Culhane Meadows’ Philadelphia partner Sekou Campbell was recently quoted in an article for Time Magazine’s personal finance portal, Next Advisor, which discusses the 7 steps to make your small business official in Pennsylvania.
Here are a few excerpts from the article:
When you are starting a business, investing in real estate ventures, or engaging in other commercial activity in Pennsylvania, it is a good idea to consider forming a limited liability company (“LLC”).
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An LLC is a hybrid between a corporation and a partnership. As such, an LLC provides the liability protection of a corporation, with the advantage of being taxed as a partnership. Generally, this means that a Pennsylvania LLC shields you from personal liability arising from your business activities. At the same time, it provides you with “pass-through” tax treatment on the profits and losses from your business. Basically, you’ll avoid being taxed twice, as a business and as an individual. You can incorporate your LLC yourself, hire a lawyer to guide you through the process, or use an online service like LegalZoom to register your business quickly.
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Pennsylvania requires that every LLC operating in the state have a unique name. You can conduct a search at the Pennsylvania Department of State website to see if your proposed name is available. The name of your LLC must contain the words “Company,” “Limited,” or “Limited Liability Company”, or either the abbreviation “L.L.C.” or “LLC”.
There are certain restrictions to choosing a company name. It cannot reference a governmental agency , such as the FBI, the State Department, or the United States Treasury. It also cannot indicate a fiduciary relationship if one doesn’t exist (trust, trustee, fiduciary). It also cannot include a non-associated financial institution or professional services firm, such as a bank, law firm, or medical practice.
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When you are completing the Pennsylvania LLC form, you will be asked to list a registered agent for your company. A registered agent will be your business’s main point of contact with the state. This person will accept all state paperwork, including all legal documents, tax statements, lawsuit notices, court orders, and government correspondence.
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The next step in forming an LLC in Pennsylvania is to complete and file a Certificate of Organization for Limited Liability Company with the Pennsylvania Department of State. The Certificate of Organization is a document that lays out basic information about your business and officially establishes your authority to operate as an LLC in Pennsylvania.
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One important item you will need to determine when completing the Certificate of Organization is whether your LLC will be “member-managed” or “manager-managed.” In LLCs, the LLC owners are called members. Many LLCs are member-managed, as they are usually owned by one or just a few members. If you don’t have the time or inclination to manage your business on a daily basis, you can appoint another member to serve as manager, or you can hire an outside manager.
“You want to always select manager-managed [on the form],” says Sekou Campbell, partner and transactional attorney at the Philadelphia office of Culhane Meadows PLLC, a corporate and commercial law firm. “[Then] you have the option of either having a member manage it, or [having] a manager or someone who is not a member manage the LLC,” Campbell explains. You can have a manager who is a non-owner of your LLC manage it.
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An operating agreement is an agreement among the members of the LLC that details how the LLC will be managed and operated. Even if you are a single-member LLC, it is important to have an operating agreement, as the management structure may change over time, especially if your business grows quickly.
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“Not having an operating agreement, or having a very poorly written operating agreement, and then not having strong buy-sell provisions [if partners split] are probably the two things that I see hurt the business,” says Campbell. “Completely out of the blue, if someone gets injured or, God forbid, passes away, buy-sell provisions also cover those things as well.”
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Once you have received your file-stamped Certificate of Organization and your LLC is officially formed, you will then need to apply for a federal Employer Identification Number (“EIN”) with the Internal Revenue Service. You need an EIN in order to pay Pennsylvania business taxes for your LLC, as well as to open an LLC bank account and conduct other types of business. You can obtain your EIN on the IRS website, and the Internal Revenue Service lets you register an EIN for free.
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After you have obtained your EIN, you can open a business bank account for your LLC. It is very important to create and maintain a separate business bank account and make sure you do not commingle any of your LLC finances with your personal finances. The same is true regarding credit cards: you should have a separate credit card in the name of the LLC that is used exclusively for LLC business.
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Depending on your specific business activities, your LLC may need to report sales and use tax and/or employer withholding. In order to register your LLC for state tax and employer accounts, you’ll need to complete the Pennsylvania Enterprise Registration Form.
You may also need to obtain any necessary business licenses or permits. To determine if you need a PA business license, you can check with the Pennsylvania Department of State Licensing Services.
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Lastly, you may want to consult with a business attorney or accountant before you form your Pennsylvania LLC, particularly if it is your first time. It may save you the time and expense of having to fix any mistakes you may make during your LLC formation process.
Read the entire article HERE.
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The foregoing content is for informational purposes only and should not be relied upon as legal advice. Federal, state, and local laws can change rapidly and, therefore, this content may become obsolete or outdated. Please consult with an attorney of your choice to ensure you obtain the most current and accurate counsel about your particular situation.
