Choosing a business entity type for your company can be difficult. The reason many business owners choose LLCs is because LLC formation is typically easier than the incorporation of a corporation and all that work pays off in the form of personal asset protection and tax benefits. But you may be asking yourself how long it takes to get an LLC. We’ll tell you everything you need to know about the formation process in Pennsylvania and in our guide we’ve made sure to include step-by-step formation instructions, information about what it’s like to do business in the state, and how long it will take to get your LLC.
Discovering Pennsylvania
The Keystone State, possibly given its nickname because of its prime location among the 13 original colonies, is deeply rooted in America’s history and played a major role in the Civil War with battles like Gettysburg taking place within its borders. It shares borders with Lake Erie, New York, New Jersey, New York, Maryland, Delaware, West Virginia and Ohio.
Some of its geography includes valleys, streams, hills, caves, ridges, and forests. It’s home to the Tinicum Marsh which is the country’s first urban wildlife refuge, as well as part of the Appalachian Mountains, the Allegheny National Forest, and both the Catskill and Pocono Mountains.
When it comes to natural resources in Pennsylvania, coal mining is a big one. The state has the largest reserve of anthracite coal, which is a variety that’s both pure and very hard.
Economic Overview of Pennsylvania
Pennsylvania’s Gross State Product (GSP) is $736.3 billion and it had a growth rate of 23.5k% from 2018-2023, which means it ranks sixth in the nation in terms of growth. The top-performing industries in the state according to revenue are Health & Medical Insurance, Drug, Cosmetic & Toiletry Wholesaling, Hospitals, Colleges & Universities and Public Schools. The companies that employ the most people in the state are Walmart Inc., Pennsylvania State University, Amazon.Com Inc., University of Pennsylvania Health System, and the United States Postal Service. And the sectors that contribute the most to the state’s Gross Domestic Product are Manufacturing, Real Estate & Rental & Leasing, Healthcare & Social Assistance, Information, and Professional, Scientific & Technical Services.
Business Environment in Pennsylvania
Pennsylvania is well known for its coal and steel production, but also for its railroads. But it’s also the “Snack Food Capital of the World” producing chocolate and cocoa products, canned fruit and vegetable specialty products, pretzels and potato chips.
According to usnews.com, it ranks #38 in the country for business environment, #43 for employment and #36 for growth. It’s #46 both for long-term fiscal stability and for short term fiscal stability. It’s #45 for internet access and #47 for transportation, with 27.7% of the state’s roads in poor condition (for comparison, the national average is 19.0%).
It’s #27 for affordability and #25 for economic opportunity. The state’s cost of living index is 96.4 (100.0 nationally), with a median household income of $68,957 ($69,717 nationally).
State Specific Regulations and Incentives for Forming an LLC in Pennsylvania
Here’s a look at the incentives and programs available to help businesses in Pennsylvania.
- Keystone Opportunity Zone (KOZ): This is a program for businesses located in Keystone Opportunity Zones which can provide them with credits, waivers and tax exemptions on both state and local taxes. It’s designed to ease the tax burden and can even lower it to zero. The business is required to relocate to a KOZ from a non-KOZ location in Pennsylvania, and increase the full-time employment by at least 20% during the first operating year, or make a capital investment of 10% of gross revenues from the previous year which were attributed to business operations.
- Redevelopment Assistance Capital Program (RACP): This is a discretionary program for projects that generate economic impact in a substantial way. To gain access to the funds you’ll have to jump through some hoops like itemization and must be included in the Capital Budget Project Itemization Acts. The project must also have a cost of more than $1,000,000 and must secure at least 50% of the matching funds when they formally apply.
- Manufacturing Tax Credit (MTC): Tax credits are awarded through this program to businesses that increase their payroll by $1,000,000 by creating new full-time jobs. The credits will be equal to 5% of the increase in taxable payroll. The credit can’t exceed $4 million.
- Research and Development Tax Credit: This program provides a tax credit for 10% of a company’s Research & Development expenses over a certain period.
