A limited liability company ("LLC") is defined as a business organization that shares the limited liability benefits of a corporation but the management and tax freedom of a partnership. LLCs are legal entities created only under state law. "Limited liability" simply means that everybody associated with the company is not liable for damages beyond their initial investment and cannot be held vicariously liable. In other words, a person who puts money in LLC only risks losing the amount of their investment and will not have to pay any more if the company is still in debt. It is a way of limiting the risk of investing in a company.
Business owners and organizations concerned with potential lawsuits or debts that could arise in the business should consider forming an LLC. If a business owner believes that the type of business insurance that they have on your business would not fully protect their assets, an LLC may be a good idea.
To form an LLC in Pennsylvania, you must complete the following requirements:
- Choose a name for your LLC: Under Pennsylvania law, an LLC name must have one of the following: "Limited Liability Company," "LLC," "L.L.C.," "Limited Company," "LC," or "L.C." The term "Limited" can be short like "Ltd." and "Company" or "Co." You may 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 and paying a processing fee.
- File a Certification of Organization: In Pennsylvania, you must file a Certificate of Organization (Form: DSCB: 15-8913) with the Pennsylvania Secretary of State and a filing. Also there must be a Docketing Statement (Form DSCB 15-134A) filed with the Corporate Bureau Department of State.
- Appoint a Registered Agent: Every Pennsylvania LLC is required to have an appointed agent for service of process. The agent is an individual or business entity that agrees to accept legal documents on behalf of the LLC’s if it is sued. A registered agent can be an individual or business that is authorized to do business in Pennsylvania. The registered agent must have a Pennsylvania physical address.
- Prepare all Tax Requirements: If the Pennsylvania LLC has more than one individual, they must obtain its own IRS Employer Identification Number (EIN), even if there are no other employees. If you form a one-member LLC, you must obtain an EIN for it only if it will have employees. You also have to register with the Department of Revenue to file tax returns. There is no filing fee in Pennsylvania for this requirement
- Fine Annual Reports. Once your LLC is formed, you have to file a Certificate of Annual Registration (Form DSCB:15-8221/8998) each year and pay an annual fee the is dependent on how many members you have in your LLC.
- Obtain all Business Permits and Insurance: If any business permits are required if necessary. Also if your business needs it, get the right type of insurance.
The documents that are required to form a LLC in Pennsylvania are: a Certificate of Organization (Form: DSCB: 15-8913) with the Pennsylvania Secretary of State, a Docketing Statement (Form DSCB 15-134A), Certificate of Annual Registration (Form DSCB:15-8221/8998), and all required tax documents to get a EIN. All these forms must be filed with the filing fee explained above.
In Pennsylvania, there are many benefits offered for business owners who form an LLC. Owners of a LLC have the limited liability protection similar to a corporation. Also, having a LLC there is a lot more flexibility of distribution of profits and you don’t need to do a 50-50 split like partnerships. LLC’s are also very easy to operate unlike corporations. In addition, all your business losses, profits, and expenses flow through the company to the individuals. This way, you would avoid the double taxation of paying corporate tax and individual tax.
There are disadvantages to LLC’s in Pennsylvania. LLCs can be dissolved easily when a member of the LLC dies or goes bankrupt. Also, Running a sole-proprietorship or partnership will have less paperwork and complexity while LLCs have a bit more paperwork to deal with.
Starting a business is a very difficult but potentially lucrative option. To understand the distinctions and rights that attach to your business and its organization, it is a good idea to discuss your ideas with an experience local Pennsylvania business lawyer. A lawyer experienced with limited liability companies can help you incorporate your LLC and explain the tax and organizational benefits of the limited liability structure