Starting a business in Pennsylvania brings the excitement of new opportunities—but also the risk of costly mistakes that can undermine your plans. Whether you’re launching an LLC, corporation, or partnership, a smooth and well-thought-out formation process lays the foundation for long-term success and compliance. At Spengler & Agans, our business law attorneys have years of experience in Pennsylvania. We are aware of the common missteps and practical strategies to avoid them.

1. Failing to Choose the Right Entity Type

Mistake: Many entrepreneurs and new business owners rush into formation without understanding the differences between LLCs, corporations, and partnerships. Choosing the wrong structure can lead to tax complications, unwanted liability, or operational headaches.

How to Avoid:

  • Assess Ownership, Liability, and Tax Goals: LLCs offer flexibility and liability protection; corporations are preferred for larger ventures, high-growth trajectories and courting outside investment; partnerships are best for small teams with full trust among owners.
  • Consult Legal and Tax Advisors: Professional tax guidance is essential—state and federal rules can be complex.  Finding a good CPA before they’re needed can be invaluable.
  • Don’t Rely on Templates: Generic advice may not fit your specific plans or Pennsylvania regulations.

2. Overlooking Proper Registration Requirements

Mistake: Skipping or mismanaging Pennsylvania registration steps, such as neglecting to file a Certificate of Organization (for LLCs) or Articles of Incorporation (for corporations) with the Department of State.

How to Avoid:

  • Follow State Filing Procedures: Use the Department of State’s website for up-to-date forms and instructions.
  • Include All Required Information: Ensure your formation documents list the correct business name, address, registered office, organizer details, and effective date.  Failure to include all required information will likely result in the Department of State rejecting your filing and necessitate revising and resubmitting the documents.
  • Keep Proof of Filing: Retain stamped or certified documents for banking and legal purposes.  While many documents can be ordered from the Department of State website, keeping copies on hand (in an organized manner) can save time and filing fees.

3. Picking a Noncompliant or Unavailable Name

Mistake: Many businesses unknowingly select names that are too similar to existing Pennsylvania entities or that violate restricted word rules (e.g., using “bank” or “insurance” without approval).

How to Avoid:

  • Search the State’s Database: Confirm availability before filing—avoid legal disputes, wasted fees, and unnecessary delays.
  • Abide by Naming Rules: The name must end with the proper designation (“LLC,” “Inc.,” etc.) and steer clear of restricted terms.  Pennsylvania restricts the use of terms in names that imply government affiliation, other business entity types, regulated professions (without authorization), offensiveness, misleading purpose, or similarity to existing business names
  • Consider Name Reservation: Reserve your chosen name while you complete the paperwork (currently $70 fee for 120 days).

4. Forgetting the Registered Office or Agent Requirement

Mistake: Pennsylvania (like most other states) mandates every formal entity to maintain a registered office or agent for receiving legal documents.  Listing a PO box or omitting this step is a violation.

How to Avoid:

  • Use a Physical Address in Pennsylvania: A commercial registered office provider (CROP) is acceptable and offers privacy.
  • Notify State of Changes: If your office moves, file the change promptly to avoid administrative dissolution and missed correspondence.

5. Operating Without a Solid Internal Agreement

Mistake: Failing to create an operating agreement (LLC) or bylaws/shareholder agreement (corporation) often leads to disputes among owners or ambiguity regarding management, profit splits, and exits.

How to Avoid:

  • Draft Clear, Customized Documents: Don’t rely on cookie-cutter templates, which may omit provisions that would help, include provisions that are inapplicable, or just be poorly drafted. Clarify roles, responsibilities, and decision processes.
  • Consider How Things Could Go Wrong: While not fun or necessarily intuitive, consider all the different ways things could go wrong when drafting the formation documents.  When things go right, the documents may not be needed; when things go wrong, they will be essential.  As a colleague told me, draft for the divorce, not the marriage.
  • Review With Legal Counsel: Ensure your documents align with Pennsylvania law and complete them in the early stages of formation.  Get documents signed when everyone is happy.
  • Regularly Update Agreements: As the business grows, amend as needed.  What’s right for you as a startup may not be the right fit for you as you take on investors, shift roles, or grow in scale.

6. Ignoring State and Local Tax Registration

Mistake: Some owners believe that federal EIN registration is enough—missing required state registrations for sales tax, payroll, and employer withholding, or the crucial PA-100 business tax registration.

How to Avoid:

  • Register for State Taxes Early: Use the Pennsylvania Department of Revenue’s PA-100 portal right after formation.
  • Consult Local Authorities: City and county governments may have additional registration or licensing requirements.
  • Monitor Changes: Business activities and expansion can trigger new tax obligations.

7. Skipping Necessary Permits and Licenses

Mistake: Operating without the proper licenses, especially in regulated fields like food service, healthcare, or construction, can result in fines or forced closure.

How to Avoid:

  • Research Applicable Licenses: Use state boards and local agencies to identify requirements before launching.
  • Renew Licenses Promptly: Missed renewal periods cause interruptions in business and potential penalties.

8. Poor Recordkeeping and Compliance Monitoring

Mistake: Businesses often neglect routine compliance, forgetting to file Pennsylvania’s decennial report (required every 10 years), failing to update records, or overlooking changes in ownership or address.

How to Avoid:

  • Create a Compliance Calendar: Track annual reports, decennial report due dates, license renewals, and tax filings.
  • Store Documents Securely: Maintain organized records—operating agreement, state filings, tax records, meeting minutes (if applicable).
  • Stay Current on Law: Regulatory changes can affect your obligations; review policies periodically.

9. Underestimating Liability Risks

Mistake: Failing to separate personal and business finances, signing contracts in an individual capacity, or omitting professional liability insurance leaves owners vulnerable.  Signing personal guarantees can also expose your personal assets to the company’s obligations and liabilities.

How to Avoid:

  • Open Business Bank Accounts: Keep finances distinct.  You will likely need a signed operating agreement and an EIN letter for this.
  • Sign Contracts as the Entity: Always use the company’s full legal name; NEVER sign contracts in your individual capacity.
  • Consider Insurance: Consult a business insurance provider for coverage that fits your field and risk profile.

Forming a business in Pennsylvania is a significant milestone—but minor errors can lead to lawsuits, tax penalties, or even dissolution. Avoiding these common mistakes takes planning, sound legal advice, and ongoing attention to compliance. Experienced law firms ensure your business is built on a solid foundation, minimizing risks and enabling growth. If you’re ready to review your company’s structure for pitfalls, contact Spengler & Agans for tailored support and peace of mind.