How to register an LLC in Pennsylvania
If you're thinking about starting a business, one of the first things you're probably trying to figure out is how to register your LLC.
This is a common starting point for a lot of new business owners. And there are good reasons for looking into this. If you've done any level of Google searching, you've probably found that creating a limited liability company can provide a lot of advantages to you as the business owner.
One of the primary advantages that people talk about is liability protection. This means that, with some exceptions, you cannot get sued personally for the mistakes or problems created by your business.
Another common reason that people look to set up an LLC is for the tax advantages.
And finally, but less frequently addressed in articles by lawyers, is the business advantage you'll obtain by registering an LLC. Here's what I mean by that. A company that has been properly incorporated or organized looks more legitimate than one that simply has a fictitious name or hasn't been registered at all. It's good marketing.
So the question is how do you register your LLC in Pennsylvania?
Well, let's get one important note out of the way. This article does not address setting up a corporation. That is a completely separate entity under Pennsylvania law. If you are looking into incorporating, this is not the article for you. This article only addresses setting up a limited liability company in Pennsylvania, also known as organizing your limited liability company.
This article also will not address whether an LLC is the correct form of entity for you. In some instances, you may be better off remaining a sole proprietor, setting up a partnership, incorporating, or looking into other, sometimes less popular, entity types.
The process of registering an LLC is pretty simple. It can be done through a paper filing on forms provided by the Pennsylvania Department of State, or it can be done online through the Department of State website.
The State of Pennsylvania wrote a 35-page guide to help explain the steps required.
A word of caution
There is more to having a properly-formed LLC than just registering with the state.
If you want to obtain the full tax advantages, if you want to have proper liability protection and you want to maintain legitimacy for marketing purposes, it's more than just a two page form you file online.
You should also have an EIN as well as a properly drafted operating agreement that is specific to your business operations.
Also, if you are looking into having a successful business, there are other issues that you need to look into such as having proper contracts, the correct process for hiring employees, protecting your brand through a trademark, and other issues.
A word of extreme caution
If there will be more than one owner in your business, in other words, if you will have partners or investors or someone that will get a percentage of the profit from the business, you should stop right now and immediately talk to a lawyer. It should come as no surprise that a huge majority of businesses fail within the first few years.
The rate of business failure is higher than the rate of divorce in Pennsylvania. Some say the percentage of businesses that fail approaches 80 or 90% through just the first three years in business. If you don't have a plan in place upfront for how you will deal with partnership disputes, your business is headed towards an extremely unpleasant future.
Don't take the next step without speaking to a lawyer who understands how to prevent problems down the line.
What you need to register your LLC
In order to file your LLC, there are only a few pieces of information that you will need.
First, you'll need a name for your business.
You can perform a search on the Pennsylvania Department of State website to make sure your name is available. Unless someone has chosen the exact same name as you, chances are, the state will allow you to register the name.
However, you should be careful. If you choose a name that is confusingly similar to another name, whether it's a Pennsylvania business or a business located in another state that has trademark rights to a name, you could be looking at a nasty cease and desist letter from a lawyer. You need to make sure that your name is searched thoroughly before you register. This includes searching the Department of State, the United States Patent and Trademark Office, and Google.
Next, you need an address for your business.
You cannot use a post office box for these purposes, you need a physical mailing address. The reason for this is that the state of Pennsylvania keeps this address on file. If, for some reason, you are ever sued or need to be served with legal papers, the state knows the address to use for those purposes.
Many business owners will use their home addresses if they don't do not have another address available. If you have a physical business location, it is probably a good idea to use that address. If your address ever changes, it's a fairly easy process to change it with the state. And comes along with a very low filing fee of about $5.
We've seen some instances where people are able to use a mailing address that is provided by a company like UPS. While the service is very similar to a post office box, sometimes the Department of State does not catch this. However, we don't think that's necessarily a good idea since that address will only be used for very important legal documents. You probably don't want it flowing through a post office box at the UPS store.
There are also companies that will provide what are called Registered Agent services in Pennsylvania, they can be called Commercial Registered Office Providers (CROP). For a small fee, these companies will act as your agent and provide a physical address for you. And if ever any documents are sent to that address, they will be provided to you in short order. These services are very popular out of state businesses that are registered in Pennsylvania as foreign corporations, or for businesses that really want to keep their address confidential.
After your name and address, there are a few other pieces of information you will need.
The next section on the Certificate of Organization asks for the name of the organizers. This is not necessarily a list of the owners. Rather, the term organizer has a legal connotation in Pennsylvania. It is simply the person tasked with filing the paperwork to establish the LLC. In the instance of a single member LLC, AKA an LLC with one owner, the organizer is typically the sole owner. There can be instances where it is worth listing all of the owners of the business or the ones that will have managerial control.
Next, you will be asked to provide the Effective Date for your Certificate of Organization. It can be effective upon filing, or at some future date. Note: you cannot put a date in the past as your effective date.
The next section on the certificate of organization addresses what are called restricted professional companies or professional LLCs. These entities in certain professions can only perform work within that profession. For example, a law firm organized as a PLLC can only practice law. It can not offer veterinary services, or create a restaurant, or do landscaping within that entity. This is a way for the various licensing organizations in Pennsylvania to maintain the integrity of the professions.
It is also a way for the state to collect extra fees, as professional companies are required to pay a fee every year for each owner of the business. In 2021, that annual fee is $550 per owner.
If you are not engaged in one of the listed professions, you should not fill out this section of the form.
The certificate also asks whether you will be a company that provides public benefit, you need to weigh this decision very carefully as well. Of course, everybody thinks that their business will benefit society. However, this phrase has significant legal meaning in Pennsylvania. The nuances are too complex for this post, but please feel free to reach out to our office if you have any questions about setting up a benefit corporation or benefit company.
Some Additional Tips
if you are going to attempt to file your own LLC in Pennsylvania, here are some suggestions, print out the docketing statement and the certificate of organization and hand write your answers. Even if you are filing online, you will be prepared with answers to all of the questions that they ask.
That way, if you get stuck on a question you're not in the middle of an internet form that will expire. Rather, you can take the time to carefully consider your answer or get answers to any questions that you may have.
If you are a single member LLC, meaning you will be the sole owner of your business, you need to determine how your operating agreement will be structured. When you go to open a bank account or sign a contract or a lease, you will likely be asked for a copy of your operating agreement. For example, will you be member managed or manager managed, and do you understand the distinction?
If you want your landlord or banker to take you seriously, you should make sure that this form is properly drafted and that you are familiar with its contents.
If there will be more than one owner of your LLC, you should sit down and have a very serious conversation with your partner. There are a lot of issues to discuss, but we think that some of the most common issues begin with the letter D. You should discuss what happens in the event of death, divorce or disagreement, disability, or what happens with distributions, AKA, the profits that you will share.
If you are unsure of how to answer a question, stop immediately. The implications for improperly completing one of these forms can be catastrophic and completely destroy the liability protection or the tax advantages you're hoping to obtain.
Also common, but simple, mistakes can make you look like you don't know what you're doing. Unfortunately, many entrepreneurs believe that they need to do everything on their own. They think that because they may have a limited budget or because they're just starting up, they need to serve in every role of the business, including acting as lawyer and CPA.