How to Incorporate in Pennsylvania vs. How to Start a Pennsylvania LLC
A Guide to Choosing the Best Business Entity in Pennsylvania
Have you always wanted to start a business in Pennsylvania but you have no idea what the difference between an LLC and a corporation is? Let Active Filings be your guide through the jungle of business startup. We’ve put together a Pennsylvania-centric easy to use guide that will help you decide whether an LLC or corporation is right for you.
After choosing which business formation best meets your needs, you can hire Active Filings to incorporate your business in Pennsylvania for you. We’ll streamline the process and make it painless. Our starter package begins at only $25 (plus Pennsylvania fees), and we’re sure that you’ll find out in no time why Active Filings is America’s most reliable business incorporation service.
Pennsylvania LLCs vs. Pennsylvania Corporations
People looking to start a business often ask whether they should set up an LLC or incorporate for their new venture. Like everything else in life, the answer depends. Below you’ll find the three factors we think will help you make an informed decision.
- Ease of maintenance
Rules and regulations governing LLCs are far less restrictive than those governing corporations. In general, LLCs are not held to the same standards when it comes to record keeping, nor are they restricted in size, but generally, a corporate structure is better for larger businesses. Of course with size comes more responsibility. Corporations have to file more paperwork, organize more meetings, keep minutes, issue stock, and in some cases elect a board. If a slimmed down business structure is what you’re looking for the LLC is the best bet.
- Desired tax structure
By default, an LLC is considered a pass-through entity, similar to a sole proprietorship or partnership. This means that the business itself doesn’t pay income taxes on its profits; rather any profits or loss are passed through to the owners (called members) and reported on their personal tax returns. By contrast, a corporation is considered a separate legal entity and must submit a tax return and pay income taxes on its profits. In some cases, this can lead to “double taxation,” where the corporation is taxed on its profits, then when the owners take those profits out, they will need to report the dividend on their personal tax returns. For some small-business owners who are accustomed to taking profits out of the business, double taxation can be costly.
When it comes to investing in a company, most investors feel most comfortable investing their hard earned money into corporations. The biggest reason investors prefer corporations is their favorable taxation rules. Unlike LLCs, a corporation’s shareholders are not taxed on company profits unless profits are distributed, which means the dividends paid from the corporation can be structured to take advantage of the best tax scenario for the shareholders. If you plan to grow your small business into a larger entity and attract investors, forming a corporation is your best bet.
A final thought on LLCs and corporations. LLCs are a relatively new business entity (1977), compared to corporations, which are the oldest recognized entity in the US. This affords the corporate structure a certain prestige.
Advantages and Disadvantages of Pennsylvania LLCs and Corporations
While we’ve already broken down the differences between an LLC and a corporation, we’re going to dig a bit deeper into the pros and cons of forming an Pennsylvania LLC or corporation. Take a look below to see what makes Pennsylvania LLCs and corporations unique:
- High Taxation
With a 3.07% flat income tax rate, Pennsylvania looks like it might be a low-tax state. However, most cities and towns in Pennsylvania tack on their own local income tax (school districts, too). Philadelphia hits taxpayers the hardest with a 3.87102% tax on residents and a 3.4481% tax on nonresidents. Property taxes are above average in Pennsylvania, too. And let’s not forget 9.99% corporate taxation.
- Decennial Report
Most states require LLCs and corporations to file annual or biennial reports. Pennsylvania asks that all businesses, including non-profits, check in with the state every ten years on years that end in “1.” For example, if you form your business in 2020, the state will want you to file the decennial report in 2021. If you form your business in 2022, you will next file your report in 2031. Total cost to file is $70, even for non-profits.
- Publication Certificate
Pennsylvania Code requires that corporations publish their intention to file, or advertise that they have already formed a corporation with the the state. This notification needs to be published once in two separate newspapers of general circulation. One must be a legal newspaper. There is no time requirement, and corporations simply have to keep the publication notifications on file with their records. Just an added wrinkle and cost to an already complicated process. LLCs don’t have to worry about this.
- Expedited Process Fees
While Pennsylvania only charges $125 to form either an LLC or a corporation, the process can take 10 days or longer. Want to speed the process up? You’ll have to submit the expedited service documents in person. $100 for same day service, $300 for 3-hour processing, and $1,000 for 1-hour processing. Sounds crazy to us.
Pennsylvania LLC or Pennsylvania Corporation? Final Answer.
Both LLCs and corporations cost $125 to file with the state, but corporations have the added wrinkle of extra paperwork, even beyond the state’s publication requirements. Corporations are also taxed at almost 10%, whereas an LLC will be subject to the flat income tax of 3.07%. For these reasons the Pennsylvania LLC is top dog!
How to Incorporate in Pennsylvania
To start a corporation in Pennsylvania, you must file Articles of Incorporation with the Bureau of Corporations and Charitable Organizations. You can file the document online, by mail or in person. The Articles of Incorporation cost $125 to file. Once filed with the state, this document formally creates your Pennsylvania corporation. Pennsylvania also has publishing requirements for corporations. While there is no timeline for publication, the state wants you to pay to advertise in two separate newspapers, with one being a legal newspaper or publication.
The state uses one form for 8 different kinds of corporations: stock, nonstock, statutory, management, professional, insurance, benefit and cooperative. Each type is subject to different sections of the Pennsylvania Consolidated Statutes. Note that cooperative and benefit corporations have additional sections to complete on the Articles of Incorporation form. Tip: Most corporations are stock corporations.
Your company’s name must include “Corporation,” “Incorporated,” “Limited,” “Company” or an abbreviation for one of these words. Most choose to keep it simple with “Corp,” or “Inc.” Example: Walmart, Inc.
