Benefits of an LLC in Pennsylvania
There are many options available for starting an LLC, but few outweigh the benefits of an LLC in PA. Pennsylvania is one of the most prosperous North American states as one of the original 13 U.S. colonies—offering multitudes of tax incentives, credits, and programs for entrepreneurs to use. Before we get into the state-specific benefits of a Pennsylvania LLC, let’s go over the top advantages of forming a limited liability company in general.
Limited Liability Protection
Starting with the most crucial benefit of a PA LLC, limited liability can separate the financial and legal obligations of the company from its members. In case of a lawsuit, members can be protected due to a legal shield the entity provides, which defends personal assets. Keep in mind that this liability protection is limited and will not shield a member from wrongful or illicit acts.
Pass-Through Taxes
Another vital benefit of a PA LLC is its ability to avoid federal income taxes. Taxation will bypass the LLC and go directly for the members’ profits. In this scenario, all of the money earned by the LLC can go straight to the member, and taxation will only occur on their income. Other entities such as a C-Corporation don’t have this advantage, and its leaders are essentially taxed twice.
Simplicity and Flexibility
Other PA LLC benefits include its ease in formation and simplicity to sustain when compared to other entities. You don’t need to maintain certain company formalities or file taxes for the single-member LLC. You also have the flexibility of functioning as a single-member LLC, a multi-member LLC, or a multi-member LLC led by an operating manager.
Increased Perception of Credibility and Reliability
As a formal business entity, a limited liability company receives the perception of a more trustworthy business structure when compared to an individual or a sole proprietorship. Starting a PA LLC adds an extra layer of reliability for employees, customers, and other businesses. Your LLC is required to adopt ‘LLC’, ‘L.L.C.’ or ‘limited liability company’ into its name, which immediately lets people know that you are a formal business and not just a fly-by-night company.
Pennsylvania LLC Advantages: Tax Credit Programs
The benefits of an LLC in PA don’t end with the general advantages; Pennsylvania is currently hosting several different tax credits and programs to aid economic development in the State. Depending on the nature and location of your business, you may be able to qualify for these incentives.
Research and Development Tax Credit Program
LLCs in Pennsylvania get incentivized to conduct certain types of research that qualify for tax credit compensation.
Mixed-use Development Tax Credit Program
This program grants PA LLCs tax credits for eligible construction or rehabilitation projects.
Malt Beverage Tax Credit Program
Are you in the business of manufacturing malt or brewed beverages? Well, you may be able to qualify by forming an LLC and applying for this program.
Educational Tax Credits
This tax credit applies to a PA LLC contributing to scholarship organizations that provide scholarships for students in underachieving schools.
Keystone Innovation Zone Tax Credit
This incentive nurtures entrepreneurship in Pennsylvania by offering tax credits to certain types of companies within the Keystone Innovation Zones.
Keystone Special Development Zone
This tax credit incentivizes the redevelopment of abandoned or deteriorated commercial and industrial sites.
Historic Preservation Tax Credit
This tax credit compensates a PA LLC for rehabilitating eligible historic structures.
Neighborhood Assistance Program
The NAP motivates the engagement in activities that improve community economic development in poor neighborhoods.
Resource Enhancement and Protection Tax Credit
Farmers and agriculture businesses can benefit from this tax credit under the tone that they implement proper management practices in agricultural operations.
Entertainment Production Tax Credit
Film or video game production companies can benefit from this tax credit.
Entertainment Economic Enhancement Program
This program rewards tax credits to tour operators representing musicians for live musical performances within the state.
Pennsylvania Resource Manufacturing Tax Credit
You’ll be awarded a tax credit of five cents per gallon of ethane bought and utilized in producing ethylene, with the condition that the company invests at least $1 billion in capital and creates a minimum of 2,500 full-time jobs while constructing the manufacturing facility.
Coal Refuse Energy and Reclamation Tax Credit
Certain facilities that generate electricity by using coal refuse to generate power, control acid gases for emission control, and use ash produced by the facilities to reclaim mining-affected sites, may be compensated with this tax credit.
PA LLC: Disadvantages
While an LLC in Pennsylvania may be a fantastic option for many entrepreneurs, it doesn’t come without its downsides—and in the context of certain types of businesses, it isn’t feasible or even possible. Let’s list the disadvantages:
- More expensive than a Sole Proprietorship or Partnership in both formation and maintenance.
- Annual report fee
- An LLCs’ income is subject to self-employment tax due to profits passing through directly to its member(s). A corporations’ shareholder only pays such taxes on their salary and not on the corporate profits. For this reason, depending on your business, an LLC may not be the most tax-friendly entity for you.
- Employee benefits such as medical insurance may get treated as taxable income in an LLC. For employees of a corporation, it may not be the case.
- Raising capital may be limited by the inability of an LLC to issue stocks and bonds like corporations, discouraging investors.
Businesses that can’t start an LLC in Pennsylvania
Certain types of businesses are ineligible for PA LLC formations, some of these include:
- Real Estate Investment Firms
- Rare Coin or Stamp Dealers
- Banks, Finance, Leasing, and Insurance Firms
- Pyramid Sales
- Charities
- Churches
- Loan Packaging
- Multi-channel Distribution
Should the legal formation of an LLC get handled by Attorneys or an LLC formation service?
| Spiegel & Utrera, P.A. |
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| Certificate of Organization |
| Company Seal and Book (LLC Kit) |
| Company Minutes |
| LLC Ownership Register |
| Banking Resolution |
| Membership Certificate |
| Preliminary Name Search |
| Customer Support |
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| LLC Formation Service |
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| $275.00 |
| Includes State Filing Fee |
| Customer Support |
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“The formation of your PA LLC is a legal process; would you go to a mechanic for a medical procedure?”
Form a PA LLC by Phone: call our law firm at (800) 603-3900
Starting an LLC in PA: Business Attorneys VS LLC Formation Services
In all fairness, LLC formation services have their place, but the concern lies in their inability, by law, to give you legal advice based on your business and personal needs. There are many cases of entrepreneurs unwittingly piercing the corporate veil and losing their limited liability protection for not having a map and compass of their judicial landscape. When forming and operating an LLC in Pennsylvania, those misinformed and misguided often overlook the legal implications and pitfalls concerning their business endeavors, such as transferring assets to other entities, failing to maintain proper separation of business and personal assets or identities, and failure to follow corporate formalities.
At no extra cost, Spiegel & Utrera, P.A. includes legal and business advice along with your PA LLC formation. You’ll speak to attorneys with a combined 175+ years of legal experience and cover all your bases.