If you want to start a business, you need two main ingredients. The first one is coming up with a great product idea that’s going to take the market by surprise. The second one is learning all the steps it takes to make your business official.
Each state has its own rules and regulations that businesses need to comply with, so you need to pay very close attention to these details. What works for your friend with a thriving business in Florida may not work for you in Pennsylvania.
If Pennsylvania is your state of choice for venturing into the business world, then you will be pleased to know that so do about 1 million other small businesses. In fact, the state is quite appreciated by business owners for the accessibility it provides.
Nevertheless, starting a business can be frightening no matter the state you choose. While many online guides are general in nature, this article contains the specific steps you need to take when starting a business in Pennsylvania.
Decide on a name
The first thing you need to do when opening a business is deciding on a name. This is going to be how people remember you, so you need to think carefully. Choose a name that is meaningful, suits the industry you are about to enter, and reflects the values you stand for.
Importantly, your name must be available for use in Pennsylvania. If you choose a name that is too similar to an existing business, your formation documents will be rejected until you choose another name. You can verify if a name is available by searching the state’s online database. Don’t overlook this step before falling in love with a name, or worse, starting to use an unavailable name on your website and other company materials.
In Pennsylvania, reserving your business name with the Department of State is not required. Simply filing to form the business entity in Pennsylvania helps ensure you are the only one able to use the name in the state.
Choose a business entity structure
Once you decided on a name, you also need to decide on a business entity structure. The business structure you choose determines how your company will be taxed, how it can be managed, and your initial and ongoing compliance requirements. Be sure to do your research and talk to an attorney or tax professional if you’re not sure which structure is right for you.
Below are some of the most common business structures in Pennsylvania:
Limited Liability Company (LLC)
LLCs are known for their ease in setting up and flexibility in taxation. They are very popular with first-time business owners and companies that don’t require complex management structures. For a limited liability company, you need to prepare the following paperwork:
- Form DSCB:15-8913-2: Certificate of Organization – Domestic Limited Liability Company
- Operating Agreement
- IRS Form SS-4: Obtain an EIN
- Form 2553: S-Corp Election, if desired
- PA-100: PA Enterprise Registration Form
The filing fee to form an LLC in Pennsylvania is $125. Unlike corporations and nonprofit corporatinos, LLCs are not required to publish a notice of formation in the newspaper. This saves additional fees and paperwork right out of the gate.
Corporation
Corporations are a time-tested business structure. They offer much more flexibility in ownership and adding shareholders as the company grows. However, opening a corporation in Pennsylvania requires a few more steps:
- Form DSCB:15-1306: Articles of Incorporation – For Profit
- Pennsylvania docketing statement
- Pennsylvania incorporation publishing
- Bylaws
- IRS Form SS-4: Obtain an EIN
- Form 2553: S-Corp Election, if desired
- PA-100: PA Enterprise Registration Form
The filing fee to incorporate in Pennsylvania is $125. Keep in mind that newspapers charge an additional fee to meet the state’s advertising requirement. You may also face additional fees for specific business licenses and permits needed to operate.
Nonprofit Corporation
For charitable or socially-minded causes, founders may wish to form a Pennsylvania nonprofit instead. This is known as a “nonprofit corporation” and is the traditional vehicle used when applying for 501(c)(3) tax exemption.
- Form DSCB:15-5306/7102B-2: Articles of Incorporation – Nonprofit
- Pennsylvania docketing statement
- Pennsylvania incorporation publishing
- Bylaws
- IRS Form SS-4: Obtain an EIN
- IRS Form 1023: 501(c) Tax Exempt Application
- Form PA-100: Enterprise Registration Form
- Form REV-72: Sales Tax Exemption Application
- Form BCO-10: Charitable Organization Registration Statement
Like for-profit corporations, nonprofit corporations have a filing fee of $125 and are also required to advertise in the newspaper when they incorporate. Additionally, both the IRS application and Pennsvylania solicitation charitable registration forms have filing fees that depend on the organization’s projected revenues. While this seems like a lot of extra steps and costs, keep in mind that nonprofits are required to serve the public. The extra due diligence helps state agencies and the IRS ensure that the revenues your nonprofit raises are used to further its mission in your community.
Appoint a registered agent
Regardless of the legal entity structure you choose, you will be required to appoint a registered agent that resides in Pennsylvania. The job of the registered agent is to receive legal documents, such as service of process, on behalf of your company and forward them to you. Choosing a reliable registered agent ensures your business complies with state requirements and doesn’t miss crucial deliveries.
Develop a business plan
Now that you decided what type of business entity you plan on forming, it’s time to start working on the business plan.
Your business plan is a blueprint for success – or lack thereof. Your plan should include what your business is, what type of services or products you plan on selling, your sales plan, costs, as well as financial projections for the first three years.
A well put-together business plan will also help you acquire capital from potential investors or lenders. They take business plans very seriously and expect you do the same. If you’re forming a nonprofit, you will have to describe in full detail how your organization will operate when you apply for your federal income tax exemption.
Banking and funding
Once you got all your paperwork in order, it’s time to focus on the financials. Businesses deal with a lot of money, but for that, they need a bank account. This is going to ensure your personal and business finances are kept separate and that they do not influence each other. When applying for a business account, you will typically need to provide your new entity’s EIN and formation documents, such as articles of incorporation. Be sure to contact your bank for their required list of documentation so you don’t waste a trip.
After your business gets its own bank account, it’s time to consider funding. If you still need some extra money to see your products on the market, there are multiple methods to obtain funding in Pennsylvania. For starters, you can consider a business credit card or a small business loan. If this is not an option for you, private lenders or investors may be a more suited solution.
Business insurance
Last but not least, you want your business to be protected in case of any potential issue. The limited liability protection offered by the legal entity only goes so far, so insurance is a must.
The type of insurance you need to purchase depends on the type of business you are planning to open, so make sure to discuss your options with the insurer. In general, businesses will need general liability insurance, and if they have employees, workers compensation and unemployment insurance policies, but the rest depends on your business’ particular needs.
Starting a business is an exciting prospect. While you have a unique product idea and plan to bring it to market, your success ultimately depends on setting up the business properly. These steps will give you a leg up to creating a business in Pennsylvania. By following these steps and enlisting the help of professionals to provide you legal advice and ensure your paperwork is properly filed, you can quickly get up and running and making a profit.
Harbor Compliance does not provide tax, financial, or legal advice. Use of our services does not create an attorney-client relationship. Harbor Compliance is not acting as your attorney and does not review information you provide to us for legal accuracy or sufficiency.
James Gilmer is a Compliance Specialist at Harbor Compliance, a leading provider of compliance solutions for companies of all types and sizes. Founded by a team of government licensing specialists and technology trailblazers, Harbor Compliance has helped more than 25,000 organizations apply for, secure, and maintain licensing across all industries. James is passionate about helping nonprofit organizations leverage compliance to enhance their fundraising and program activities and educating the sector on compliance issues.