- Resource Manufacturing Tax Credit: This is a tax credit for manufacturers that purchase natural gas that contains ethane as a petrochemical feedstock from a facility in the Commonwealth. It’s equal to five cents per gallon of ethane that’s purchased and used in ethylene manufacturing. A capital investment must be made of $1 billion, and 2,500 full time jobs must be created during the construction of the manufacturing facility.
- Local Resource Manufacturing (LRM) Tax Credit Program: This program supplies manufacturers who purchase dry natural gas to manufacture their petrochemicals or fertilizer at Pennsylvania facilities with a tax credit. It’s equal to 47 cents per unit of the dry natural gas bought and used to manufacture petrochemicals and fertilizer. The company must make a capital investment of $400 million and create at least 800 new full-time jobs in the construction phase as well as the ongoing facility operations.
- Qualified Manufacturing Innovation & Reinvestment Deduction: This is a deduction for manufacturers that make an investment of up to $100 million. The deduction’s maximum over a period of 10 years will be 37.5% of the capital investment used to create a new or refurbished manufacturing facility. The most you can get from the deduction in a single year is 7.5%. If you invest more than $100 million then the maximum deduction over a 10 year period is 25% of the investment used to create a new or refurbished manufacturing facility. The most you can get from the deduction in a single year with that investment is 5%.
- Local Economic Revitalization Tax Assistance (LERTA): This program allows local authorities to give out property tax exemptions to projects involving new construction, or that create improvements to commercial, industrial or business property. They’re applied to the value of the new construction and the values of improvements made to existing buildings. Projects are required to be located in a Local Economic Revitalization Assistance zone.
- Pennsylvania First Program (PA First): This is a program that provides grants, loans and loan guarantees to largescale projects in a competitive targeted industry. The projects are required to involve both significant capital investment and job growth. You can use funds from the program to offset building improvement costs, capital expenditures, land acquisition and environmental assessments. The maximum award amount is capped out at $5,000 per job.
- Industrial Sites Reuse Program (ISRP): This program awards projects with low interest loan financing and grants so they can do environmental site assessment and remediation at the sites that were formerly for industrial use. The maximum amount for loans and grants for an assessment project can’t go over 75% of the cost of the assessment, or $200,000, depending on which is less. The maximum award given for a remediation project can’t go over 75% of the remediation, or $1 million for grants, depending on which is less. Loans for remediation can’t go over $1 million depending on the need for financing to maintain the validity of the project.
- PA EDGE Tax Credit: This program was passed in 2022 and provides a variety of tax credits for different industries to encourage both capital investments and job creation. These tax credits include:
- Milk Processing: This is a tax credit for $0.05 per every gallon of milk that’s produced in the state of Pennsylvania for projects making capital investments of $500 million or more and creating at least 1,200 jobs. Credits can’t go over 25% of the capital investment used to build the facility and get it running.
- Semiconductors & Biomedical Manufacturing and R&D: This is a tax credit for new semiconductor manufacturing and biomedical facilities who make an investment of at least $200 million and create a minimum of 800 jobs. It’s equal to 2.5% of the capital investment and employee income taxes created by the project, up to $20,000 per job.
- Hydrogen Hubs: This is a tax credit for projects that have been approved for a U.S. Department of Energy regional clean hydrogen hub. They must invest a minimum of $500 million and create 1,200 jobs or more. The credit is equal to $0.81 per kilogram of clean hydrogen that’s purchased from a regional clean hydrogen hub, or $0.47 per unit of natural gas purchased and used to manufacture hydrogen.
Pros and Cons of Establishing an LLC in Pennsylvania
Doing business in Pennsylvania can be a bit of a mixed bag. Here are both the good and bad aspects of doing business in the state.
It’s close to a lot of big markets, which is great for business. Not only is it home to Philadelphia, it’s close to New York City, D.C. and Boston. This means you’ll have access to more customers, as well as more investors. Partnerships and investment opportunities are greater in larger metropolitan areas, so the fact that Pennsylvania is close to so many can be a benefit you can use to your advantage.
