As the COVID-19 induced lockdown drags on, there has never been a better time to focus on a side project. For you, that might mean starting a business from home. With all the extra time on your hands, don’t let things like legal terminology or compliance requirements stand in your way.
Each state has different requirements for setting up a business, especially those based in your home. We’ll start with Pennsylvania, a state known for great sports teams and, less so, for its ease of forming a business.
Lots of sites have online checklists, but they’re general in nature and don’t really give you the real scoop on the process. While every entrepreneur has a unique situation (and hopefully a special idea), most can expect to follow these steps.
Research Your Business Idea
OK, admittedly, this step isn’t unique to Pennsylvania. But, before you decide to finally set up a business, do some homework. Make sure you have some sort of business plan in place, even if you don’t know every single detail. What is your product or service? How is what you offer different than the existing options? If you have a local focus, can your community support you? After all, you don’t want to spend all your time setting up a company, only to find that an existing business down the road already does what you want to do.
Choose a Business Structure
When deciding to form a company in Pennsylvania, you’ll need to choose from several basic business structures. What you choose depends on how you want your business to be taxed, how your ownership and management will be structured, and how you plan to grow.
Sole Proprietorship: A sole proprietorship is technically not a legal entity and does not offer the limited liability protection that most entrepreneurs need for their business. In Pennsylvania, a sole proprietorship is a business with one owner. The name of the business must be the owner’s legal name, such as Sarah Smith’s Landscaping. If you want to register your sole proprietorship (or any other entity, for that matter) to do business under another name, you generally must register a fictitious name and publish (yes, like in the newspaper) that you’ve done so.
Limited Liability Company (LLC): An LLC is a very popular choice for opening a business in Pennsylvania. LLCs are easy to set up. They offer limited liability protection to single (or multiple owners). And, LLCs can elect to be taxed as either an LLC or a corporation. In Pennsylvania, LLCs do not have that pesky advertising requirement, either, unlike fictitious names or corporations.
Corporation: A corporation is a more formal structure that has additional records-keeping and maintenance requirements than an LLC. Like forming an LLC, incorporating in Pennsylvania provides liability protections. Owners can elect Subchapter-S status to avoid double taxation of company income — a blessing for many small businesses. For companies that are eyeing raising capital from investors or anticipating making changes to its ownership, the corporation may be the right vehicle.
Pick a Business Name
When opening a business in Pennsylvania, it is important to choose a business name that is distinguishable from other existing businesses in the state. When it comes time to register your business, the state will reject your documents if your name is too similar to another company on record. So, even if you think you have the coolest company name in the state, it’s a good idea to check the public record first.
In Pennsylvania, like many states, you’ll need to add a “designator” to the end of your desired company name, like “LLC,” “Incorporated,” or “Corporation.” Abbreviations like “Inc.” are typically acceptable. What you choose depends on the business structure you selected. If you are forming a nonprofit corporation, Pennsylvania does not require that you affix a corporate designator.
While you’re at it, consider whether your business will need a trademark. Trademarks offer your company invaluable intellectual property protections. Generally, you’ll need to set up your company before applying for a trademark, but you can do a trademark search as part of the planning process.
Select a Registered Office
When you form or register a business in any state, a “registered agent” for service of process is required. In Pennsylvania, this is known as the “registered office.” The job of the registered office is to receive legal and government notices to you, the business owner. You might think, “This is a home-based business, so I’ll use my home address.”
Consider, however, that the registered office has a critical role. You don’t want to miss a service of process delivery because you were running errands or on vacation. And even when you are home, you may not want to receive lawsuits and subpoenas in front of your family or guests. Wise entrepreneurs will choose a reliable Pennsylvania registered agent for their business, which helps them meet state requirements and provides peace of mind.
Register Your Business
Once you’ve decided on a legal name, entity structure, and registered office, it’s time to file with the Pennsylvania Department of State. Pennsylvania has a relatively easy-to-use online filing system. Assuming you prepare and submit all the correct information, you could have your company formed in under a week (though state processing times are always subject to change).
Once you’ve received confirmation that your entity has been officially registered, apply for an EIN for the business. This is your company’s identification number and you’ll use it for the lifetime of your company. It’s super easy and free to obtain an EIN online. Assuming the IRS website is up and running, you can have an EIN within a few minutes.
You may need additional records for your company, such as bylaws or an operating agreement. While there are free templates online, you may need to consult your attorney to draft the requisite documents, resolutions, and memoranda needed to do business.
Apply for Tax Accounts
In Pennsylvania, certain activities are taxed. For example, the sale of products. Before you start conducting taxable activity, make sure you research whether you need to apply for tax accounts. Pennsylvania offers an online portal to Form PA-100, which is the technical name for the form you file to open state-level tax accounts.
Apply for Licenses and Permits
Pennsylvania does not currently have a general business license requirement. At the state level, however, you may find that your industry might require licensure. Many local jurisdictions, like cities and counties, require general operating or home-based business licenses. Again, your business is probably super unique, so there’s no one-size-fits-all checklist here. Be sure to call your city, municipality, and county governments to inquire about licenses and permits. You’ll probably spend most of your time doing research as part of this step, but it’s important to avoid the consequences of running an unlicensed business.
And that’s it! At least from the compliance side of things. Once you have these structural items in place, the world is your oyster. Get out there, make a client’s day, win the business, and start that home-based business you always wanted!
Harbor Compliance does not provide tax, financial, or legal advice. Use of our services does not create an attorney-client relationship. Harbor Compliance is not acting as your attorney and does not review information you provide to us for legal accuracy or sufficiency.
