namech

Last Updated on November 9, 2021

How to Start a Business in Pennsylvania

Pennsylvania is a great place to do business. With the nation’s 6th largest economy, combined with a relatively low cost of living, PA entrepreneurs have a lot to be thankful about in the state. From Pittsburgh to Philadelphia, the state is brimming with opportunity! 

Do you want to start a new business in PA? This guide is for you. We’ll explain how to start a business in Pennsylvania, covering everything from the initial planning stages all the way through to the day-to-day operations of the business. Let’s get started!

First and foremost, you’ll need to decide what kind of business you want to start. Chances are you already have something in mind, but if not, here are some things to consider:

  • What are you talented or naturally skilled at? Could this talent make you well suited to a certain type of business?
  • What business does your community need? Have you talked to people to find out?
  • What are you interested in? Can you combine any of your passions with a business idea?
  • Is this going to be a full time business, or more of a side hustle?

These are questions to ask yourself when deciding on a business idea. Once you have decided, move on to the next step.

Now it’s time to start planning. This means coming up with a business plan, naming your business, researching locations, and more. There’s a lot to cover here, so let’s break it down:

Select a business name

Choosing the name for your business is the first concrete step that you will need to take in this section. You may already have a name in mind, but you’ll need to confirm that it’s still available and that it meets all the Pennsylvania business name rules. If you don’t have a name in mind, start brainstorming ideas — and try to think of a name that is memorable and relevant to your business/industry. 

To see if your desired name is available, you can conduct a PA business entity name search online. This will show you a list of similar names that are already registered in the state. The name you choose must be unique, meaning you must find a name that is not already in use by another PA company. 

In addition to finding a unique name, there are other rules to be aware of, including: 

  • Names for LLCs need to contain “limited liability company”, or select approved abbreviations such as “LLC” or “L.L.C.”
  • Names for corporations need to contain “corporation”, “incorporated”, or select approved abbreviations such as “corp” or “inc”
  • Other rules may apply. 

When you find a name that you like and wish to register, you can move onto the next steps. If you’re not ready to actually form your company yet, the alternative is to reserve the name. This saves the name for a period of 120 days, giving you time to think about it (while preventing another business from registering the name). 

Pennsylvania trade names

Pennsylvania allows for the use of “trade names”, otherwise known as fictitious names or DBAs. A fictitious name is a name that an already established business can register, and then use to do business with. For instance, if you register a company called “ABC, LLC”, you can also register a fictitious name of “Pittsburgh Painting”, if that name is available. Essentially, fictitious names offer your business more versatility in terms of branding and marketing strategies. Learn more here

Register a domain name

Once you choose a name, you should immediately register a domain name for your new business. In most cases, getting a .com domain name is ideal, but there are many other extensions (.biz, .net, etc.) that are worth considering. 

You can use a tool like Namechk to search for an available domain name and find a great deal on the registration cost. You may find that your desired names are taken, so you may need to get creative. 

Complete market research

Once you have an idea, you’ll want to do some market research. You want to gain a better understanding of who your customers – and competitors – are. You can achieve this by conducting online research, running focus groups, sending out surveys, and more. There are also companies that can help you complete market research, for a fee. 

Select a business location

Unless you plan to run a remote/virtual business, you will need to find a physical location for your company. Research commercial property in your area, and take note of typical costs. For customer-facing businesses (retail and some services), location is very important, so take your time in selecting the right area for your business. 

Create a business plan

You will now need to create a detailed business plan for your new venture. This plan is helpful for your own purposes, and will also be necessary in order to obtain funding from a bank. A good business plan should contain these elements:

  • Finances: How much funding does the business need to get started? How many sales does it need each month to break even on expenses?
  • Product: What do you plan to sell? Is it a product or a service? What problem does your business solve, and how is it distinct from your competitors?
  • Marketing: How will you drive sales? What marketing and sales efforts do you plan to employ? How much money will you set aside to fund marketing efforts?
  • Staff & partnerships: How many people will you need to hire, and what skill sets do they need to have? Will you have any partnerships or arrangements with other local businesses? 

If you need help, you can find business plan templates online that will help walk you through the steps you need to take to draft a detailed business plan. If you plan to seek funding, you may also wish to call your bank to see what they require in terms of business plans.

Before you form your business as a legal entity, you will need to decide which business structure you will use. There are a few different types of businesses, each with its own pros and cons.

Sole proprietorship

Sole props are single-person operations. Examples include freelancers, gig economy workers, and consultants. A sole proprietorship business is very easy and inexpensive to form, and tax reporting is also fairly simple. As a sole proprietor, your business taxes are reported as part of your personal tax return.

The downsides to a sole prop are that you cannot hire employees, and you don’t have the legal liability shield that something like an LLC or corporation would provide. 100% of the debts and liability of a sole proprietorship go to the sole owner: you. 

Partnership

A general partnership is an unincorporated business structure similar to a sole proprietorship, except with two active owners/participants. Partnerships do not have liability protection. 

