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Pennsylvania LLC
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Pennsylvania LLC - Advantages and Disadvantages
Advantages of Limited Liability Company
- Limited Liability: Owners of a LLC have the limited liability protection of a corporation.
- Flexible Profit Distribution: Limited liability companies can select varying forms of distribution of profits. Unlike a common partnership where the split is 50-50, LLC have much more flexibility.
- No Minutes: Corporations are required to keep formal minutes, have meetings, and record resolutions. The LLC business structure requires no corporate minutes or resolutions and is easier to operate.
- Flow Through Taxation: All your business losses, profits, and expenses flow through the company to the individual members. You avoid the double taxation of paying corporate tax and individual tax. Usually, this will be a tax advantage, but circumstances can favor a corporate tax structure.
Disadvantages of Limited Liability Company
- Limited Life: Corporations can live forever, whereas a LLC is dissolved when a member dies or undergoes bankruptcy.
- Going Public: Business owners with plans to take their company public, or issuing employee shares in the future, may be best served by choosing a corporate business structure.
- Added Complexity: Running a sole-proprietorship or partnership will have less paperwork and complexity. A LLC may federally be classified as a sole-proprietorship, partnership, or corporation for tax purposes. Classification can be selected or a default may apply.
By Pennsylvania and other state law in order to proceed with forming a llc, you need to prepare a written abstract detailing your llc purpose, the names of your initial Pennsylvania LLC members, the name and address of your Pennsylvania registered agent, the details of which will be introduced into the body of your LLC operating agreement and related Pennsylvania LLC formation documents assembled for application to the state of Pennsylvania.
Pennsylvania’s Business Tax Climate Ranks 22nd
Pennsylvania ranks 22nd in the State Business Tax Climate Index, which measures the impact on business of five major elements of the tax system: the percentage of income taken by all taxes, the individual income tax rates, the corporate income taxes, the sales tax rate, and the complexity of the tax system. Neighboring states ranked as follows: New York (49th), New Jersey (34th), Delaware (18th), Maryland (21st), West Virginia (47th) and Ohio (29th).Pennsylvania’s State/Local Tax Burden below National Average
Estimated at 9.4% of income, Pennsylvania’s state/local tax burden percentage stands at 35th nationally, below the national average of 10.0%.
Pennsylvania’s Individual Income Tax System
Pennsylvania's personal income tax system consists of a flat rate of 3.07% on all personal income. Pennsylvania's top rate ranks 2nd lowest among states levying an individual income tax. However, many Pennsylvania taxpayers also pay a local tax on earned income, commonly 1% or 1.5%, with Philadelphia well above that. Pennsylvania's 2004 individual income tax collections at both state and local levels came to $832 per person, which ranked 18th highest nationally.
Pennsylvania’s Corporate Income Tax System
Pennsylvania’s corporate tax structure consists of a flat rate of 9.99% on all corporate income. Among states levying corporate income taxes, Pennsylvania’s rate ranks 3rd nationally (behind Iowa and North Dakota). In 2001, corporate tax collections reached $114 per capita, ranking it at 16th nationally.
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