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How to Set Up a Legal Business in PA

Starting a business from scratch can be complex, so it’s crucial to have the correct information to guide you. To understand the requirements to start a business in PA, you must decide what kind of business or legal structure you want to establish. Your choices can affect every aspect of your business, including incorporation or registration, management, ownership and finances.

How to Start a Business in Pennsylvania

Here are nine essential things you should know about how to set up a business in PA.

1. Define Your Business Concept

Every business — large or small — begins with an idea. However, to ensure your entity grows and survives the test of time, it helps to develop a solid business concept. In other words, you need to identify the kind of product or service you want to deliver and plan toward it.

First, think about your passion, interests, skills and strengths. You want to build a business model that fits your vision and motivates you to do your best. Second, learn about the industry and try to solve a problem. That way, you can stay competitive by offering a unique service. Third, use the concept to create a business plan that helps you achieve your goals.

Developing a detailed  plan directs you toward your long- and short-term goals as proof of concept for your business’ future success. It explains your strategy and persuades investors to buy into your ideas.

2. Consider the Business and Legal Structure

You can adopt different business structures depending on how you want to manage your operations, assets and liabilities. Here are the most common options.

  • Sole proprietorship: This simple business and legal structure gives you sole control and responsibility over the entity. There is no separate legal personality, which means the business’ assets and liabilities belong to the owner. Thus, you can sue and bring lawsuits in your name and capacity.
  • Partnership: Unlike sole proprietorships, partnerships involve two or more people. In Pennsylvania, you can create general partnerships, limited partnerships, limited liability partnerships and limited liability limited partnerships.
  • Limited liability companies: Limited liability companies are one of the most popular business structures because owners or members have limited liability for liabilities and debts. The business has the legal capacity to sue, get sued and own assets like a person. You can create diverse types of LLCs, including single-member LLCs, member-managed LLCs, manager-managed LLCs, benefit LLCs, restricted LLCs, domestic LLCs and foreign LLCs.
  • Corporations: Corporations are usually complex because they require more paperwork than other business structures. Pennsylvania has two types of corporations for income and tax purposes — C corporations and S corporations. C corporations use the federal income tax rules to assess income with some adjustments, while S corporations follow the Pennsylvania personal income tax rules.

You can incorporate other setups in Pennsylvania, including nonprofits and foreign associations. As the name suggests, nonprofits are primarily for charitable purposes. Foreign associations include LLCs, limited partnerships, corporations and nonprofits formed outside Pennsylvania that have registered to do business in the state.

3. Choose a Business Name

Every business needs a name, especially for identification and branding purposes. When registering LLCs and corporations, you’ll need to choose a name that is unique and dissimilar to another business. You can do a business entity search on the Pennsylvania Department of State website to confirm your preferred name’s availability. Also, you may reserve the name for 120 days after filing a name reservation or transfer of reservation form.

There may be additional requirements depending on the business structure you choose. For example, if you register your business as a limited liability company, you must include the acronym “LLC” in the business name. For sole proprietorships and partnerships, you must file a fictitious name registration if you intend to use a name different from your given name or individual partners’ names. Finally, it’s best to comply with trademark laws to avoid litigation.

4. Register the Business

The type of business structure you adopt determines the registration process and the documentation requirements. For example, incorporating an LLC requires you to file a certificate of organization with the Pennsylvania Department of State, which is not a requirement for sole proprietorships. It is best to consult a professional to advise on the ideal structure, depending on your goals and strategies.

5. Secure Licenses and Permits

The licenses you need depend on the business you will operate. For example, if you plan to sell goods, you must apply for a sales tax license. Professional and business licenses cover multiple areas, such as health, safety and construction, so it helps to contact the Pennsylvania Department of State for answers.

If you have a physical location, ensure it has the correct zoning for the business you want to establish. You can contact your city or town’s zoning or planning department or review local governance laws. Finally, if you plan to run a business from your house, check any applicable homeowners association rules in addition to the municipality zoning requirements to learn whether you can. You may want to purchase additional insurance to cover the cost of belongings you use to run your company.

6. Complete EIN and Tax Registration

The federal employer identification number, or EIN, is a unique number the IRS assigns to businesses with employees. It is helpful for tax identification and assessment purposes. You may want to obtain a EIN even if you do not legally need to because it has other benefits. For example, banks may require you to produce your EIN as a precondition to opening an account in your business’ name. Other companies you transact with may also request an EIN to process payment.

7. Open a Business Bank Account

Even for sole proprietorships, it helps to separate your business accounts from your personal finances. In addition to improving your accounting, using different accounts can help distinguish your assets from the business. It also communicates your professionalism to the clients and companies you transact with.

8. Fund Your Startup Costs

Finance is a crucial part of every business’ success, so it is essential to explore your funding options. There are several modes of financing, including personal savings and loans. LLCs and corporations may also raise funds by selling shares and stock. If you decide to start a small business in Pennsylvania, you can take advantage of numerous financial solutions, such as low-interest loans, grants and other beneficial incentives, to scale your business.

9. Secure Other Relevant Registrations and Certifications

You may require further registration and certifications for access to additional programs, including the following.

  • Getting your Unique Entity Identifier: Businesses interested in taking advantage of federal awards or doing business with the U.S. government require a UEI, a transition from the Data Universal Number System number. Iit enables you to apply for federal grants or loans or bid on government contracts. The System for Award Management issues UEIs to simplify business identification.
  • Registering with the Bureau of Diversity, Inclusion and Small Business Opportunities: The BDISBO is a PA Department of General Service branch that helps small businesses navigate the commonwealth procurement processes and participate in government contracts. It does this by formulating, revising and implementing policies related to certification and verification and liaising with other state agencies.

Partner With CAEDC for Professional Guidance

Incorporating or registering, funding and growing a business can be challenging. At Cumberland Area Economic Development Corporation, we partner with government agencies and businesses in Cumberland County to provide solutions to drive economic development. Our connections include local attorneys and economic development partners to walk you through the steps required. We aim to help you start and scale your business with minimal challenges. Contact us now to learn more about how we can help you succeed in Cumberland County, Pennsylvania!

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