Limited Liability Company (LLC)

A limited liability company, or LLC, is a popular choice for business owners because it provides liability protection to the owners. It separates the business from the owners, which means the personal assets of owners will not be at risk if the company gets sued or goes into bankruptcy. 

LLCs are also a bit easier to form than corporations. Even so, there is definitely more work involved with an LLC than there is with a sole proprietorship. 

Corporation

A corporation is owned by its shareholders and is a separate entity. There are a few different types of corporations (C-corp, S-corp, etc), with the main differences being the way they are treated tax-wise. 

Corporations are more regulated than LLCs, which makes them more attractive to outside investors. For this reason, most large companies are corporations. The downside is that it takes more effort, and more paperwork, to form a corporation. 

Nonprofit

A nonprofit is a legal entity that is set up with charitable status, meaning that its goal is not to make a profit, but rather to address a certain cause. Nonprofits are funded by donations, rather than investors, and are subject to many regulations. They are exempt from most forms of taxation, although tax returns must still be filed. 

Next, it’s finally time to actually register your new company as a legal business entity. You could choose an LLC, corporation, or another structure (see above for details). Regardless, you will need to submit some paperwork with the PA Department of State, either online or through the mail. 

There are several important steps to this process, but the specifics differ depending on the business structure you choose (more on this below).

If you want help, it’s a good idea to use a business formation service. These paid services charge entrepreneurs a small amount for assistance with the business formation process. Companies like Northwest Registered Agent, ZenBusiness, and Incfile are budget-friendly options with great service. 

A formation service walks you through each step of the process while providing helpful information along the way. This can save you time and make the process much more efficient (and accurate). It’s optional to use a service; but for most entrepreneurs, it’s well worth the cost. 

If you do decide to complete the process on your own, the basic steps typically include: 

  1. Naming your company
  2. Choosing a registered agent (this individual/company is responsible for receiving legal documents on behalf of the business)
  3. Filing paperwork with the state
  4. Obtaining business licenses and permits if necessary 
  5. Applying for an EIN from the IRS

More specific steps for each popular business entity are listed below.

Form a Pennsylvania sole proprietorship

Follow these steps:

  1. Decide if you will operate under your legal name, or use a trade name
  2. If you use a name other than your own, you may need to register a trade name/assumed name
  3. Apply for a business license and/or other necessary permits from local governments (city/county), as needed
  4. More information here

Form a Pennsylvania LLC

Follow these steps:

  1. Name your new LLC (see notes above)
  2. Choose a PA Registered Agent (or use a service such as Northwest Registered Agent). This Pennsylvania registered agent will be in charge of receiving legal documents, notice of lawsuits, and more on behalf of your company
  3. File the LLC Certificate of Organization online through the PA Business One Stop Shop, or by mail (if filing by mail, you’ll also need to include the Docketing Statement). There is a $125 filing fee (whether filing by mail or online).
  4. Draft an LLC operating agreement
  5. Apply for an EIN with the IRS

Form a Pennsylvania corporation

Follow these steps:

  1. Decide on your desired corporate tax structure (S corp or C corp) 
  2. Name your new corporation 
  3. Choose a Registered Agent for your business (or use a service)
  4. Hold an organizational meeting and appoint directors
  5. File the PA Articles of Incorporation online or by mail (include the Docketing Statement if filing by mail), along with the $125 filing fee
  6. Apply for an EIN from the IRS

Our picks of the best registered agent services

Worry-free services and expert support

Visit ZenBusiness

Transparent and hassle-free

Visit Northwest

Fast and easy way to set up LLC

Visit Incfile

Registering your business and forming an LLC or corporation is an important part of starting your business – but in order to operate legally, you will likely also need to obtain certain permits and/or business licenses

The specifics vary depending on the type of business you are running, as well as your location. For example, restaurants will need health permits, bars will need liquor licenses, and medical service providers will need various professional licenses and federal permits. You will need to research the specifics that relate to your business type.

There are different requirements at each level of government:

  • Local: Cities and counties may require certain business licenses or permits. Contact your county clerk for details.
  • State: Pennsylvania may require additional permits and/or licenses in order to operate legally in the state. Check the Licensing Page on the Pennsylvania Department of State website for more information. 
  • Federal: Federal permits/licenses may be required for certain regulated industries, such as construction, medicine and legal services. Check the Small Business Administration (SBA) guide for more details. 

At this time, you should also apply for an Employer Identification Number (EIN). An EIN is a federal tax ID that is required to hire employees. You can apply for an EIN online with the IRS – the application is free and quick.

For most businesses, some startup funding will be necessary in order to get started. In step #2, you should have calculated your funding needs while drafting a business plan. Use this information to determine how much funding you need to raise.

For bootstrapped companies, you may be able to get by with your own personal savings, or some seed investments from friends and family. If your funding needs are small, this is likely your best route.

If your business plan indicates that substantial funding is needed, you will likely need to apply for a loan and/or a grant.

