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Why form an LLC?

A Pennsylvania limited liability company (“LLC”) is a favorite business structure for those looking to turn their hobby into a revenue producing business. The main reason why an LLC is so attractive to business owners and entrepreneurs is two-fold. First, an LLC provides maximum legal protection for its owners against claims or lawsuits. Because an LLC is recognized as a separate legal entity in Pennsylvania, its owners are not personally liable. This means an owner’s personal assets are not subject to collection by creditor of the business. We live in a litigious time. An LLC will protect your home and other personal property. Secondly, an LLC is not subject to burdensome and complex corporate requirements. This means a new business owner can focus on the business at hand, rather than the administrative headaches of corporate formalities. Lastly, an LLC may have just one (1) owner – another reason why an LLC has become so popular amongst entrepreneurs and business owners.

Forming a limited liability company involves filing the necessary legal documents with the Pennsylvania Department of State. The Certificate of Organization and Docketing Statement formally register the business in Pennsylvania as well as preventing others from using the same business name. In addition, an Operating Agreement will detail the internal operating guidelines for the business as agreed to by all the owners. For example, where the owners have a disagreement the operating agreement will explain how the decision gets made and who gets to be part of the decision-making process. The agreement will further state the business address (no P.O. Box allowed), name(s) of its owners (called “members”) and its business purpose (must be a “lawful” purpose). Other than certain additional filing requirements and annual renewal fees charged to professional organizations (lawyers, doctors, dentist, pharmacist), there is no limitation as to who can form an LLC and/what types of businesses are eligible.

You will also need to think about getting an Employer Identification Number (EIN) from the IRS in order to open a bank account and begin operations. I would also recommend meeting with your accountant prior to officially starting the business and educating yourself about taxes and the need for good bookkeeping. You may be surprised what is and what is not considered a deductible business expense.

We have formed many LLC’s over the years and enjoy helping our clients attain their business goals. Call today and turn your hobby into an income producing business!