If you are considering starting a business in Pennsylvania, one of your best options is to form a limited liability company (LLC). A relatively new entity type, the LLC combines the tax and control benefits of a partnership with the limited liability of a corporation. This is why so many new businesses here in Pennsylvania choose to form an LLC instead of a limited partnership or corporation. If you are considering forming an LLC, an experienced Pennsylvania business attorney can assist you with the process, making sure that you have all you need for your next enterprise.
What are the Benefits of Forming an LLC in Pennsylvania?
There are a number of excellent benefits to forming an LLC for your business. One of the best is the flexibility of the form. You can set it up for different management and operations, since most of the terms of your entity will be governed by an operating agreement instead of statutory law. This allows you to create different classes of ownership, divide responsibilities for managing the entity, and make other terms as you see fit to work for your business. You can work with an experienced attorney to make sure your LLC is designed specifically for your industry.
An LLC also gives you limited personal liability. The owners of the LLC are called members, and they are only at risk for the amount of their investment into the LLC. So, if the LLC incurs business debts and obligations, the creditors of the LLC can only look to its assets in order to collect debts. In addition, if any member is sued by a third party, such third party cannot become an owner of your LLC. Instead, all they will receive is a lien against any distributions made to such members. This is different from a corporation, where a creditor of a shareholder can take over the stock and vote on issues coming before the stockholders.
There are also a number of tax advantages to owning an LLC. The entity can be taxed as a sole proprietorship, partnership or corporation. This allows the LLC to be treated as a pass-through entity for purposes of taxation. The profits and losses of the business are passed through to the members as reported on an annual K-1, so there is no double taxation.
What are the Requirements for Forming an LLC in Pennsylvania?
Forming an LLC in Pennsylvania is fairly easy and straightforward. First, you need to choose a name and make sure it is not already taken. Next, you need to designate a registered agent office in the state. A number of companies charge a nominal annual fee for this service, and provide a place to accept official correspondence from the government, including service of process in the unfortunate event that your LLC gets sued.
Once you have done this, you can file a Certificate of Organization with the Pennsylvania Department of State to register your LLC. The filing fee is only $125, and can take anywhere from a week if you file online to two weeks if you file by mail. After you have received notification that your LLC is active, you should obtain an EIN from the IRS. This will allow you to open a bank account for your LLC. This is important as you will need to keep an account that is separate from the one you use personally. This will help maintain limited liability. Finally, you will need to draft an operating agreement that provides the structure and governance for your LLC.
What Do You Have to Do for Annual Compliance?
In addition to maintaining a separate bank account and books for your LLC, you will need to file an Annual Report with the State. This is due each year on or before October 1, and requires only a $7 filing fee. You will also need to maintain the registered office in Pennsylvania for the LLC, while making sure to file an annual tax return or information statement with the IRS and the Pennsylvania Department of Revenue.
How Does the LLC Compare to Other Entities?
The LLC actually combines many of the benefits to each entity type. For example, it provides you and your fellow members with limited liability, like in a corporation. However, corporations are very structured and don’t provide the same flexibility of an LLC. Also, in the case of Subchapter C corporations, you have double taxation. First, the corporation pays taxes on its net profits, and then the investors are taxed on any dividends they receive from the corporation. You can avoid this with an LLC, as it is a pass-through entity.
Partnerships can also provide pass-through taxation and flexibility in governance. However, there is no limited liability for partners in a general partnership. This makes each partner potentially liable for the debts of the partnership. The only exception is a limited partnership. However, with limited partnerships, the limited partners have little or no voting rights, but do receive limited liability, while the general partner has control over the entity, but is personally liable for the obligations of the limited partnership. So, in essence, the LLC gives you the best of both worlds.
Our Business Attorneys Can Help You Form an LLC
If you are looking to set up a business here in Pennsylvania, you should consider forming an LLC. Our experienced business law attorneys at Jones Gregg Creehan & Gerace can assist you with the process making sure to prepare all of the LLC documents so they fit your business perfectly.