Starting a business in the Keystone State? Pennsylvania, with its rich history and diverse economy, is a fertile ground for eager entrepreneurs. But before you dive into crafting that perfect business plan, assessing market demands, or tallying up your startup costs, there's another crucial aspect to consider: navigating Pennsylvania's unique business regulations.
The state is known for its supportive stance towards small businesses and startups. However, the path to entrepreneurship involves more than just a business idea. It demands a deep understanding of state-specific rules and frameworks. This article aims to guide you through the regulatory maze, ensuring your Pennsylvania business starts on solid legal ground.
1. Name your business
Choosing a name for your new business is not just a creative endeavor—it's the first step in establishing your business's identity in Pennsylvania. Here’s how to ensure your business name is catchy and compliant:
- Check for availability: Before settling on a name, ensure it's unique and not already in use by another entity in Pennsylvania. You can do this through the Pennsylvania Department of State's business name database.
- Search for trademark: To avoid potential legal hiccups down the road, it's wise to check if your chosen name isn't already trademarked at the federal level. Run a search on the US Patent and Trademark Office's website.
- Register your business name: Once you’ve chosen a unique name, you can lock it in by registering with the Pennsylvania Department of State. There might be a filing fee associated with this, depending on your business structure.
- Register a fictitious business name (also known as DBA or "doing business as"): If you’re planning to operate under a name different from your officially registered business name, you'll need to file a fictitious name statement. In Pennsylvania, a DBA allows businesses to operate under a secondary name. To determine if you need one, ask: "Will my business be known publicly as anything other than its official name?" If yes, register your fictitious name with the state.
- Secure a domain name: In today's digital age, your online presence is tied to the success of your business. Once your business name is confirmed, consider registering a matching web domain name and setting up matching social media accounts. Websites like GoDaddy, Bluehost, or Namecheap can help you check domain availability and make a purchase.
2. Explore your funding options
In Pennsylvania, the path to entrepreneurship is paved with a variety of funding options, ensuring that your business gets the best financial kickstart. Here’s a guide to sourcing funds in the Keystone State:
- Pennsylvania state loan programs: The Pennsylvania Industrial Development Authority (PIDA) offers low-interest business loans and lines of credit for businesses that commit to creating and retaining full-time jobs within the state. Eligible businesses can access funds for land and building acquisition, construction, machinery purchase, and working capital.
- Federal loan programs: The Small Business Administration (SBA) is a fantastic resource. They offer several loan programs tailored to various business needs. The most common is the 7(a) loan program, which caters to startups and existing small businesses.
- Local grants and loans: Depending on the region or municipality in Pennsylvania, there might be local incentives for startups. For instance, cities like Philadelphia and Pittsburgh often have local economic development organizations that provide grants, low-interest loans, or even competitions where entrepreneurs can win startup capital.
- Venture capital and angel investors: Especially if you're in a high-growth industry, consider reaching out to venture capitalists or angel investors. Pennsylvania has seen a rise in VC activity over the years, with many investors keen on supporting startups in sectors like tech, healthcare, and green energy.
- Crowdfunding: Websites like Indiegogo and Kickstarter allow businesses to raise small amounts of money from many backers. It's a contemporary way of funding and works best if you have a unique product or idea that can capture public imagination.
- Bank loans: Traditional banks offer loans, but the application process can be rigorous, requiring a robust business plan and often collateral. However, if approved, they offer larger amounts with more favorable interest rates than many alternative lenders.
3. Decide on your business structure
Before diving into the operational aspects of your Pennsylvania business, you must decide on the right business structure. Your choice will impact many factors—from your personal liability to how you file taxes and even how much paperwork you'll need to deal with. Pennsylvania offers several business entities, each with its unique advantages and challenges.
Here's a breakdown to help guide your decision:
What is it?
