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How to Start a Business in Pennsylvania

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As the sixth-largest economy in the U.S., Pennsylvania offers a lot of opportunities for business-minded residents. The vast majority — 99.6% — of Pennsylvania businesses are small businesses, accounting for almost half of the state’s workforce.

Starting a business in Pennsylvania got a bit easier this year. In May, Gov. Tom Wolf created the Pennsylvania Business One-Stop Shop, a clear and comprehensive online resource to guide would-be entrepreneurs through the process of starting a business in the Keystone State.

How to establish a business entity in Pennsylvania

Establishing a business in Pennsylvania involves various steps, among other things:

  • Planning
  • Choosing a name
  • Registering with authorities
  • Getting the right permits
  • Ensuring tax and insurance compliance

Here are the main steps you’ll have to take and what you need to know about each.

Choose a business structure

Once you’ve got an idea for your business, the next step is to choose the appropriate structure. The main options are sole proprietorships, partnerships (general or limited), limited liability companies (LLCs) and corporations.

Each of these structures is different. If you’re unsure which to pick, ask a lawyer and/or an accountant to help you figure out which best suits your goals and situation. Your requirements regarding registration, costs and filing will depend on which business structure you choose.

Name your business

One of the first steps in creating your business is to make sure that the name you’ve chosen isn’t already being used by someone else. Search the state Department of State’s business name database to see if the name you have your eye on is already registered.

Make sure you write the exact name you’d like to use, with specific spacing and punctuation.

Register your business

New businesses must register with the state Department of State using the PENN File system, unless you’re a sole proprietor doing business under your legal name. You should also register your company’s fictitious name (otherwise known as a trade name) if you intend to use one.

The fee for registering a domestic business is $125 in most cases, plus another $70 fee if you’re registering a fictitious name. However, you might qualify for a filing fees exemption if you are a veteran or reservist starting a business.

The state recommends that you apply for a federal Employer Identification Number (EIN) before registering so that you can use it to identify the business to all state agencies. It’s also essential to make sure any professional licenses you need are up to date before registering.

Certain types of businesses, such as home improvement contractors, may also require special registrations. The state’s One-Stop Shop can help if you want to learn if your type of business needs any particular registrations, permits or certifications.

Hire employees

Once you’re ready to hire, you’ll need to report any of your employees who live or work in Pennsylvania to the Department of Labor and Industry. Learn more about this on the New Hire Reporting Program page.

You’ll also need to fill out the PA-100 Pennsylvania Online Business Enterprise Registration form to provide your workers’ compensation information and register for state taxes, among other things.

Costs of starting a business in Pennsylvania

There are a variety of costs associated with starting a business in Pennsylvania, besides the filing fees you need to pay when registering your business and your fictitious name.

State taxes

Collecting and paying taxes will be part of your business operations as a Pennsylvania business founder. The type of business you own will determine the taxes for which you are responsible.

Here are some of the most common state business taxes.

Sales tax

Sales tax is imposed on retail sales and rentals, among other things. As a business owner, you are responsible for collecting a 6% sales tax from your customers and paying that tax to the state of Pennsylvania. You must also add a 2% local tax on purchases made in Philadelphia and 1% in Allegheny County, where Pittsburgh is located. You will be responsible for sales tax on digital products, too. Some products exempt from sales tax include unprepared food, most clothing, computer services and pharmaceutical drugs, among other things. A 6% use tax must be collected on certain items, such as out-of-state purchases, where sales tax wasn’t collected.

Corporation tax

Corporations doing business in Pennsylvania have to pay corporate net income taxes, and there are also various other categories of corporate taxes, depending on the type of business you run. For example, a gross receipts tax must be paid by companies ranging from private bankers to freight and oil transportation companies, while a gross premiums tax is levied on insurance companies. Make sure to research the tax liability for your particular industry before getting started in business.

Employer withholding

If your business has employees, you are required to withhold Pennsylvania personal income taxes from their paychecks, assuming they live and/or work in Pennsylvania. You also have to withhold federal income taxes from their pay and provide W-2s at tax time. You should register to pay employer withholding taxes via the PA-100.

Unemployment compensation tax

Employers’ quarterly tax payments and the employee withholding tax fund unemployment compensation that protects workers in Pennsylvania in the case of job loss. Employers must contribute to the UC Trust Fund. If you fail to register, you’ll be responsible for a 3% “Increase for UC Delinquency” tax.

Specialized state business taxes

Specific types of businesses are responsible for specialized taxes that other businesses don’t have to worry about. Check the state Department of Revenue’s website to see if there are particular taxes that you owe. Some examples:

  • Cigarette tax
  • Motor and alternative fuel tax
  • Malt beverage and liquor tax
  • Public Transportation Assistance Fund tax
  • Small games of chance

Insurance

Businesses in Pennsylvania need to provide workers’ compensation coverage. Business owners may want to purchase other types of insurance, too.

Workers’ compensation

You are required to provide workers’ compensation coverage to all your employees, which will cover you in case one of them has a work-related injury or illness. Workers’ compensation covers employees’ medical expenses and compensates them for lost wages, as well as provides benefits to survivors in the case of work-related deaths.

Small business insurance

Small business insurance provides customized coverage for the things that your business needs, whether that means general liability insurance, commercial auto insurance, business income insurance or something else. Reach out to a reputable insurance company to discuss your needs and what kind of package might be right for your company.

How to finance a business in Pennsylvania

There are a range of options for accessing funding for your small business in the Keystone State. Local banks such as First Commonwealth Bank, Somerset Trust Co., F&M Trust and Penn Community Bank offer loans to Pennsylvania small business owners. National banks and online lenders are also options for borrowing capital to improve or grow your business.

 Some businesses may qualify for small business grants. Pennsylvania is rich with such opportunities, including the Rural Business Development Grants from the U.S. Department of Agriculture. There are also several programs from the state Department of Community and Economic Development, including Business in Our Sites grants and loans, the Ben Franklin Technology Partners Challenge Grant and Pennsylvania First.

Pennsylvania entrepreneurs may also want to look to private angel investors that service businesses in the state, such as BlueTree Allied Angels, Broad Street Angels, Delaware Crossing Investor Group, Gabriel Investments, Lehigh Valley Angel Investors and Quaker Capital Investments.

Bottom line

Opening a business in Pennsylvania starts with deciding on your business structure, checking that you have a unique name and registering your business with state agencies. Business owners will need to be alert to their tax obligations and must register and insure their employees once they start hiring.

Entrepreneurs will find that there are many financial resources in this large and dynamic economy. With clear direction from the state’s Business One-Stop Shop and potential financial support from lenders or investors, you’ll be on your way to a successful business launch in no time.

 

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