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From pretzel carts in Philadelphia to steel mills in Pittsburgh, all Pennsylvania business owners should protect their personal assets by forming an LLC.
Easy Steps to Forming a Pennsylvania LLC
- First: Choose a Name
All Pennsylvania LLC names must comply with certain statutory requirements. First, the name must be distinguishable from every other business entity that either was formed under Pennsylvania law or has qualified to do business in Pennsylvania. The name must contain “limited liability company,” “company,” “limited,” or an abbreviation of one of those. The name also cannot imply any affiliation with the government, nor can it imply that the LLC is a bank, insurance organization, public utility, credit union, educational institution, engaged in engineering, surveying or architecture, or a cooperative. Interestingly, the LLC name can also not contain “words that constitute blasphemy, profane cursing or swearing or that profane the Lord’s name.”
- Second: File a Certificate of Organization
An organizer, who does not need to be a member of the LLC, forms the LLC by filing a Certificate of Organization with the Department of State. This Certificate of Organization must include the LLC name, the name and address of the Registered Agent, the name and address of the organizer, whether membership interest will be evidence by certificates, whether the LLC will be managed by members or managers, when the LLC will begin existence, and any other provisions the organizer decides to include. The filing fee for this Certificate of Organization is $125.
- Third: Execute an Operating Agreement
Pennsylvania law states that an Operating Agreement, which governs the internal affairs of an LLC, does not need to be in writing and can contain anything the members want, unless specifically prohibited by law. However, we recommend that the agreement be in writing to avoid any future conflict.
- Ongoing: Continued Maintenance
EIN: If your LLC will have numerous members or will have employees, you will need to obtain an EIN through an incorporation service, or directly from the I.R.S.
Annual Report/Fees: Pennsylvania does not have any Annual Report or fee requirements.
Why Form an LLC in Pennsylvania?
The Benefits and Advantages of Creating a Pennsylvania LLC
- Pennsylvania LLC vs. Delaware LLC
Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in Pennsylvania. (Learn more about the advantages of a Delaware LLC.) If you prefer to form a Delaware LLC, we can help you file an application to register to do business in Pennsylvania with your Delaware LLC.
The Pennsylvania LLC Law endorses the freedom of contract, enables members to customize a method for allocating profits and losses, and allows members to create classes of membership interests and protect their control of the LLC. In addition, it protects members in manger-managed LLCs by imposing fiduciary duties on LLC managers. Pennsylvania also allows for a one-member LLC, also known as a single-member LLC.
Pennsylvania Has a Large and Growing Economy
Each year, Pennsylvania forms over 30,000 new LLCs. Pennsylvania has over 135,000 active LLCs.
Pennsylvania is the sixth largest state by population and gross domestic product. According to the U.S. Chamber of Commerce, between 2009 and 2011, Pennsylvania had 52% job growth in the oil and gas extraction industry, 60% job growth in the forestry and logging industry, and 102% job growth in the mining support industry.
- Advantages of Forming a Pennsylvania LLC
The Pennsylvania LLC Law gives LLC members contractual freedom to customize their capital contributions and their shares of profits and losses. The Law specifically endorses the freedom of contract, and an LLC agreement may waive or modify almost any provision of the Law. An LLC’s members can designate a method for allocating profits and losses in an LLC Agreement that is greater or lesser than their percentage of capital contributions. This gives members contractual flexibility to adapt their income streams and risks of loss to further their broader asset management plans.
The Pennsylvania LLC Law does not require filing of members’ names. A person may sign an LLC’s Certificate of Organization, and the person does not need to be a member of the LLC. An LLC manager may sign any document filed with the Pennsylvania Secretary of State on behalf of an LLC. A manager does not need to be a member or a natural person. An LLC’s members may therefore have an entity or person who is not a member file the LLC’s Certificate of Organization with the Pennsylvania Secretary of State.
The Pennsylvania LLC Law provides for an LLC’s unlimited life. The “certificate of organization may provide that the company shall have perpetual existence.” An LLC’s existence can therefore outlive its members’ lifetimes.
Dealing with Business Partners
The Pennsylvania LLC Law enables members to create classes of membership. An LLC agreement may establish classes of membership interests with different rights, powers, and duties, including voting and non-voting interests. In addition, an LLC agreement may specify that when a class or group of members are entitled to vote on a matter, specific individual members may also vote on the matter separately or along with the class or group. This facilitates everything from complex, high-dollar-volume transactions to succession planning in family businesses and estate planning by gifts of non-voting interests.
The Pennsylvania LLC Law protects members in manager-managed LLCs by imposing duties upon LLC managers but not upon members who are not managers. A member who is not a manager does not have duties to the LLC or other members when he or she acts in a member’s capacity. A manager, however, has the same fiduciary duties to the LLC as a director has to a corporation under the “Fiduciary Duty” subchapter. This means the manager must act “in good faith, in a manner he reasonably believes to be in the best interests of the [company] and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances.” An LLC agreement may increase, but not decrease, an LLC manager’s duties to the company.
Preventing Unwanted Business Partners
The Pennsylvania LLC Law allows members to protect their control of the LLC. An LLC agreement may provide that “a member may not voluntarily dissociate from the limited liability company or assign his membership interest prior to the dissolution and winding-up of the company.” Furthermore, an LLC agreement may provide that if a member proposes assigning his or her membership interest, the recipient of the interest may not participate in the LLC’s management or become a member without the unanimous consent of the non-assigning members. The non-assigning members, however, may not unreasonably withhold their approval.
- Pennsylvania Registered Agent
A Pennsylvania LLC must list a Pennsylvania registered address. A commercial registered agent service may act as a Pennsylvania registered agent and office.
Because of the advantages of forming an LLC in Pennsylvania, over 30,000 new LLCs are formed in the state each year.
Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in Pennsylvania. What are the advantages of a Delaware LLC? (Delaware LLC Advantages). We can then help you file an application for registration to do business in Pennsylvania with your Delaware LLC (Form Delaware LLC).
- Pennsylvania LLC Law Statutory References
§ 109 “Name of Commercial Registered Office Provider in Lieu of Registered Address” §§ 1711 to 1717 The “Fiduciary Duty” Subchapter § 8907 “Execution of Documents” § 8912 “Organization” § 8913 “Certificate of Organization” § 8916 “Operating Agreement” § 8924 “Limited Transferability of Membership Interest” § 8932 “Distributions and Allocation of Profits and Losses” § 8941 “Management” § 8943 “Duties of Managers and Members” § 8944 “Members” § 8948 “Limitation on Dissociation or Assignment of Membership Interest” § 8971 “Dissolution”
| Pennsylvania vs. Delaware LLC's: Which State Is Better?|
|States||LLC Filing Fee||Required to Name Members or Managers||Report Frequency||Annual Fee?||Reduce Fiduciary Duties?||Series?||Charging Order as Exclusive Remedy||Maximum Freedom of Contract||Separate Equity Court?|