Starting a business in Pennsylvania is a smart choice.
With an increasingly favorable tax rate, high rate of business success and access to talented workers and transportation, Pennsylvania is an ideal place to consider when looking to launch a small business.
For business owners, there are many important decisions to make regarding your business. Let’s take a look at the business climate in Pennsylvania, the types of business structures you can choose, and some of the benefits of the LLC business type.
Optimistic Business Climate in Pennsylvania
One study recently ranked Pennsylvania 12th in the nation when it comes to the best states for small businesses. The study noted the following as key benefits to locating a business in the state:
- Pennsylvania has a 5-year survival rate of 54.2 percent for small businesses, the 7th best in the nation
- The state has $6.4 million in small business loans per 100,000 residents
- Venture capital investments total $7.4 million per $1 million in gross domestic product
- Many incentive programs offered by the state – 81
- A favorable corporate tax rate of 8.99 percent
The Keystone State has many attractive features as a business-friendly location. Here are some of the key benefits as they relate to the Pennsylvania business climate.
The 6.3 million members of the Pennsylvania workforce bring knowledge, education and experience to their work. The state ranks in the top 15 for technology and innovation and is the 8th-largest technology employer in the nation. It is the 5th largest state for STEM graduates and has two cities, Philadelphia and Pittsburgh, in the top 25 for startups.
Its location in the mid-Atlantic gives Pennsylvania a major geographic advantage. With multiple major international airports and rail lines, there are ample opportunities for convenient travel, both domestically and worldwide.
Pennsylvania is the only state in the nation with port access to the Atlantic Ocean (Philadelphia), Gulf of Mexico (Pittsburgh) and Great Lakes (Erie).
Pennsylvania is a one-day drive for almost 40 percent of the U.S. population and 60 percent of the Canadian population.
A strong infrastructure will only get stronger in the coming years. The state has invested $61.9 billion for infrastructure improvements to roads, airports, transit, bridges and railroads. The state has the highest number of operating railroads – 64 – in the country and eight airports with service to the West Coast, six of which are international airports. The state is in the top 10 nationally in volume of goods moved through its ports.
Top Educational Institutions
A robust state education system and some of the world’s best private colleges and universities has meant an exceedingly well educated, well trained and well skilled population.
Pennsylvania is home to 7 of the top 100 universities in the nation, according to U.S. News & World Report, and 11 of the top liberal arts colleges. The state ranks 5th nationally in the number of STEM graduates. In total, there are 250 postsecondary institutions in Pennsylvania.
The investment in education is a throughput in the state, with $840 million invested in K-12 education in the past two years.
Quality of Life
There is something special about living and working in Pennsylvania. It has the lowest cost of living in the northeast and an average home price of $161,000 (compared to $202,000 in the nation), according to Zillow. Of states that issue a personal income tax, the state has the second lowest in the United States, 121 state parks that are free to the public and seven professional sports teams.
Starting a Business in Pennsylvania
Businesses have several options when it comes to the business entity they choose when forming the company. Here are the four most common.
The most basic and simple business structure, a sole proprietorship has a single owner. The profits and losses from the business are passed through to the owner’s personal income taxes. The structure does not carry any liability protection.
In a partnership, multiple owners are involved in the business. Like a sole proprietorship, profits are passed through to owners’ tax returns and there are no liability protections. There are different types of partnerships, some of which do offer minimal liability protection to some partners.
Corporations are legal entities on their own, separate from their owners. A C corporation is the default corporate entity type. C corporations and their owners are taxed twice, once at the corporate level at the corporate tax rates and then dividends are taxed on individuals’ returns.
S corporations, by contrast, are only taxed once, on the combined earnings of owner-employees and any pass-through profits generated.
Limited Liability Corporation (LLC)
An LLC is one of the most popular business types, providing the best attributes of other business entities. In an LLC, the company is a separate legal entity, like a corporation. The owners have some limited protection from liability. There is also considerable flexibility relating to how the LLC is taxed and managed.
5 Benefits of Starting an LLC in Pennsylvania
While small businesses have many options when it comes to their business structure, a Pennsylvania LLC has significant advantages over other business types. Here are five of the main benefits to establishing your business as an LLC.
- Tax Advantages and Flexibility
There are two considerable tax advantages to being an LLC. The first is that it is a pass-through tax entity, meaning that the company’s profits and losses are passed through the LLC to its owners.
The business itself is not taxed and its profits are only taxed once. Profits pass directly through to the owners. By contrast, a Pennsylvania C corporation is double taxed. Profits are taxed at the corporate rate on the corporation’s return. Left-over profits are then passed on to owners in dividends, which are taxed again on individuals’ tax returns.
The second tax benefit is flexibility. An LLC may be taxed as either a sole proprietor, partnership, S corporation or C corporation. There are, however, some exceptions. For example, an LLC with multiple owners cannot choose to be taxed as a sole proprietorship.
- Ownership Flexibility
With an LLC, you can choose the way you structure ownership and management of the company.
Owners are called “members in LLC language. You can structure your LLC as a single-member LLC, with one owner who is not taxed separately from the business. You can also structure it as a multi-member LLC, which is taxed like a partnership, Profits and losses are not taxed as the LCC but are rather the responsibility of the members.
Multi-member LLCs can be managed in two different ways. Member-managed LLCs are run by its members while a manager-managed LLC is operated by a manager appointed by the managers.
- Paperwork Simplicity
LLCs require very little paperwork or related expenses. Unlike C corporations, LLCs don’t need to appoint officers, create bylaws, hold annual meetings or record minutes. Simple annual filings often are basic forms that can be filled out and submitted in minutes.
- Liability Protection
The LLC is a separate legal entity. That means that owners are largely protected from exposure, meaning their personal assets are not at risk in the case of a judgement against the business. Note that the liability is limited and does not protect owners from wrongful or illicit acts.
- Increased Credibility
An LLC designation gives your organization added clout and credibility. An LLC, especially when those letters are included in the business’ informal name, is widely considered to be a more formal, established business type.
Setting up an LLC in Pennsylvania is an important process. At Taylor Brands, we help companies establish and grow their small businesses.