Think big, start small
Why start with an LLC? There are several good reasons. It’s easy to establish, and it’s cheap. It shields your assets while serving as a public statement that you’re in business. And it provides a business framework in which you can test your idea.
If you’re working by yourself, an LLC (Limited Liability Company) shields your assets from lawsuits. If you’re working with someone else, it helps you define your relationship with your partner.
It is an excellent way to protect yourself with a minimum amount of expense and paperwork. Its flexibility allows you to start quickly and then expand your membership if you want. You won’t need to change the way you do your taxes -- profit and loss flow through to your taxes. Finally, the fact that you are signing your agreements as an LLC will make you more credible with a potential client.
In addition to what you’ll find here, there are highly credible “how-to”sites and valuable videos that walk you through the steps.
Establishing an LLC
Establishing an LLC is simple and cheap.
A few things to know:
The cost for a Pennsylvania LLC is $125.
You need to decide on a name and search to make sure it is unique. Check Pennsylvania's LLC name search.
You’ll have to select an official address for your business (called a Registered Office).
You can get forms, information, and file online at PA Business One-Stop Shop.
If you’re working with someone else, write an operating agreement. While not required when filing your LLC, it is an excellent way to define relationships.
After you’ve received approval for your LLC, you must get an EIN (Federal Tax Number) from the IRS, which you’ll need when opening up a bank account for your LLC. You must keep your personal funds separate from your business funds. (While you may ultimately need an accountant to help you with your finances, here's a primer that will give you the basics, especially useful in the first year of business: A Simple Start to Managing Business Finances).
Depending on where you live in Pennsylvania, you may need a business license or permit. Check with your County or City Clerk. Rather than doing it yourself, you can use one of the online services—Legal Zoom, Rocket Lawyer, Northwest, Pennsylvania Registered Agent, or others—with packages ranging from $169 to $1,692. Buyer alert. Don’t be upsold. Here are a few items that companies try to tack on to your LLC filing:
An operating agreement, which can easily be found online
Charging for a Federal Tax Number (EIN) which is free
Charging for a name search which is easily done online
Adding a fee for additional “peace of mind” consulting
Don’t be tempted to over buy unless you feel you need the comfort of “insurance.”
Other Filing Options
There are other options to consider. S Corp, C Corp, and NonProfit (501c3) require more structure, more paper, and more strategic thinking.
If your net revenue is going to be above the “reasonable salary" someone with your skills might be paid, you can consider an S Corp; it can save you some money.
If you’re expecting to acquire investors, a C Corp makes sense.
If you’re planning to fund yourself through grants and donations and your a “social entrepreneur,” consider a NonProfit (501c3).
Don’t jump into any of these. For most creative entrepreneurs, we recommend starting small. As your enterprise grows, you can decide to change your legal form—whether that means having your LLC taxed as an S Corp, converted to a C Corp, or changed to a NonProfit.
Take Away
Start simple with the leanest possible legal structure that offers the protection a small business requires. That will allow you to test your model, to learn more about your audience, to determine whether your product or service appeals to it, and get a feel for your cash flow.
Want advice on filing options? Chat with one of our experts through our free Office Hours program.