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What is the difference between Member-Managed and Manager-Managed LLCs?
Both options have pros and cons. Choosing what is best for your business will depend on its size and long-term goals. With a member-managed LLC the members (i.e., owners) share in the decision-making process and take an active role in the day-to-day operations. This is ideal for small or mid-size businesses that do not require a larger, separate management system like a board of directors to operate. This is the default management structure for an LLC in Pennsylvania. A manager-managed LLC is where the member(s) (i.e., owner(s)) of the company delegate operational control to a designated person(s) (i.e., manager(s)) to run the company. This can be done by hiring an outside manager or by selecting one or more of the members of the company to be managers. With this structure, the manager(s) will handle day-to-day business decisions. This is ideal when one or more members within a business want to take on a more passive investor role in the company.
What is an LLC operating agreement?
An operating agreement establishes a business’s financial and managerial responsibilities, including rules, regulations, and other administrative provisions. In Pennsylvania, the operating agreement serves the same function that bylaws serve for a corporation. These agreements will typically cover critical subjects such as ownership, management and voting, capital contributions, membership, distributions, and dissolution. At the very least, an operating agreement provides proof of ownership, which many banks require to open a business bank account. An operating agreement is an entirely private document between the owners and is not filed with the Pennsylvania Department of State nor with any other government agency.
Are businesses required to carry Workers’ Compensation insurance in Pennsylvania?
Workers' Compensation insurance is required for most employers under Pennsylvania law. Workers' compensation insurance coverage is mandatory if your business employs one or more employees (regardless of employee status, number of hours worked per week, or whether the employee is a spouse or child). However, you may be exempt from carrying workers’ compensation coverage in some situations. Particularly, owners of sole proprietorships and limited liability companies are exempt – owners, not any of their employees – since they are owners and not employees.
What are the advertisement requirements when I start a business in Pennsylvania?
Pennsylvania requires corporations and fictitious name registrations to advertise notice of their articles of incorporation or registration of their fictitious name in two newspapers of general circulation in the county where the corporation or fictitious name is located. One of the newspapers must be a legal newspaper, if any. No advertising is required when forming a limited liability company.
What is a Pennsylvania fictitious name?
The premise for fictitious names in Pennsylvania is that the public has a right to know with whom it is doing business. Thus, Pennsylvania law requires any individual, sole proprietorship, partnership, corporation, limited liability company, or other form of association conducting commercial activities under a name other than his/her/its real or proper name to register that name with the Pennsylvania Department of State. It is important to point out that registering a fictitious name does not create a new busine
Can a Pennsylvania corporation or LLC lose its liability protection?
Absolutely. Piercing the corporate veil occurs when a court determines that a corporation or LLC has been improperly used to shield its owners from personal liability, allowing creditors and claimants to pursue the personal assets of the members or shareholders. When a creditor seeks to pierce the corporate veil, the court will look at several factors to help make its determination, including lack of separation between the company and its owners, undercapitalization, failure to observe corporate formalities, commingling of funds, and fraudulent or illegal activities. Additionally, in November 2022, Pennsylvania law was amended to add an annual reporting requirement for corporations, LLCs, and partnerships commencing in 2024. Under this new law, all business entities must file an annual report with the Pennsylvania Department of State or risk involuntary dissolution or cancellation proceedings and loss of their limited liability protection.
Does Pennsylvania require any license or permit to operate a business?
Pennsylvania does not have a general business license at the state level. However, businesses need to be aware of certain occupational license requirements as well as municipal licenses that may be required depending on the type of business or where it is located within the state. Certain occupations, such as barbers, engineers, pharmacists, real estate brokers, etc., do require licenses to operate in Pennsylvania. Also, certain municipalities, such as Philadelphia, require businesses to obtain a license to do business within their boundaries. As used here, the term municipality includes cities, boroughs, townships, and counties.
Does Pennsylvania have annual reporting requirements for businesses?
Beginning in 2025, Pennsylvania now requires most business entities to file an annual report to the Department of State. The new annual report will cost $7 for corporations, limited liability companies, limited partnerships, and limited liability general partnerships. There are different filing deadlines depending on the structure of the business. For example, limited liability companies must file their report by September 30th of each year, while corporations must file by June 30th of each year. Therefore, an LLC that was formed in 2024 will file its first annual report by September 30, 2025.
How do I officially close my business in Pennsylvania?
How to properly dissolve or terminate your business in PA depends on many factors. In all cases, you will need to satisfy all the debts of the business, obtain tax clearance certificates from the Pennsylvania Department of Revenue and the Pennsylvania Department of Labor, and file a Certificate of Termination or Articles of Dissolution, whichever the case may be. Failure to close your business properly can put you and your business at risk – both financially and legally.
What is the Corporate Transparency Act?
The Corporate Transparency Act is a federal law recently passed by Congress. Under the new law, many businesses must submit a Beneficial Ownership Information (BOI) Report to the US Department of Treasury's Financial Crimes Enforcement Network (FinCEN), providing details identifying individuals who are beneficial owners - the individuals who ultimately own or control the business. Filing is easy and free of charge. BOI Reports are not an annual requirement; unless a company needs to update or correct information, a report must only be submitted once.
