Pennsylvania was one of the first states and, for a time in the 18th century, housed the nation’s capital city. It maintains that rich history and culture today, from the cities like Pittsburgh and Philadelphia to its plentiful farming country. And the state has opportunities everywhere for people seeking to start new businesses.
One of the best and easiest ways to get started is to form an LLC. While it’s not difficult, it does require time and money to get started. We’re here to help you figure out where you need to spend your money, as well as other purchases you’ll want to make that can make your life easier, both now and in the future.
This article will help you make a budget for starting an LLC in Pennsylvania.
- The required costs for every LLC
- Extra costs we recommend you incur
- The different ways you can form your LLC, as well as the pros and cons of each
Total Pennsylvania LLC Cost – $125
Forming a Pennsylvania limited liability company is just a matter of filing a certificate of organization. That simple filing will cost you $125. You will also have to file a separate paper called a docketing statement, but you don’t have to pay a separate fee for that.
In Pennsylvania, these filings are done through the Department of State, which lists the most up-to-date fees on its website.
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How Much it Costs to Start a Pennsylvania LLC
Filling your Certificate of Organization is the most important step in forming your Pennsylvania LLC. But even after you have formed your LLC, you’re only getting started. There are many things you need to think about before you open your doors to the public. The best way to solve problems that come up is to anticipate the biggest ones and make plans to avoid them.
Pennsylvania Certificate of Organization Filing Fee – $125
This is a short but vital document, like a birth certificate for a person. Without it, your LLC doesn’t exist. Once it has been filed with the Pennsylvania Department of State, your LLC can do business, pay taxes, and take any other legal action. Thus, you need to make sure the certificate is done first and done correctly.
The easiest way to file it is online, using PENN File, the state’s online business document system.
If you have a complicated business, you may want to hire a lawyer to draft a more detailed Pennsylvania LLC certificate. If that’s the case, though, you likely know your needs well. For most people, the form certificate of organization on the state’s website will work just fine.
However you prepare your Pennsylvania LLC certificate, you also need to file the docketing statement, though that document does not have a separate cost.
Pennsylvania LLCs – Optional Costs to Consider
$125 may be all you need to get started, but your LLC may need a bit more to get off to the best start. Use the list of costs below as a checklist, and think about whether any of them might be necessary for your LLC.
Expedited Filing Service – $100 to $1000
The Department of State reports a processing time of 15 business days. Depending on the time of year, that can translate into over three weeks! Most people don’t want to, or can’t, wait that long to get started.
Fortunately, the state does have options for expedited service detailed on page 23 of its online Guide to Business Registration. If you need to use these, be very careful that you do it in the correct way, as the state has precise rules.
All requests must be submitted in person at the Department’s office:
Department of State
Bureau of Corporations and Charitable Organizations
401 North Street, Room 206
There are three levels of service. All of them will get you your certificate by the end of the day. The amount you have to pay depends on when you bring your filing into the office:
- Same-day service: $100 (the office must receive your filing before 10:00 a.m.)
- 3-hour service: $300 (must be received before 2:00 p.m.)
- 1-hour service: $1000 (must be received before 4:00 p.m.)
Business License – Varies
Pennsylvania does not have a statewide business license, but the city or county where your LLC is located might. Thus, one of the first things you should do is check the local requirements for your kind of LLC.
For example, let’s take a look at the City of Philadelphia’s business license website. A basic commercial activity license does not cost any extra money. An auto repair shop license, though, costs $207 per year. And a lodging and hotels booking agent license would cost $7,000!
Thus, it’s vital to do your research ahead of time, once you have chosen where you want to open up shop.
Registered Agent Fee – about $100 per year
When you start your LLC, you’ll have to name a registered agent so that the state and the public can timely communicate with you. This is important if someone sues your LLC. A lawsuit may not sound like fun, but you must know when it happens, or your business will be at risk.
Because your agent’s details are included in your certificate, you don’t pay an extra fee to the state to name your Pennsylvania registered agent. Still, you should think about hiring a company to serve as your LLC’s agent.
Many owners are tempted to serve as the agent themselves, thinking they can save a couple of bucks. This is not a good idea because it involves making your address public and always being available just in case someone wants to sue your company.
It’s simpler to hire a Pennsylvania registered agent service for your LLC. These registered agent companies usually charge $100 per year and cover all your agent needs. It’s money well spent.
Operating Agreement — Variable
An operating agreement is a contract that sets down the rules of your LLC. It says how the people in charge should do their jobs, when meetings must be held, how members can enter and exit the LLC, and almost any other matter that affects your business.
