So you think you're ready to start a business. You’ve settled on a name. You have your business plan and chose Pennsylvania as your state of operation. You’re confident in your idea, and you know your business can succeed if you play your cards right. That’s the easy stuff. Now it’s time to get serious. But you’ve never formed a formal business before, and the steps to do so seem daunting. What forms are required? Where are they filed? How much does it cost? These are the questions every new entrepreneur must face and overcome. Today’s goal is to guide you through that process so that you can be confident that you’ve formed a legitimate legal entity that is prepared to do business, hire employees, pay taxes and, most importantly, make money!
This blog will focus on setting up an LLC, or limited liability company, in Pennsylvania. Pennsylvania is a great place to start a business, with a robust economy, a high business survival rate, and a relatively low cost of living. You should do your own research on the advantages and disadvantages of forming an LLC, but for the purposes of this blog, let us assume you have decided to form an LLC in Pennsylvania and are ready to hit the ground running!
What's In A Name?
Before officially registering your business with the Commonwealth, it is a good idea to use the Pennsylvania business name search tool available online here. It is essential to make sure that your desired business name is available for use. The business entity search function will bring up any existing entities with that name, whether they are an LLC, a corporation, or otherwise. If you’re lucky, your first choice will be freely available to you. It is often a good idea to make a list of acceptable names and search for each one. There are currently over 2.6 million entities registered to conduct business in Pennsylvania, so if your first choice is taken, don’t be discouraged!
Forms For Formation
The next step is to start working on the necessary forms. First, you want to fill out a Certificate of Organization, which carries a cost of $125. To be properly filed the Certificate of Organization must contain specific information, including your entity’s chosen name, the location of its registered office, the name and address of the organizer(s), and an effective date. A “registered office” is the official address of any legal entity. Registered offices can be your home address, commercial office space, or even your attorney’s business address if you have one. The key is that the Commonwealth be able to reach you or your registered agent at that address if necessary. Unlike many states, Pennsylvania does not require LLC’s to file an Annual Report which often comes with an additional annual fee.
New entities are also required to file a supplemental document called a Docketing Statement alongside their Certificate of Organization. The docketing statement acts as a cover sheet, providing the Commonwealth with quick references to the most critical information they need. First, there is a box that must be checked to determine if you are operating a foreign or domestic business. The docketing statement must also include the entity's name, the name and address of the owner who will be responsible for tax correspondence, and a short description of the business activity your new entity will engage in. If you want to manufacture and sell snowboards, for example, you may want to describe your business activity as "winter sports retailer." This would allow you to sell not only snowboards, but any clothing or equipment potential customers may want for a variety of winter sports. Or perhaps go broader and leave room for sports of any season! Keeping your business activity flexible will you more freedom down the road without the need for consent from other members or additional paperwork to file.
Dealing With IRS Concerns
Believe it or not, these are the only two forms that are required for official recognition of your business with the Pennsylvania Department of State. However, there are many other things to consider, and some necessary steps for filing with the Federal Government. If you plan on hiring employees, you will need to obtain an EIN, or an Employer Identification Number, from the IRS. The SS-4 is used to assign your business a tax identification number for submitting the entity’s tax returns. There are other tax situations where an LLC may be required to register for certain excise tax activities, but that falls outside this blog’s intended scope.
Now that you’ve registered with the Commonwealth and obtained an EIN, you are now officially licensed to do business in Pennsylvania. Congratulations! However, please keep in mind that this blog is far from exhaustive regarding all the steps that may be critical to the success of your business. Outside of formal entity recognition, it is always smart to create governance documents such as an Operating Agreement and Banking Resolution. These documents help solidify the entity’s structure and provide guidance for how to properly handle difficult situations that are bound to arise as your business grows. As there is an almost limitless number of questions you may have or scenarios worth preparing for, it is often a good idea to consult an attorney specializing in entrepreneurship law. Despite the relative ease of starting an LLC having access to a knowledgeable attorney can prove valuable to owners looking to focus on operations without getting overwhelmed by technical legal considerations.
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About The Author
Cameron Crowe is currently a rising 3L Law Student at Penn State - Dickinson Law in Carlisle, PA. Before coming to law school he worked for many years as a licensed real estate professional in the Pittsburgh area. His focus in law school has been on corporate and entrepreneurship issues with an aim to work in the business transactions sector of law after graduation. I am also interested in mergers & acquisitions and energy law & policy. He has a passion for public service and recently interned at the YWCA Harrisburg Violence Intervention and Independence Blue Cross in Philadelphia, PA.
If you have any questions or thoughts you would like to discuss please do not hesitate to reach out at csc90@psu.edu
Thanks for reading!
Cameron, nice job with this post! This is a very helpful start-up 101 for Pennsylvania’s entrepreneurs. You discuss the large issues and comment where common mistakes are – a very helpful thing for someone looking to avoid the mistakes of others. You do a good job explaining what the post is intended to cover and alerting the reader to issues that exist outside what is discussed in the post.
Cameron,
This was a great post! It was easy to read, especially for beginners who are creating LLCs probably for the first time - your target audience - and I personally think you did a great job at covering and summarizing all of the topics we've learned in class so far! I'm sure your blog will prove useful and insightful to many others as well.
Cameron,
I really enjoyed reading this post. You did a great job of summarizing many of the concepts we have discussed in class, regarding the formation of a company under PA's laws. Your post is very accessible, while still providing the reader with enough useful information, regardless of their level of familiarity. Including the links within the body of the post was very helpful and makes it that much easier for the reader to follow up on the points that you make.
-Jeremy