  • Small business loans are offered by banks, credit unions and other lenders. They can range from as little as a few thousand to hundreds of thousands. Specifics will depend on your business, as well as your personal creditworthiness. Most small business loans are issued in a lump sum, and paid back on a monthly basis, with interest.
  • Small business grants are offered by government agencies and some nonprofits. They are essentially business loans that don’t need to be paid back – but they usually have substantial fine print. It’s worth looking into, however, as there may be grants available, particularly for businesses serving an important social need, or for underprivileged entrepreneurs starting their first business. 

Beyond securing funding, there are other routine tasks that you need to take care of to get your business’ finances in order. This includes:

  • Opening a business checking account. You should have a separate business bank account that you use solely for business purposes. You can open this account at most banks, credit unions and financial institutions. Call ahead to see what documents will be required to open this account.
  • Open a business credit card or line of credit. This is not strictly necessary, but most businesses can benefit from having a business credit card, and/or a business line of credit. This can be used for day-to-day expenses and purchases, and may also earn you some rewards. 
  • Set up your accounting system. As a business owner, you will need to keep very detailed records about all revenue and expenses. To do this, you’ll want to set up the proper foundation from day one. This could be investing in an account software such as QuickBooks or Xero, hiring a bookkeeper, or at the very least establishing a spreadsheet to track everything. If you do not have any accounting experience, it’s wise to hire a professional to help. 
  • Purchase business insurance. Most businesses should have some form of liability insurance, and potentially other forms of business insurance as well. Insurance policies can help protect your equipment and buildings from costly damage, and help shield your company from liability if a worker or customer is injured or otherwise harmed. Speak with a local business insurance provider to get started.

In this day and age, having a solid web presence for your business is very important. And social media profiles, while important, are no replacement for an actual website. You will want to build a professional business website that you can use to drum up business, inform your customers, and stay connected with your clientele. 

The simplest way to build a website is to use a website builder from a web hosting provider. When you register a new domain name, look for a provider that also offers web hosting and a site builder, so that you can purchase everything at once and get your site set up quickly.

Our picks of the best website builders

An easy-to-use website builder that lets users create attractive online stores.

Visit Square Online

Get online quickly with a domain, hosting, blog, and professional email.

Visit Web.com

The fastest way to create a professional website.

Visit HostGator

Unless you plan to operate a solo business (with you as the only worker), you will likely need to hire employees. Building a good team to run your business is vital, so take your time finding the right people for any available roles you have. 

To hire employees, you will need a federal employer identification number (EIN), which is a free tax ID number issued by the Internal Revenue Service (IRS). You can easily apply for an EIN online through the IRS website. There is no cost to obtain your EIN. 

There are also state-level requirements to satisfy when you hire workers. You’ll need to report the new hire to the state of Pennsylvania within 20 days of the initial hire date. Employers must also register for employee withholding tax and unemployment insurance tax (UC tax). There may be other reporting requirements as well; check with your CPA for details. 

At this point, you also should look into setting up your payroll system – whether you handle it yourself, or use a payroll service. 

Now it’s time to get down to business and engage with the day-to-day activities that are sure to bring your business success. This means marketing your products and services, maintaining good relationships with your return customers, and setting yourself apart from the competition.

Still have questions about running a business in Pennsylvania? Here are some answers to frequently asked questions.

What are some business resources in Pennsylvania?

PA entrepreneurs have access to many useful small business incubators, consultants, nonprofits, and other business-boosting resources. Perhaps the best place to start is the Pennsylvania Small Business Development Center (SBDC), an organization that offers no-cost business consultations, online training resources, and more. SCORE is a great option, with offices in Pittsburgh and Philadelphia. Finally, the US Small Business Administration is another great option, with several locations throughout the state (and many nationwide online resources).

What is the minimum wage in Pennsylvania?

The Pennsylvania minimum wage is $7.25 per hour, which is the same as the federal minimum wage. This wage rate applies to most employees, although there is an exception for workers who earn tips. Tipped employees can be paid $2.35 per hour, so long as their total wages (wages + tips) equal the $7.25 per hour minimum wage. 

Keep in mind that it is possible for individual cities or counties to impose their own minimum wage laws that may exceed Pennsylvania’s minimum wage. Check with local government officials in your area to ensure your business is compliant with all local rules.

What business taxes does Pennsylvania have?

PA firms will need to pay a number of state and local taxes in order to operate in Pennsylvania. This includes PA sales tax (6% on the state level, plus applicable local sales taxes), and others. 

Firms with employees will need to pay employee withholding tax and unemployment insurance tax (UC tax). Corporations will also be subject to corporation net income tax. And there are a variety of business taxes that only apply to certain business types and industries. Check with the Pennsylvania Department of Revenue for details.

How do I dissolve an LLC or Corporation in Pennsylvania?

To close a Pennsylvania company, you must file voluntary dissolution paperwork with the state. You’ll also need to close your tax accounts, send final paychecks to your employees, and more. See this guide for details. 

The process of closing a business can be complex; it’s recommended to work with a CPA or attorney.

shape