Pennsylvania won’t force your LLC to have an operating agreement if you don’t want one. In fact, state law allows you to include the terms for an LLC operating agreement in your certificate of organization. (We don’t recommend you do this, however, as your certificate is a publicly filed document that is very difficult and costly to change.)
You don’t need to have an LLC operating agreement, but we strongly recommend that you think about it. Without a written contract, you have much less control over what happens to your company. If someone leaves, dies, or joins the LLC as a member, a contract is a way you can keep control of your business. Don’t leave that to chance.
If you have an agreement, you don’t have to file it with the state. You can write it yourself, but unless you are a lawyer or know exactly what it’s supposed to look like, we don’t recommend that option.
Having a lawyer draft it is costly. They would likely charge you an hourly rate. While a lawyer’s agreement would be thorough, spending hundreds (or even thousands) on a contract for a small business is overkill. If you use an LLC formation service, you can have a good agreement drafted, though, for as little as $39.
DBA Filing Fee – $70
Sometimes, the name that is on your LLC’s certificate is not the name you want on a sign in front of your shop. Maybe you want a name that stands out a bit more. Or maybe you want to make it clear that your LLC is related (or not related) to another company.
Whatever the reason, in this case, you need a fictitious business name or “doing business as” (DBA) name. Getting an LLC is a common process covered by Title 54, Chapter 3 of the Pennsylvania Consolidated Statutes. Section 311 outlines the DBA process.
To get your DBA, you have to apply with the Department of State, which provides a form for this purpose. Once you’ve filed the form, paid the fee, and been approved, you’re all set.
Name Reservation Fee – $70
Maybe you have a good plan and the perfect LLC name for your business entity, but you’re not ready to start just yet. If you want to make sure that you can use a certain name when you are ready, you can file a Name Reservation with the Department of State for $70.
Once you have successfully applied, you have the right to the reserved name for 120 days.
Domain Name – about $20 per year
In this day and age, small businesses need to be on the Internet. The first step in creating a good website is to get your domain name. While this might have been pricey in the past, it is now quite affordable.
You should lock down your domain name as soon as possible, even if you don’t have plans for a website right now. If you don’t, a competitor could buy your ideal domain and similar-sounding domains to block you from using them. Domain squatters also sift through newly registered LLC names and will buy their domains only to relist them with huge markups.
In general, a domain ending in .com will be more expensive than a .net or .info domain, and some names will likely be taken, meaning you will have to do some searching (and maybe compromising).
A domain name from GoDaddy.com or a similar registrar may cost you between $20 and $50 per year, with regular specials and sales where you can get substantial discounts.
Register With the State Tax Office – Free
Though Pennsylvania typically taxes LLCs as pass-through entities, you will still have to pay some taxes. These include:
- payroll taxes
- unemployment taxes
- sales and use taxes
- Hotel occupancy taxes
The best way to make sure you don’t miss anything is to register with the Department of Revenue online. There’s not a separate fee for this, and it helps you to make sure nothing falls through the cracks.
Getting a Federal Employer Identification Number (“EIN”) – Free
An EIN is a number created and assigned by the Internal Revenue Service to a business for paying taxes. (Think of an EIN as a social security number for a business.) Some LLCs need them and some don’t, but having one can make your life easier.
Regardless of whether the IRS says you need one, we recommend that you get an EIN. Many banks won’t allow your company to have its own business bank account without one. Having an EIN can also simplify the process of getting credit.
You can apply online and get an EIN for free in minutes, or you can apply for one through the mail or fax. Whatever you do, don’t pay someone else to get an EIN for you. It’s too easy to pay someone else to do it unless it is part of a broader service package.
Foreign LLC Qualification Fees – about $100 per extra state
If your business becomes a success, you may want to expand to new locations. If one of those places is in another state, you’ll have to pay to do business there. You won’t have to re-form your company, but you will have to register as a foreign LLC with the Secretary of State there and pay extra fees.
The exact fees will depend on the state in which you are registering. As a rule of thumb, expect to pay about $100 in filing fees to register your Pennsylvania limited liability company in another state.
Writing Formation Costs Off
Because it takes money to start your business, you can write off many, if not all, of your costs on your federal taxes for a deduction. The IRS has a lot of guidance on this matter, and you should compare your specific costs to the materials on the IRS website.
Keep in mind that, in most cases, a limited liability company is taxed by the IRS as a pass-through entity. Generally speaking, LLC owners can deduct up to $5,000 of their business startup expenses in the first year.
