Starting an LLC – A Guide for New Entrepreneurs

Are you prepared to begin your enterprise? If so, it would be advantageous to contemplate creating an LLC. Starting an LLC, short for a limited liability company, is a well-liked and practical method of organizing a business in the United States. It offers many advantages for business owners, such as limited liability, pass-through taxation, and flexible management. In this article, we will show you how to start an LLC, and what you need to know before, during, and after the process.

What is an LLC?

Imagine a dynamic and versatile entity, one that fuses the best elements of a sole proprietorship, partnership, and corporation into a single powerhouse. This is the LLC or limited liability company. It stands boldly as its own distinct legal being, with its owners known as members. And while an LLC can thrive with just one member at its helm, it has the potential to soar even higher with a team of driven individuals behind it. It has many advantages over other entities in the business realm.

Advantages of an LLC

• A key advantage of Starting an LLC is that it protects its members from being personally liable for the company’s debts or legal issues, which means their assets are safe from creditors and lawsuits.

• Another benefit of Starting an LLC is that it has pass-through taxation, which means that the company does not pay corporate taxes. Instead, the profits or losses of the company are reported on the personal tax returns of its members.

• Additionally, Starting an LLC has the flexibility to choose how it wants to be managed and operated, without having to follow the strict rules and formalities of a corporation.

• The LLC can be either member-managed, where all the members participate in the decision-making and day-to-day operations of the business or manager-managed, where one or more members or outsiders are appointed to run the business on behalf of the members.

• The LLC can also have different purposes and goals, such as being a restricted LLC, which limits the transferability of membership interests and the duration of the LLC, or being a benefit LLC, which commits to creating a positive social or environmental impact.

How to Start an LLC?

Forming an LLC in Pennsylvania is not very difficult or expensive, but it does require some planning and paperwork. To establish an LLC, it is necessary to adhere to the state’s regulations and protocols, which will be thoroughly outlined below. The following are the primary steps for initiating an LLC in Pennsylvania:

Choose a Name and Register It

To begin the process of forming an LLC in Pennsylvania, the first step is to select a name for the business that is both unique and distinguishable from other businesses operating in Pennsylvania. This can be checked through the state’s website using the name search tool. The chosen name must also follow state regulations, including using either “Limited Liability Company” or “LLC” as part of the name.

To reserve the name for up to 120 days, you can fill out a name reservation form and pay a $70 fee. Once you have chosen and verified your name, you can register it with the state by filing a certificate of organization.

Choose a Registered Agent

Once you have decided to start an LLC, the next important task is selecting a registered agent for your business. A registered agent serves as the designated individual or entity responsible for receiving and handling any legal notices or documents on behalf of your LLC.

It is essential that the registered agent has a physical address located in Pennsylvania and is available during regular business hours. You can choose yourself, a member of your LLC, a friend, a relative, a lawyer, or a professional service company to be your registered agent.

When submitting your certificate of organization, it is necessary to supply the name and address of your registered agent.

File a Certificate of Organization

The third step in starting an LLC is to submit a certificate of organization to the Bureau of Corporations and Charitable Organizations. This document establishes the LLC and registers it with the state. The certificate must contain the following information:

• The name of your LLC
• Please provide the name and address of your registered agent.
• State the purpose of your Limited Liability Company (LLC).
• If your LLC does not have perpetual duration, please specify its duration.
• Please include the name and address of each organizer, who is responsible for filing the LLC’s certificate of organization.
• The signature of each organizer is required.

You have the option to file your certificate of organization online or by mail. A docketing statement and a filing fee of $125 must also be submitted. A docketing statement is a form that provides additional information about your LLC, such as its EIN, its principal office address, its type of business, and its fiscal year-end.

The docketing statement form can be accessed on the state’s official website. Upon submission of your certificate of organization, your LLC will be officially established and prepared to conduct business in Pennsylvania.

Create an Operating Agreement

The fourth step in establishing an LLC is to draft an operating agreement for your enterprise. This document outlines the roles and duties of the LLC members and details the management and operation of the business.

It is not required by the state, but it is highly recommended for any LLC, especially if it has more than one member. This agreement can help you avoid conflicts and disputes among the members, and protect your LLC from the default rules of the state.

An operating agreement can cover various aspects of your LLC, such as:

• The name and address of your LLC
• The name and address of each member
• The percentage of ownership and profit-sharing of each member
• The capital contributions and additional contributions of each member
• The voting rights and decision-making process of the members
• The management structure and authority of the members or managers
• The admission and withdrawal of members
• The dissolution and termination of the LLC
• The dispute resolution and arbitration methods

You can draft your own operating agreement, or use a template or a service to create one.Filing your operating agreement with the state is not necessary, however, it is recommended to keep a copy of it in a secure location.

Get an EIN

The final step to start an LLC is to get an EIN for your business. An EIN, also known as an employer identification number, is a unique nine-digit number used for tax and business purposes to identify a limited liability company (LLC).

This number is necessary for various tasks such as opening a bank account, filing tax returns, hiring employees, and obtaining licenses and permits for the LLC. To obtain an EIN, one can either apply online or by mail through the Internal Revenue Service (IRS).

The online application is free and efficient, providing the EIN instantly upon completion. On the other hand, the mail application requires filling out a Form SS-4 and submitting it to the IRS, with an expected processing time of approximately four weeks before receiving the EIN. Once an LLC has obtained its EIN, it can commence conducting business in Pennsylvania.

Bottom Line

Starting an LLC can be a beneficial option for new entrepreneurs. It provides limited liability, pass-through taxation, and flexible management, making it an attractive choice for businesses in the United States. Entrepreneurs can establish their own LLC and take advantage of its benefits by following the prescribed steps in this guide.