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Editorial 7 MIN READ

Pennsylvania in September 2017: a new LLC Act, a flat filing fee, and a tax code that punches above its weight

$125 to form, no annual report, and a corporate rate most founders never have to pay

The Editors
Staff, Incorporator.org
7 min read Updated
Contents 6 sections
  1. The mechanics
  2. What changed in 2017
  3. Maintenance, or the lack of it
  4. Where Pennsylvania actually costs money
  5. Who this state makes sense for
  6. Sources

Pennsylvania LLC costs $125 to form and, unlike almost every other state, nothing to maintain year over year. That last fact is the one Pennsylvania never seems to get credit for. The decennial report lands once every ten years. The annual bill is zero. What you pay for Pennsylvania you pay on the revenue side, not the compliance side.

This is a guide for someone forming in September 2017, six months into a rewritten LLC statute and twelve months before anyone has to file a decennial. The tax code gets most of the attention in Pennsylvania, and deservedly so. Start there with your CPA. The formation itself is the easy part.

The mechanics

You file a Certificate of Organization — form DSCB:15-8821 — with the Department of State, Bureau of Corporations and Charitable Organizations. The fee is $125, flat. It has been $125 for years and was $125 before Act 170 rewrote the statute around it. You file it together with a New Entity Docketing Statement (DSCB:15-134A), which has no separate fee and exists so the Department of Revenue has a name and address for its files.

The certificate itself is short: the name of the company (which must include "company," "limited" or "limited liability company," or an abbreviation), the registered-office address or the name of a commercial registered-office provider, the name of each organizer, and the effective date. If the LLC is a restricted professional company — medicine, law, dentistry, optometry, veterinary medicine, public accounting, psychology, or chiropractic — the certificate must say so and describe the service. If the LLC is a benefit company, the certificate must say that too. Both statements travel in the certificate under 15 Pa.C.S. § 8821.

Name reservation is optional and costs $70 for 120 days on form DSCB:15-208. Most founders skip it and simply file the Certificate of Organization directly; the name is conclusively reserved by acceptance. Expedited review is available at the Department of State's published service-fee menu: $100 for same-day, $300 for three-hour, $1,000 for one-hour. Routine processing runs roughly seven to ten business days during ordinary weeks.

Unlike the neighboring corporate filing regime, an LLC formation in Pennsylvania carries no newspaper-publication obligation. Corporations have to advertise the intent to file or the filing itself in two newspapers, one of general circulation and one a legal newspaper, under 15 Pa.C.S. § 1307. LLCs do not. This is the single line item where Pennsylvania is cheaper than most states — an incorporator pays three or four hundred dollars in publication costs that an LLC organizer does not.

What changed in 2017

Pennsylvania's Uniform Limited Liability Company Act of 2016 — Act 170, signed by Governor Wolf on November 21, 2016 — took effect on February 21, 2017 for newly formed LLCs, and applies to every Pennsylvania LLC, whenever formed, from April 1, 2017 forward. Act 170 repealed the old Limited Liability Company Law of 1994 (formerly 15 Pa.C.S. Ch. 89) and replaced it with a substantially rewritten Chapter 88 modeled on the Uniform Law Commission's revised ULLCA. This is the first serious overhaul of Pennsylvania LLC law in more than twenty years.

Most founders will never notice the change. The defaults are cleaner, the fiduciary-duty language is explicit, the dissociation and dissolution provisions are closer to the uniform text the rest of the country is converging on, and the operating-agreement carve-outs in § 8815 draw a harder line around what members can and cannot waive. If you have an operating agreement drafted under the 1994 statute, it is worth a read-through with counsel this year — some of its belt-and-suspenders provisions are now default, and a few of its latitudes (particularly around duty-of-loyalty waivers) may read differently under § 8815(c). The new statute also formally recognizes benefit companies and confirms Pennsylvania's nonprofit LLC option.

Maintenance, or the lack of it

Pennsylvania does not require an annual report from LLCs or corporations. It does not require an annual franchise tax either. What it requires is a decennial report, due once every ten years, in years ending in "1." The next filing period runs from January 1 to December 31, 2021. The fee is $70. An entity that has made any other filing with the Bureau in the prior ten years is exempt.

For an LLC organized in 2017, the decennial is four years away and already paid for by any intervening amendment, merger, or registered- office change. The practical effect is that a Pennsylvania LLC can sit on the rolls indefinitely with no annual state touch-point at all. This is unusual. Nearly every other state — Delaware, California, Texas, New York — extracts something every year, whether a report, a tax, or both. Pennsylvania extracts nothing, and then in the eleventh year it mails a $70 postcard.

The quiet part: this is why Pennsylvania entities occasionally lapse into obscurity. Founders move, mail gets forwarded once, and the decennial notice goes to the wrong address in 2031. Pennsylvania will administratively dissolve a company for nonresponse. The remedy is a reinstatement filing and a late fee, but it is easier to set a calendar reminder than to wait for the letter.

Where Pennsylvania actually costs money

The tax code. Pennsylvania's personal income tax is a flat 3.07%, which is among the lowest flat rates in the country and applies to pass-through income from an LLC taxed as a partnership or disregarded entity. That is the good news, and it is genuinely good. The corporate net income tax rate, for an LLC that elects C-corporation treatment under Treas. Reg. § 301.7701-3 or for a true Pennsylvania corporation, is 9.99% — one of the highest in the United States, and essentially unchanged since 1995. Add the federal 35% and Pennsylvania C-corp income is taxed north of 40% at the entity level before the first dividend leaves the company.

For most small LLCs, this is academic. The default partnership or disregarded-entity treatment pushes income to the members, where the 3.07% rate is the only Pennsylvania layer. For an LLC that has taken on capital and is thinking about a C-corp election or a Delaware conversion, the 9.99% rate is the number that matters — and the number that drives a meaningful share of Pennsylvania C-corps to reincorporate elsewhere before a priced round. Pennsylvania also imposes a local earned income tax in most municipalities (commonly 1%), and Philadelphia residents pay a separate wage and net profits tax on top of that. None of this is the Department of State's problem, but it is the reason Pennsylvania's "no annual report" looks more generous on paper than it feels in practice.

Who this state makes sense for

A Pennsylvania LLC is the right default if the business operates in Pennsylvania, the members live in Pennsylvania, and the income flows through to individuals. The 3.07% rate is favorable, the formation is cheap, and the absence of an annual report removes a whole category of failure mode. A local services business, a rental-property holding vehicle, a professional practice organized as a restricted professional company — Pennsylvania is fine to good for all of these.

A Pennsylvania LLC is the wrong default if the business is headed for institutional capital or a sale. Investors will push for Delaware, and the conversion later costs more than organizing in Delaware now. It is also the wrong default if the operating plan involves a C-corp election and retained earnings at the entity — the 9.99% rate is a real tax, and it compounds every year you do not distribute.

For everything in between, Pennsylvania rewards organizers who plan around the tax code rather than the filing calendar. The $125 is the smallest number in the stack. The 3.07% and the 9.99% are the load-bearing ones.

Sources

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