Pennsylvania’s Business Tax Guide indicates that the state’s approach reflects the IRS approach, so you should be able to deduct these costs from your state income taxes as well.
Meg is a skilled tattoo artist who, after working for another shop for five years, is ready to open her own business in Philadelphia. She wants her new shop to be called Designs by Meg LLC. She will be the only worker in the shop. She has a new space ready for rent, and she wants to start making money as soon as possible, so she will need to get her papers on file quickly.
Meg’s friend Jeff is graduating from art school next year and expressed interest in coming to work for her. If he is good, Meg will probably let him buy into her business. Thus, Meg needs a detailed operating agreement describing how Jeff (or someone else) can buy into her business.
After filing her papers, Meg also decided that she wanted a shop name that used the word “tattoo,” so she filed for the DBA “Tattoo Designs by Meg.”
Meg’s LLC formation costs are as follows:
- Pennsylvania Certificate of Organization filing fee: $125
- Same-day Expedite Fee for Certificate of Organization: $100
- Philadelphia body art license fee: $100
- Philadelphia new business plan review fee: $255
- Philadelphia plan review expedite fee: $315 – Meg needs to pay this fee to have the city review her business plan within 10 business days.
- Operating Agreement: $39
- Resident agent fees: $100
- DBA fee: $70
- Web domain costs: $50
Meg has elected to have her LLC taxed as a pass-through entity by the IRS and the state. This means that she will claim both her business income and deductions on her personal federal and state tax returns.
Meg’s startup costs, which will form her deduction, total $1,154. Her taxable income before the deduction was $35,000, which puts her in the 12% income tax bracket. With the deduction, Meg’s taxable income will be reduced to $33,846. That saves her $138.48 in federal taxes.
On her state taxes, Meg pays the flat 3.07% personal income tax rate. There, her deductions will save her $35.43.
Keep in mind that if Meg had more than $5,000 in startup expenses, she would likely be able to claim those starting in the second year of her business.
Cheapest Way to Start an LLC in Pennsylvania
Now that you know the kinds of costs that you might incur, it’s time to start shopping around for the best deal that will serve your LLC’s needs. Sometimes, this might mean you need to spend a bit more. Pay attention to your needs and budget accordingly.
Formation Service – $39 + state fees
A business formation service is a popular and inexpensive way for new LLC owners to get started.
These companies are dedicated to helping entrepreneurs bring their visions to life. They have not only the knowledge of all the state laws you need to know, but also forms, documents, and procedures to make your life as easy as possible.
Formation services are a quick and complete way to handle the formation needs of most LLCs.
- They’re easy. In most cases, a formation service will have helped hundreds of people through the exact process you are struggling with now. They have all the documents, information, and expertise you need right on hand.
- They don’t cost much. Because formation services have such a large volume of business, they don’t have to charge their clients that much money.
- They’re reliable. All of the formation services’ products and procedures have been tested hundreds of times over in the real world. That kind of experience should give you peace of mind and confidence going forward.
- They’re fast. Formation services have seen almost every business formation situation already. Chances are, they have many solutions for you that are ready right now before you even know you need them.
While formation services can be great for most people, they are not always the best choice. Some cons for these services are:
- They’re not the best solution for complex LLCs. If you are forming a complicated company or one in a heavily regulated industry (e.g., recreational cannabis), you will have concerns that probably need more focused expertise in that area of business.
- Even if a formation service is a good fit, you can expect upselling. Formation services have to make money too, and some of them may pressure you to buy formation products you don’t need. Even when you are using a formation service, you need to be a smart and informed consumer.
Using a professional LLC formation service can be a great way to set up a business. Check out our Best LLC formation services article for some of our suggestions.
Attorneys are licensed, reliable, and a powerful resource for business formations. They are also quite expensive, especially in big cities like Philadelphia or Pittsburgh. A business owner like Meg, with limited funds, likely won’t be able to afford to pay a good business by the hour.
Wealthier or more experienced business owners may have more options. If you are starting a complicated business, or one that involves several people, it can also make sense to get an attorney to make sure everything is done fairly and is tailored to your LLC’s needs. For that reason, some owners choose to go this route.
Despite the expense, sometimes hiring a lawyer is the best choice.
- Lawyers help you manage risk. An LLC with complicated legal issues needs a lawyer. If you run a medical cannabis facility, for example, there are a lot of laws you’ll need to comply with. In that case, you will need to speak with a lawyer.
- Lawyers offer more customization when you need it. Do you need specific things put in an operating agreement? Is your company going to have a unique ownership structure? You may need an attorney to make sure these issues are handled properly.