This is a physical office where your corporation will receive service of legal documents in case of a lawsuit, such as notices or service of process. You cannot use a PO box. It must be a physical address in Pennsylvania. Hire Active Filings as your registered agent, and our address goes here.
List the total number of shares you’re creating. You must create at least one share.
Your incorporator signs your Articles of Incorporation. Incorporators have to list their names and addresses. You must have at least one incorporator, Active Filings, when hired, can be your incorporator.
Most corporations want their business to start right away. But if you want your business to start on a specific date, you can list a date up to 90 days in the future. If you don’t enter any information here, your corporation will begin upon filing. Most corporations skip this section.
This is a supplemental form you’ll have to file with your corporation. If you fill it out online the form is included, but if you go old school and file with a paper form, you’ll have to download the Docketing Statement and fill it out separately. It asks you to enter your corporation’s name, the name and mailing address of the person responsible for tax reports, a brief description of business activity, your tax or fiscal year end date, and federal tax ID.
How to Start an LLC in Pennsylvania
To form your LLC, you must first file your Certificate of Organization with the Bureau of Corporations and Charitable Organizations. You can file the document online, by mail or in person at a cost of $125.
Your name must include “Limited Liability Company,” “Limited,” “Company” or an abbreviation. Most businesses keep it short and sweet with “LLC.” Example: Lori’s Baked Goods, LLC.
This is the physical office where your LLC will receive service of legal documents in case of a lawsuit, such as notices or service of process. You cannot use a PO box. It must be a physical address in Pennsylvania. Hire Active Filings as your registered agent, and our address goes here.
Your organizer is the person you authorize to form and file your Pennsylvania LLC Certificate of Organization. Active Filings will be your organizer.
When do you want your LLC to start? Most start right away after all the paperwork is file. But you can put off the start date by up to 90 days. Put that date here if you want to slow your roll, otherwise just leave this blank.
Is your LLC associated with law, licensed medical, or accounting services? If so you’ll have some additional filing requirements. Most LLCs aren’t these, so you can skip this section.
Most LLCs aren’t benefit companies (think hybrid between for-profit and non-profit), but if you are you’ll have a few more forms to fill out.
This is a supplemental form you’ll have to file with your LLC. If you fill it out online the form is included, but if you go old school and file with a paper form, you’ll have to download the Docketing Statement and fill it out separately. It asks you to enter your LLC’s name, the name and mailing address of the person responsible for tax reports, a brief description of business activity, your tax or fiscal year end date, and federal tax ID.
Pennsylvania Decennial Report Requirements
What is the Pennsylvania Decennial report?
Most states require LLCs and corporations to file annual or biennial reports. Pennsylvania asks that all businesses, including non-profits, check in with the state every ten years on years that end in “1.” For example, if you form your business in 2020, the state will want you to file the decennial report in 2021. If you form your business in 2022, you will next file your report in 2031.
What information do I need when I’m filling out the annual report?
Your business’s name and address.
Names and addresses of officers and directors (if a corporation).
Names and addresses of managers or members (if an LLC).
Name and address of your registered agent.
Type of business your company is involved in.
How do I file my biennial report?
You can file online or by mail. In both instances you’ll need to go online to the state’s business portal: PENN FILE
If filing online:
You probably already have an account with PENN FILE, the state’s online business portal, but if you don’t, now is your time to create an account.
Follow the prompts and enter all pertinent information.
Finish up by paying with your credit card.
If filing by mail:
Click “Forms” at the top of the page.
Select “Decennial Report of Association Continued Existence” under “Miscellaneous Forms.”
Download, print, and populate the form with the necessary information.
Mail your report with a check for $70 made out to Pennsylvania Dept. of State.
Mail your decennial report to:
Pennsylvania Department of State
c/o Decennial Reports
401 North St
Harrisburg, PA 17120
How much does the report cost?
All business entities pay $70, even non-profits.
When is the report due?
Every 10 years on years ending in “1.” For example, if you formed your business in 2015, you’ll need to file a report in 2021. Pennsylvania doesn’t charge late fees for failing to file a report, but the state will allow you business’ name to become available for use if you are delinquent for more than 1 year.
Pennsylvania Business Taxes
Let’s be honest, taxes are like Lima beans. Not everyone enjoys them. They are, however, an integral part of successfully doing business in America. While we’re not tax professionals, we definitely will do our best to try and explain what kind of taxes your business will be expected to pay.
Corporations: The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This is what we mean when we say corporations face “double taxation.” If you are forming a corporation, you’ll want to pay attention to not only the state’s corporate tax, but also it’s income tax rate, as you will be on the hook for both.
LLCs: For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation. However, for purposes of employment tax and certain excise taxes, an LLC with only one member is still considered a separate entity. One of the most significant benefits of an LLC is that of pass-through taxes. LLC owners don’t have to file a corporate tax return. An owner simply reports their share of profit and loss on their individual tax return. This prevents double taxation, your business paying taxes and you paying taxes.
What’s the PA corporate tax rate?
9.99%, making Pennsylvania corporations the highest taxed in the US.
What does PA’s income tax look like?
What tax forms do I need to file?
Corporations file Form PA RCT-101
LLCs file Form PA-40
When are my tax returns due?
Personal and corporate tax returns are due by April 15th.
What if I need an extension?
To request a Pennsylvania-only extension, file Form REV-853 by the original deadline of your return. You will receive notification from the Pennsylvania Department of Revenue indicating that your extension has been approved or denied. You can submit a Pennsylvania extension request by paper mail (with Form REV-853) or file your request electronically using PA Business Tax e-Services. If you have an approved Federal tax extension (IRS Form 7004), you do not have to use Form REV-853 unless you owe Pennsylvania tax. Remember to enclose a copy of your Federal extension with your Pennsylvania tax report when you file.