the corporation’s assets.

This means that individual members’ and owners’ own assets will not be accessed when determining liability or paying corporate debts. This is one of the main reasons that business owners choose to form an LLC, because they are not personally liable for the corporation’s debts. Additionally members and owners are also not responsible for any damages awarded against the corporation in a lawsuit.

One of the main disadvantages in forming an LLC could be double taxation. Double taxation means that corporate profits are first taxed to the corporation as they are earned, and then the profits are taxed to shareholders as capital gains income when the shareholders receive their respective dividends. Another example of a disadvantage associated with an LLC is that the liability of LLC structures is such that owners can still be sued for their own negligent actions.

Similar to partnerships, LLCs are not taxed at the entity level. This means that unlike corporations, they do not pay taxes as an LLC. The only taxes that are paid are paid by individual members who have earned profit.

To reiterate, limited liability companies differ from corporations in terms of the ownership structure. LLCs are owned by its members or individuals, while corporations are owned by shareholders. Additionally, LLC owners generally are not personally liable for the liabilities or debts incurred by the LLC. This fact allows LLC owners to manage the business without being concerned with losing their own personal assets.

Who Should Form an LLC?

In terms of who should consider forming an LLC, prospective business owners who want to own a small business should always consider forming an LLC. As mentioned above, forming an LLC protects an individual’s assets by limiting liability to the LLC’s own resources. As such, if the LLC is sued, the small business owner will not have to pay the lawsuit damages out of their personal assets.

Business owners interested in forming a business with minimal paperwork and costs should also consider forming an LLC. This is because LLC formation only requires filing a few simple documents, such as articles of organization with the state. A small filing fee must also be paid. This small fee is generally less expensive than the required fee for forming a traditional corporation.

Additionally, keeping track of LLC income and expenses is considerably simple. This is due to the fact that under an LLC business structure, a separate tax return filing is not required. Instead, members and managers will report all their respective income and expenses on their individual tax returns.

The management of an LLC is also often simple. This is because an LLC with two or more individuals can develop an operating agreement. In an operating agreement, the members will provide details regarding how the LLC is governed, how profits will be allocated to each individual member, and what members’ votes are needed for specific actions taken by the LLC.

Additionally, an operating agreement may also address how the LLC may be dissolved or shut down. The operating agreement will also commonly provide rules as to how disputes among LLC members are to be resolved, as well as address what happens if a managing LLC member dies or becomes incapacitated.

How Do I Form an LLC in Pennsylvania?

In order to form an LLC in Pennsylvania, business owner(s) must complete all of the following requirements:

• Choose a Name for the LLC: Under Pennsylvania law, an LLC name must contain one of the following:
  • “Limited Liability Company;”
  • “LLC;”
  • “L.L.C.;”
  • “Limited Company;”
  • “LC;” or
  • “L.C.”
  • It is important to note that terms such as “Limited” can be short like “Ltd.” and “Company”can be shortened “Co.”
    • Prospective business owners may also reserve a Legal Entity name for 120 days by filing a Reservation of Entity Name using (Form DSCB:15-208) with Pennsylvania Secretary of State office and paying a processing fee;
• File a Certification of Organization: In Pennsylvania, prospective LLC owner(s) must file a Certificate of Organization (Form: DSCB: 15-8913) with the Pennsylvania Secretary of State’s office, along with a filing fee;
• File a Docketing Statement: A Docketing Statement (Form DSCB 15-134A) must also be filed with the Corporate Bureau Department of State;
• Name a Registered Agent: Every Pennsylvania LLC is required to have an appointed registered agent for service of process. The registered agent must be an individual with a physical address in Pennsylvania or business entity that is authorized to do business in Pennsylvania that agrees to accept legal documents on behalf of the LLC’s if it is sued;
• Tax Requirements: If the Pennsylvania LLC is to consist of more than one individual, the LLC owner(s) must obtain its own IRS Employer Identification Number (“EIN”)
  • Importantly, an EIN must be obtained even if there are no other employees in the LLC other than the members.
  • If a business owner forms a one-member LLC, they must obtain an EIN for it only if it will have employees. Prospective LLC owners must also register with the Department of Revenue to file tax returns. Importantly, there is no filing fee in Pennsylvania for this requirement;
• Fine Annual Reports: Once the LLC has been formed, the LLC will have to file a Certificate of Annual Registration (Form DSCB:15-8221/8998) each year to maintain the LLC. Additionally the LLC must also pay an annual fee that is dependent on how many members make up the LLC; and
• Obtain All Business Permits and Insurance: If any business permits are required to operate the LLC, they must be obtained as necessary. Additionally, it is recommended that each business obtains insurance, with some professional businesses requiring insurance.

What Are the Advantages of Forming an LLC in Pennsylvania?

As noted above, there are many advantages of forming an LLC. In Pennsylvania, there are many additional benefits offered for prospective business owners who wish to form an LLC in the state. First, owners of an LLC in Pennsylvania will have limited liability protection similar to that of a traditional corporation.

Additionally, having an LLC offers a lot more flexibility for the distribution of profits and does not require a 50-50 profit split like partnerships. Further, all of an LLC’s business losses, profits, and expenses in Pennsylvania flow through the company to the LLC’s individual members and owners. Because of this LLC members and owners are able to avoid the double taxation of paying both a corporate tax and individual tax.

What Are the Disadvantages of Forming an LLC in Pennsylvania?

There are also some disadvantages to forming LLCs in Pennsylvania. First, LLCs are able to be dissolved easily when any member of the LLC dies or goes bankrupt. Additionally, choosing to run a sole-proprietorship or partnership will involve less paperwork and complexity than that of an LLC.

Do I Need a Lawyer for Help With Forming an LLC in Pennsylvania?

If you want to form an LLC in Pennsylvania, you should contact an experienced Pennsylvania corporate lawyer. An experienced corporation attorney can help you navigate through the LLC formation process. Additionally, an experienced business attorney will also be able to ensure that you choose the most appropriate business structure suited to the needs of your business.

Additionally, an attorney will also be able to educate you regarding the upkeep of the LLC, along with explaining the local tax laws. Finally, an attorney will also be able to represent you in court, as needed, should any legal issues arise regarding the LLC.