Benefits of Forming an LLC in Pennsylvania

LLCs  in Pennsylvania

Limited Liability Company in Pennsylvania

There are many benefits to forming an LLC in Pennsylvania.

When setting up a new business, it is critical to choose the correct structure.  One popular type of structure here in Pennsylvania is the LLC, or Limited Liability Company.

Why an LLC?

Limited Liability Companies provide protection from personal liability. In other words, if the owners are sued, barring certain exceptions, their personal assets are protected from acts or omissions of the LLC and its employees. Unlike corporations, Limited Liability Companies are called “pass-through” tax entities. This means that the owners report the profits and losses of the LLC on their personal tax returns as opposed to the organization itself. This makes taxes easier. In addition, once an LLC is created, the process of running it is much easier than many other types of businesses. Another nice aspect of the Limited Liability Company is that there need only be one owner. An LLC is a good option for an individual who is going into business, but it is flexible enough that it can have several or even many owners.

Exceptions for Limited Liability?

There are times when an LLC will not provide protection to its owner(s).

  1. First, the LLC must be treated as a separate legal entity. It is critical to keep the finances of the LLC separate from the finances of its owner(s). If the owner of the company is mingling his personal assets with the business’ assets, a court may find that the LLC exists in name only. In this case the personal assets of its owners can potentially be accessed through a lawsuit.
  2. Second, if the owner of an LLC personally injures someone, her personal assets might be vulnerable.
  3. Third, if your Limited Liability Copany has employees and the owner(s) do not properly deposit taxes withheld from its employees’ wages, the owners’ personal assets can be vulnerable.
  4. Fourth, if the owner(s) intentionally engage in fraudulent, reckless or illegal behavior, their personal assets might be made available to make the harmed business or individuals whole.
  5. Fifth, if an owner personally guarantees a business loan or debt, then he will remain personally liable, should the LLC not have the funds to pay and default.

Setting up an LLC

In order to set up an LLC, you are required to file certain forms with Pennsylvania. The forms don’t seem complex, but making sure to complete them properly, as well as making sure that the business’ finances are set up correctly, are critical. It is easy to make a mistake, something you don’t want to do when you are just getting started.

Understanding LLC Taxes

In many ways, taxes for LLCs are easier than other business entities. An LLC is not required to pay the same taxes as other forms of businesses. Keep in mind though, that there are still forms you must complete and it is critical that the owners of the LLC file their personal taxes properly.  In addition, it is important that you handle your employment taxes properly. This is why it is best to understand, from day one, the specific obligations inherent in being the owner of an LLC, especially one which has employees.

Managing an LLC

LLCs do not require the sort of formal reporting required by corporations. If an LLC is small, normally all of the owners participate equally in the management. As it grows, it is common for different owners to have different amounts of responsibility. It is important to have an operating agreement for your company. Not because the law requires one, but because if there are ever issues, you will have set out rules for dealing with them. In addition, it is best to use a written document to spell out:

  • Handling of profits and losses
  • Managing when someone leaves or a new person comes in
  • The organization’s management structure and individual responsibilities
  • Your preferred operating rules, as opposed to defaulting to Pennsylvania’s rules.

Avoiding confusion and misunderstandings are always best when running a business. Having an operating agreement can frequently help the owners of an LLC avoid court during disputes, or provide a framework for resolving disputes if litigation should become necessary.

Interested in Forming an LLC in  Central Pennsylvania?

If you are in Central Pennsylvania and are considering forming a Limited Liability Company, contact Hoffmeyer & Semmelman. We have substantial experience in helping business, small and large, set up their organizations.