An unincorporated business that’s owned and run by a single person
✔ Simple to set up
✔Direct control of business
✔Profits taxed once
✘ Unlimited personal liability
✘ Can be challenging to raise funds
Limited Liability Company (LLC)
A hybrid structure combining the benefits of a corporation and a partnership/sole proprietorship
✔Limited liability for owners
✔Flexibility in management
✘ More paperwork than a sole proprietorship
✘ May be subject to self-employment tax
A separate legal entity owned by shareholders
✔Can raise capital easily through stock sales
✔Longevity beyond original owners
✘ Double taxation (corporate and shareholder levels)
✘ Requires extensive record-keeping
An arrangement where two or more individuals share ownership of a business
✔Easy to form
✔Combined resources and skills
✔Profits taxed once
✘ Partners share liability
✘ Potential for disputes
A special corporation type created through an IRS tax election
✔Avoidance of double taxation
✘ Restrictions on stock ownership
✘ More stringent operational processes
4. Register your business in Pennsylvania
Getting your business officially off the ground in Pennsylvania means registering it with the right Pennsylvania authorities. Each business structure has its own requirements and costs. Whether you're a budding entrepreneur in Philadelphia or launching a startup in Pittsburgh, understanding these nuances is essential. Here's a quick guide to help you navigate the process:
How to register
No formal registration with the Pennsylvania Department of State is needed. But, you
may need to register a fictitious business name (DBA) if you’re not operating under the owner's legal name.
Generally, there are no state fees. Local permits or licenses may have fees.
Fictitious name registration: $70
Limited Liability Company (LLC)
File a Certificate of Organization with the Pennsylvania Department of State.
File Articles of Incorporation with the Pennsylvania Department of State.
Register with the Pennsylvania Department of State if operating as a Limited Partnership (LP) or Limited Liability Partnership (LLP).
File Form 2553 with the IRS to elect S Corporation status.
5. Decide on a registered agent
Every state, including Pennsylvania, mandates businesses to designate a registered agent. A registered agent is responsible for accepting key legal documents, government notifications, compliance-related correspondence, and other official state paperwork on behalf of your business; this can be an individual or an entity.
To be a registered agent, you need to have a physical address in Pennsylvania. You can be your own registered agent (if you reside there), or you can appoint a professional. Most businesses opt for the latter to offload official documents and make sure nothing falls through the cracks. Pricing for a registered agent service depends on the comprehensiveness of the service; it can cost anywhere between $50 and $300.
6. Apply for an Employer Identification Number
The Employer Identification Number (EIN), often referred to as the Federal Employer Identification Number (FEIN), functions much like a Social Security Number, but for businesses. Issued by the Internal Revenue Service (IRS), this unique nine-digit number is necessary for your business's tax purposes.
You’ll need an EIN to take care of essential business activities like applying for a business bank account and credit card, hiring and paying employees, paying taxes, securing a loan—and even obtaining business licenses and permits in some instances. You can quickly apply for an EIN by filling out Form SS-4.
7. Get up to speed with Business Tax Credits
Pennsylvania is unique in that it taxes businesses on income derived from all sources, not just from within the state. Additionally, the state boasts one of the nation’s highest corporate income tax rates at 9.99%. While this may not sound appealing, especially to small business owners, Pennsylvania makes up for it with attractive tax credit programs. Here are a few to look into:
- Research and Development (R&D) Tax Credit: This credit is for businesses that increase their R&D within Pennsylvania. The credit can be applied against the Corporate Net Income Tax.
- Keystone Innovation Zone (KIZ) Tax Credit: Designed for startups less than eight years old (operating within specific zones), this credit is meant to spur innovation and foster job creation.
- Job Creation Tax Credit: Businesses that pledge to create jobs in the state within three years can receive this credit. The amount is based on the number of jobs created.
- Educational Improvement Tax Credit: This gives tax credits to businesses that make donations to approved scholarship organizations, offering them a chance to invest in Pennsylvania's future directly.
- Film Production Tax Credit: Production companies can avail this credit if at least 60% of their production expenses are incurred in Pennsylvania.
In addition to the above, Pennsylvania offers a myriad of other industry-specific credits like the Historic Preservation Incentive, Coal Waste Removal, and Ultraclean Fuels Tax Credits, among others.
8. Stay on top of filing requirements and taxes
Running a business in Pennsylvania requires keeping pace with both operational demands and state compliance. To maintain good standing in Pennsylvania, corporations must file a Decennial Report every ten years; LLCs, LPs, and LLPs do the same if no other filings occur in that decade.