Pennsylvania has a relatively high unemployment rate. The state has a 3.4% unemployment rate, which is close to the national average of 3.9%. Why is that good for business? It means there’s a large labor market that’s looking for work and that it won’t be as hard for you to fill positions in the state as it is in other places.
But there are some negative aspects, as well.
Taxes are high in Pennsylvania. The state has a corporate income tax rate of 8.49%. That may not apply to you if your LLC isn’t taxed as a corporation. Personal income tax comes in at 3.07%, and sales taxes are 6% which means that with local tax rates it can go as high as 8%.
Even though there’s a high unemployment rate and a big employable labor market, it’s quite competitive. Many skilled employees are taking advantage of the growing tech market in the state, and while small businesses report that they’re able to find skilled employees it takes a significant amount of time to fill empty positions.
Procedure of Establishing an LLC in Pennsylvania
In this section, we’ll cover the legal process of starting an LLC in Pennsylvania.
Necessary Documentation for Filing an LLC in Pennsylvania
Before you file for your LLC, you must first gather all of the necessary documents. Here’s what you’ll need.
- Employer Identification Number (EIN): An Employer Identification Number is necessary for more than simply hiring employees. You’ll need one to open a business bank account and to qualify for certain incentives. You can apply to receive one for free from the IRS website.
- Name Reservation Application: Your business name must be different from every other business name in the state, and it can’t be too similar to one that’s already in use either. To find out whether you can use the business name you’ve chosen, perform a search on the business name database on the Pennsylvania Department of State website. Once you’ve determined that your business name is viable, you must file a Name Reservation form with the Department of State.
- Certificate of Organization: Some states call this the Articles of Organization, but it’s a Certificate of Organization in Pennsylvania. It’s essentially your application to get a Limited Liability Company in the state. It requires information about your company, like its business name, purpose, duration, address, a list of LLC members, contact information for managers, and information for your registered agent.
- New Entity Docketing Statement: This must be filed along with your Certificate of Organization, but is a separate document. It requires information such as your LLC name, the name and address of the LLC member that’s responsible for the initial tax report, a description of the type of business activity your company does, your EIN, and when the fiscal year ends.
- Operating Agreement: You’re not legally required to create or keep an operating agreement for your company, but it’s highly advised. It’s designed to provide instructions on how the company will run, and how LLC members will behave in a number of scenarios, as well as what they will contribute and be compensated. It can definitely end a lot of squabbles, and you might find yourself referring to it a lot during the early years of business operations. Some of the information included is a list of LLC members, their contact information and contributions, as well as their roles, a detailed explanation of the distribution of profits and losses among members, the names of managers and their contact information, and information about voting rights and meeting schedules. It’s also important that it should include a section about how to add or remove members, and what should happen if a member dies.
- Initial Report: Every LLC in Pennsylvania must file what’s known as an annual report. The first one is called the initial report, and it must be filed along with your Certificate of Organization.
- Tax Registrations: You’ll need to register with the Pennsylvania Department of Revenue if you want to collect sales tax, sell goods, or hire employees.
- Business Licenses: You’ll need a variety of business licenses and permits, from state, county and local government agencies. To find out about the licensing requirements for your business, head to the Department of State website, and check with county and local clerks.
- Subsistence Certificate: This is basically what some states refer to as a certificate of good standing, and it’s proof that a company is authorized to conduct business in the state. You may need one to open a business bank account, take credit and debit card payments or set your business up to conduct business in other states.
Legal Requirements for Starting an LLC in Pennsylvania
Here are the steps you need to take to start a Limited Liability Company in Pennsylvania.
- Get a Certificate of Organization Form: Because this is the main formation document, getting one is the first step to start your LLC. You can get one from the Department of State.
- Choose a Business Name: Your business name must meet a number of criteria, such as being unique to your business. Once you have chosen one that’s available for use, you’ll need to file a Name Reservation form with the Department of State.
- Designate a Registered Agent: Every LLC in the state is required to maintain a registered agent. A registered agent is someone who will accept service of process and official correspondence from the Department of State and other agencies at their address on your company’s behalf. It’s quite an important position, and if your registered agent is derelict in their duties then it could have vast legal and financial consequences for your business. You’re free to choose anyone who meets the state’s requirements for a registered agent, but it should be someone who is trustworthy and capable of performing the duty satisfactorily. Or, you could hire a professional registered agent service for worry free compliance.
