PA LLC Formation – The Basics You Need to KnowFebruary 5, 2014
What You Need to Know about LLC Formation in Pennsylvania
When starting a new business, one of the first and most important decisions a business owner must make is deciding how to structure their new business.
The most common business structures include a limited liability company, a sole proprietorship, a partnership, and a corporation.
Each structure has its own advantages and disadvantages, including personal liability exposure and income tax implications. To determine which business entity is appropriate, a business owner should carefully analyze the particular business in question as well as what is important to the business owner.
This post will discuss formation of a Pennsylvania Limited Liability Company, or PA LLC Formation, in more detail.
What is a Limited Liability Company (LLC)?
LLCs are a common choice of business entity for the Pennsylvania small business owner. Under Pennsylvania law, a limited liability company is a type of business entity that can provide an owner or owners with protection from personal liability arising out of activities of the business operations.
Limited liability companies provide asset protection benefits and tax benefits for owners. In addition, an LLC can shield owners from liability, assist in estate planning and allow for flexibility in capital structure and governance.
PA LLC Formation
To form an LLC in Pennsylvania, a business owner must file a Certificate of Organization with the Pennsylvania Department of State. While not required, it is usually appropriate to adopt an operating agreement and to obtain an EIN, or federal Employee Identification Number.
Other Filing Requirements
LLCs that limit their activities to certain professional activities can be Restricted Professional Companies. The professional activities include:
- Practice of law
- Podiatric medicine
- Veterinary medicine
- Osteopathic medicine and surgery
- Medicine & surgery
- Public accounting
These kinds of limited liability companies must file a Certificate of Annual Registration, along with an annual filing fee by April 15th of the year following each year it is in existence.
The entity’s members, in consultation with a business attorney, decide how an LLC will be operated. LLC members have incredible flexibility in determining the rule that will govern their operations.
LLCs are taxed as “pass-through” entities, which means that profits and losses of the entity are reported on each member’s individual personal income tax return. Additionally, members must include profits or losses on their Pennsylvania state personal income tax returns.
PA LLC formations can provide protection of personal assets from debts and liabilities which arise in connection with operating your business.
An LLC with more than one member can also provide some protection against claims from a member’s personal creditors. If a claim is made against an individual member in his or her personal capacity, the creditor cannot be awarded assets from the member’s LLC interest. The creditor be limited to payments to the individual from the LLC..
NOTE: An LLC does not protect professionals, such as to chiropractic, dentistry, law, medicine & surgery, optometry, osteopathic medicine and surgery, podiatric medicine, public accounting, psychology, or veterinary medicine from malpractice liability. Professional liability insurance is also an important consideration for professional LLCs.
Contact Us for Assistance
The concepts I have discussed can be very complicated and there are many issues far beyond the scope of this post, so anyone contemplating starting a new business should consult with a qualified attorney to discuss these and other related issues.
Please feel free to contact the Harrisburg Business Law Attorneys of DZMM at 717-724-9821 for more information.