Depending on the type of business structure you set up, you’ll also have to file taxes each year. Here’s a brief look into the applicable taxes and how to file them:
- Corporations: File a Corporate Tax Report (RCT-101) on or before April 15 for those operating on a calendar year. If the corporation operates on a fiscal year, the due date is on the 15th day of the fourth month after the close of the fiscal year.
- Sole proprietorships: File a PA Personal Income Tax Return (PA-40) on or before April 15 of each year.
- LLCs: By default, LLCs are taxed as pass-through entities. If the LLC is classified as a single member for federal tax purposes, it can file as a sole proprietorship. You can use the personal income tax form included above.
- Partnerships: If the LLC is classified as a multi-member business, it can file as a partnership using the Partnership Income Tax Return (PA-20S/PA-65) form. The filing due date is on or before April 15 of each year.
Businesses selling tangible goods in Pennsylvania are also subject to the state sales tax. You can use the Pennsylvania Sales, Use, and Hotel Occupancy Tax Return (PA-3) form to file sales tax returns. The filing window depends on the amount of sales tax collected; returns can be submitted monthly, quarterly, or semi-annually.
9. Find a payroll solution
Hiring in Pennsylvania comes with its set of nuances. You need to correctly classify your employees and contractors to avoid potential penalties. On top of that, staying updated on overtime regulations is crucial.
Consider adopting a robust payroll software like Rippling. Not only can you ensure on-time payment for employees and contractors alike, but Rippling Time and Attendance also automatically tracks employees’ hours and calculates net pay and taxes in seconds.
For businesses with a global outlook, Rippling offers:
- Unified payroll across varied tax jurisdictions and currencies
- Inclusion of hourly and salaried employees, as well as contractors
- A centralized platform for global operations and data
10. Support and scale your growing business with Rippling
As your Pennsylvania enterprise blossoms, consider integrating an HRIS (Human Resource Information System). This software streamlines functions like recruitment, employee onboarding, payroll processing, and benefits administration.
Implementing an HRIS early on sets the foundation for scalable growth—particularly if you envision a global footprint for your business. With Rippling, you're equipped with a comprehensive system tailored for a growing workforce.
- Seamlessly hire, compensate, and oversee your team, regardless of where they live.
- Proactively navigate local, state, and federal compliance, armed with an action plan for each one.
- Consolidate all benefits, from health coverage and 401(k) to commuting perks, into a single system. Simplify processes such as adding new members, adjusting deductions, or managing COBRA.
- Maintain updated recruiting metrics, from vacancy status to recent onboards, automating every phase of the hiring process.
- Centralize your HR analytics, organizational policies, and more.
FAQs about setting up a business in Pennsylvania
Do I need a business license in Pennsylvania?
While there isn't a statewide "business license," most businesses are required to have specific licenses or permits, depending on the business activity and location. Municipalities within Pennsylvania might also have their own local business licenses or permits. It's essential to check both state and local requirements.
Do I need a business bank account when launching a business in Pennsylvania?
Although a business bank account is not legally required, it's highly recommended. Separating your business bank account and credit card ensures personal and business finances remain distinct. This separation simplifies accounting and tax filing, and provides clarity on business expenses and revenues.
Do I need to get business insurance?
While Pennsylvania doesn't mandate all businesses to have insurance, certain types of businesses, like those with employees, need workers' compensation insurance. Depending on your business type and location, other insurances like general liability or professional liability might be advisable or required.
What are Pennsylvania’s state payroll taxes?
Pennsylvania has a flat state income tax rate of 3.07%. Employers also need to be aware of unemployment insurance taxes and local income taxes, depending on the municipality. It's essential to consult with a tax professional to understand all tax obligations.
How do I know if my business name is available in Pennsylvania?
You can check the availability of your business name by searching the Pennsylvania Department of State's database. It's crucial to ensure your chosen name isn't too similar to existing names to avoid legal complications.
Is a sole proprietorship the best structure for my Pennsylvania startup?
The best business structure varies depending on individual needs. A sole proprietorship is the simplest, but it doesn't offer liability protection. Depending on your business's complexity, potential risks, and goals, you might consider other structures like an LLC or corporation. Consulting with a business advisor is recommended.
Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.