- Choose a Business Address: This isn’t as straightforward a task as it seems. You see, when you list your office address on your Certificate of Organization then it will be listed on the public record for everyone to access. If this is your home or personal address, then it could pose some serious security and privacy concerns. You could find out if your registered agent will allow you to list their address, or research virtual addresses in your area.
- Sign and File Your Certificate of Organization: Make sure that all of the pertinent information is included and accurate on your Certificate of Organization form, and then sign and file it. You also need to include your New Entity Docketing Statement with it. If you’d like to keep your name from being listed as your company’s LLC organizer, you could hire an LLC formation service which will file for you and have no ownership of your LLC. When you’re done, you must submit it with the Pennsylvania Department of State Bureau of Corporations and Charitable Organizations.
Time Frame for Establishing an LLC in Pennsylvania
This is an important section of the guide because we’ll finally answer the question “How long does it take to get an LLC in Pennsylvania?”. Here’s what you need to know.
How Long Does the Initial Paperwork Take in the State of Pennsylvania?
To answer that, you need to know the difference between approval times and processing times. Processing time is just the amount of time it takes for the state government to review your formation documents and enter the information into their system once they receive it. Approval time, however, is the total amount of time from the time you submit your documents until your LLC is approved.
Approval time to file by mail is 8 weeks, or 5 to six weeks if you file online.
Processing Times in the State of Pennsylvania
Processing times for mail filing are 6 weeks, or 5-6 weeks if you file online.
Common Delays
There are a few factors that could hold up the formation process.
- Time of Year: Everyone files for LLCs during either the beginning or end of the year. And because employees must manually review LLC filings, an influx of filings can cause a delay while the employees deal with the increased workload. You may not be able to avoid filing during these times, so it’s good to know that you may encounter a delay.
- Short Staffing and Workload: Another thing that could slow down the processing on the state’s end is a high volume of filings and not having enough staff to cover it.
- Issues With Documents: You must submit all of the pertinent documents, and all of the information listed on them must be complete and correct. Otherwise, your application will be rejected and you’ll have to start the process all over again.
Expedited Processing for LLC Formation in Pennsylvania
Here’s a complete explanation of the expedited processing services available in Pennsylvania.
What Are the Expedited Options Available?
There are three expedited processing service options in Pennsylvania: Same- Day, 3- hour and 1- hour.
Additional Costs for Expedited Services in Pennsylvania
You must pay for the fees for expedited service in addition to the filing fee. In other words, it’s extra.
- Same-Day: $100
- 3- Hour: $300
- 1- Hour: $1,000
You’ll need to file before 10 a.m for same-day service, before 2 p.m. for 3-hour service, and before 4 p.m. for 1-hour service.
Comparing LLC Formation Time Frame in Pennsylvania with Other States
Learning about formation times in other states will help you understand just how fast or slow the process moves in your state.
Brief Comparison with Key States
Just to review, processing times in Pennsylvania take 6 weeks by mail and 5-6 weeks online, with expedited filing options as fast as 1 hour.
There are a handful of other states with 1-hour expedited processing services. And in Alabama, Alaska, Colorado, Kansas, Kentucky, Minnesota, Missouri, New York, South Dakota, Tennessee, Wisconsin and Wyoming, online filings are processed immediately. In Alabama, Massachusetts and South Dakota, mail filings are processed in 1-2 days, while it’s only 1 day in Ohio and Kentucky.
If you think 6 weeks is too long, in Maryland even the expedited processing takes 7 days. Arizona has online processing that takes 14-16 days. And in New York mail filing can take as long as 8 whole months!
Why is Pennsylvania a Favorable Place for Forming an LLC?
Pennsylvania is an ideal place to start a Limited Liability Company because it’s located near a lot of major metropolitan areas which means it’s in close proximity to a large customer base and lots of investors, and it has a large labor pool to hire from.