For most people, getting an attorney comes with considerable downsides that outweigh any benefits.
- Lawyers cost more than any other option. The price tag alone should convince you that if you don’t need a lawyer, it’s not worth hiring one.
- Finding a lawyer takes a long time. Getting a lawyer who specializes in what you need, costs what you’re willing to pay, and can work with you well is a tall order.
- Lawyers also take longer to form a business than a formation service. Because lawyers are also very caring people, they will generally take much longer to form your company than non-lawyers would. Fortunately, most people don’t need a lawyer. In 90% of cases, a formation service will do just fine.
Do it Yourself
Many people, after searching the Internet for the information they need, decide to try forming their new LLCs themselves. This process can give you a lot of personal expertise, but remember that time is money. If you are spending hours on your business formation, that’s time you’re not spending on the substance of your business.
In most instances, then, it is more cost-effective to just pay an LLC formation service, with confidence that everything has been done correctly, rather than try to reinvent the wheel yourself.
- Personal knowledge. A DIY business owner will learn a lot about the process while forming their own LLC, and they probably will retain that knowledge for years to come.
- It costs less upfront. If you don’t figure out the value of your time, a DIY solution is the cheapest option.
- You’re losing money when you consider how much time it takes to DIY. If you figure out that your time is worth $30 per hour, and you take 20 hours to complete your business formation, you have essentially spent $600 on business formation. And that’s not money you will be able to write off.
- There’s the risk of making a mistake. DIY business owners can easily make a mistake with all the paperwork that then costs them more time and money.
- It’s a headache. State workers are very helpful, capable people. But they will also tell you that the laws and rules governing business formation are not easy, and they follow those rules for a living. It’s going to be even more challenging for you.
Annual Pennsylvania LLC Fees: How Much Will it Cost to Maintain your LLC?
Even after you’ve formed the LLC, there are annual costs for which you will have to budget. These include both government fees and amounts paid to third parties, like:
- Local Business License, depending on exact location: varies; can range from a minimal amount to thousands of dollars, depending on the type of business and where you run it.
- Decennial report fee (due every ten years): $70
- Certificate of annual registration (for certain professional LLCs only): $410 and up
- Registered agent service fee: $100
- Domain name renewal: $20
How Much are LLC Taxes in Pennsylvania
First, you’ll be happy to know that Pennsylvania does not currently charge LLCs a franchise tax. Like the IRS, Pennsylvania usually treats LLCs as pass-through entities and taxes income to members at the flat rate of 3.07%.
You will, however, have to pay other taxes associated with your business. For example, if your LLC hires workers, you will have to pay employment taxes. If it sells goods and services (and it almost certainly will), you'll also have to collect sales and use tax. Those taxes and more can all be calculated and handled through the Pennsylvania Department of Revenue.
Pennsylvania LLC Formation Costs Quick Links
- IRS — apply for an EIN online
- IRS information regarding the federal tax treatment of LLCs
- Pennsylvania Business Tax Guide
- Pennsylvania Consolidated Statutes Title 15, Section 109 (Use of Commercial
- Department of Revenue — Information about LLCs
- Department of Revenue — Online Business Entity Registration (PA-100)
- Department of State — Business Record Searches
- Department of State — Decennial Filing
- Department of State — Docketing Statement – New Entity
- Department of State — FAQ
- Department of State — Fee Schedule
- Department of State — Form Certificate of Organization
- Department of State — Guide to Business Registration
- Department of State — Name Reservation/Transfer of Reservation
- Department of State — PENN File System
- Department of State — Professional Licensing
- Department of State — Registration of Fictitious Name (DBA)
Pennsylvania LLC Formation Costs FAQs
How much does it cost to start an LLC in Pennsylvania?
The minimum cost is $125. You must pay at least this amount to file your LLC’s certificate of organization with the state.
What is the cheapest way to start an LLC in Pennsylvania?
A do-it-yourself approach will have the lowest price tag, but it isn’t the cheapest in terms of your time. The best balance of price and time, for most people, is to use a formation service.
Do I need to hire an attorney to form an LLC in Pennsylvania?
No. Most people will not need to invest the considerable expense and time of hiring a lawyer. A formation service or a DIY approach will work for most business owners.
Can I pay to form an LLC more quickly in Pennsylvania?
Yes. Formation services will generally complete formation tasks faster than business owners acting on their own. For an extra state fee, the Pennsylvania Department of State will also process any document you file within a shorter amount of time, up to $1,000 for a one-hour turnaround, provided you get the documents into the office for filing by 4:00 p.m.